Business and Legal Insights

Another new commercial lease case, another instance of drafting being the deciding factor.  We’ve looked at cases where drafting affected guaranties (here and here), exculpatory clauses, remedies, and how to calculate renewal rent.  To be clear, cases turning on lease drafting are not necessarily borne of drafting errors.  But the specific words the parties use matter.

In Dezer Intracoastal Mall, LLC v. Seahorse Grill, LLC, the landlord lost in the trial court and on appeal because of a single clause in the lease.  The dispute focused on the tenant’s share of “Operating Expenses,” a defined term in the lease.  Under the lease, the tenant was obligated to pay its proportionate share of Operating Expenses, less any contributions to Operating Expenses that the landlord received from anchor and outparcel tenants.  The lease had a rider setting Operating Expenses at 3% above the prior year’s Operating Expenses, “notwithstanding the actual amount of Operating Expenses otherwise allocable to the Leased Premises.”  Notably, the Lease had a provision stating that if a provision in any rider to the lease conflicted with a lease provision, the rider provision controls.

The landlord sued the tenant for eviction and for failure to pay its full share of Operating Expenses.  Both parties argued in the trial court that the lease was unambiguous.  The trial court ruled for the tenant, enforcing the 3% increase in Operating Expenses.  The amount of Operating Expenses was to be calculated at 3% above the prior year’s expenses.  The court stated that to rule otherwise would “completely eviscerate” the rider language.  As a result, the trial court found that the tenant paid all amounts due.

The appellate court agreed with the trial court, finding that the trial court correctly interpreted the lease.  Ultimately, the result was dictated by the clause “notwithstanding the actual amount of Operating Expenses otherwise allocable to the Leased Premises.”