November 6, 2009
WASHINGTON AND COURT, L.L.C., PLAINTIFF-APPELLANT,
BANGZ SALON HOBOKEN, L.L.C., DEFENDANT-RESPONDENT, AND JOSEPH E. BRANCO, DEFENDANT.
On appeal from the Superior Court of New Jersey, Law Division, Hudson County, Docket No. DC-012632-08.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued October 5, 2009
Before Judges Rodríguez and Chambers.
This appeal involves a dispute that arose out of a commercial lease between plaintiff Washington and Court, L.L.C., the landlord, and defendant Bangz Salon Hoboken, L.L.C., the tenant. The landlord brought this suit to recover disputed Overhead Charges due under the lease. After conducting a bench trial, the trial court held for the tenant, and entered a detailed order dated September 30, 2008, with respect to expenses that the landlord could assess to the tenant as Overhead Charges. The landlord now appeals that order. We affirm in part, reverse in part, and remand for further proceedings.
The parties, both represented by counsel, entered into a lease agreement dated September 24, 2004, in which the tenant rented commercial space in a building identified in the lease as 89 Washington Street, Hoboken, New Jersey. The lease was for a term of ten years and provided the tenant with the option to renew for an additional five years.
In addition to the payment of rent, Paragraph 42 of the lease requires the tenant to pay 10.272 percent of certain costs, expenses, and charges for the building, denoted as the "Overhead Charge." The tenant was required to pay $800 per month as the estimated Overhead Charge. After the conclusion of the calendar year, the landlord was obligated to calculate the actual Overhead Charge and assess the tenant any underpayment or provide credit for an overpayment. The lease waived the Overhead Charge for 2004; the parties settled their dispute with respect to the Overhead Charges for 2005; this case involves the parties' dispute for the Overhead Charge for 2006.
The landlord calculated that the tenant's Overhead Charge for 2006 was $15,891.29. After deducting the $9,600 paid by the tenant in estimated payments, the landlord assessed the tenant the balance of $6,291.29. The tenant did not pay the amount, challenging the accuracy of the calculations for a number of reasons, including the fact that it had not seen proof of payment, that certain expenses did not relate to 89 Washington Street, and that other expenses were not properly included as part of the Overhead Charge.
The landlord brought this action seeking recovery of the unpaid Overhead Charge along with late fees and attorney fees.*fn1
At trial, the landlord's property manager, the landlord's building superintendent, and the tenant's principal, defendant Joseph E. Branco, testified. The trial court found ambiguities in the lease, and ruled on whether certain disputed items were properly included as Overhead Charge. It concluded that the landlord had not proven the Overhead Charge sought and determined that an accounting would be necessary. A detailed order dated September 30, 2008, was thereafter entered.
In this appeal, the landlord contends that the trial court erred in reforming the lease, that the lease contains no ambiguities, and that the order entered is not supported by the record.
On appeal, we defer to the factual determinations of the trial judge provided they are supported by adequate, substantial and credible evidence. Rova Farms Resort v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974). However, our review is de novo on questions of law and the legal consequences that flow from the established facts. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995). Generally, the interpretation and construction of a contract is a question of law for the court to decide, and our review is de novo. Fastenberg v. Prudential Ins. Co. of Am., 309 N.J. Super. 415, 420 (App. Div. 1998).
When interpreting a contract, our task is to discern the intent of the parties. J.L. Davis & Assocs. v. Heidler, 263 N.J. Super. 264, 270 (App. Div. 1993). When doing so, we must "consider the relations of the parties, the attendant circumstances, and the objects [the parties] were trying to attain." Ibid. (quoting Karl's Sales & Serv., Inc. v. Gimbel Bros., Inc., 249 N.J. Super. 487, 492 (App. Div.) certif. denied, 127 N.J. 548 (1991)). Further,
In the quest for the common intention of the parties to a contract, the court must consider the relations of the parties, the attendant circumstances, and the objects they were trying to attain. An agreement must be construed in the context of the circumstances under which it was entered into, and it must be accorded a rational meaning in keeping with the express general purpose. [Anthony L. Petters Diner, Inc. v. Stellakis, supra, 202 N.J. Super. at 28.]
Where the terms of the contract are clear and unambiguous, the court will enforce them as written. Id. at 271. The court may not "rewrite the contract merely because one might conclude that it might well have been functionally desirable to draft it differently." Karl's Sales & Serv., Inc. v. Gimbel Bros., Inc., supra, 249 N.J. Super. at 493 (quoting Brick Twp. Mun. Utils. Auth. v. Diversified R.B. & T. Constr. Co., 171 N.J. Super. 397, 402 (App. Div. 1979)).
Where the language in a contract is ambiguous, extrinsic evidence may be introduced to determine its meaning. Schor v. FMS Fin. Corp., 357 N.J. Super. 185, 192 (App. Div. 2002). A contractual provision is considered ambiguous "if the terms of the contract are susceptible to at least two reasonable alternative interpretations." Id. at 191 (quoting Nester v. O'Donnell, 301 N.J. Super. 198, 210 (App. Div. 1997)). If a provision is ambiguous and parole evidence is needed to interpret the contract, then construction of the provision becomes a question of fact. Anthony L. Petters Diner, Inc. v. Stellakis, 202 N.J. Super. 11, 27-28 (App. Div. 1985). These legal principles provide the backdrop to our analysis.
Section 42 of the rider to the lease sets forth the tenant's obligation to pay the Overhead Charge. It provides:
(a) [definition of "Real Estate Taxes"]
(b) During the initial term and option term, if exercised, Landlord shall incur costs and expenses for the following:
(i) general overhead charge for owning and operating the Building in which the Premises are situated, Real Estate Taxes as defined in subpar. (a), above, water and sewer charges, comprehensive commercial liability/fire and property-casualty/business interruption insurance, management, administrative and leasing fees;
(ii) utility/electric charges, janitorial services, exterminating, snow and ice removal, landscaping and other activities related to or concerning the common areas of the Building; and
(iii) repairs (including replacements), maintenance and upkeep of the Building, including, without limitation, major components (e.g., roof) thereof, building operating systems and equipment but excluding (x) Landlord's repair obligations under Rider Par. (45); (y) repairs and maintenance which are the sole responsibility of Tenant (including HVAC maintenance obligations) under Rider Par. (46); and (z) water and sewer charges attributable to other tenants in the Building.
Landlord's aggregate annual costs, expenses and charges for the foregoing items (i), (ii) and (iii) for the Building shall be known as "Overhead Charge".
(c) Overhead Charge shall be allocated among commercial tenants in the Building and Tenant's allocable share of Overhead Charge shall be 10.272%.
(d) Tenant shall pay Landlord, as additional rent, as Tenant's estimated Overhead Charge, based on Tenant's allocable share of Overhead Charge in subpar. (b), above, the sum of Eight Hundred ($800.00) during each month of the term. Except as hereinafter provided, within 120 days after the conclusion of each calendar year Landlord shall determine the actual Overhead Charge for the preceding calendar year (or portion thereof) and shall prepare and send Tenant an annual statement/reconciliation of Tenant's share thereof after crediting estimated Overhead Charge actually paid by Tenant.
We begin by addressing the dispute regarding the reference to "the Building" in Paragraph 42. Paragraph 42 sets forth the Overhead Charge for "the Building." Paragraph 38 of the lease, defines "the Building" as "the building known as 89 Washington Street, Hoboken, New Jersey" and provides that the demised premises are located in "the Building."
The tenant challenged a number of expenses included in the Overhead Charge, contending that they did not relate to 89 Washington Street. The property manager testified that 89 Washington Street is part of one large building with multiple addresses excluding 93 Washington Street. She explained that the landlord has one deed, receives one tax bill, and has the same insurance policies for this one building although it has multiple addresses. As a result, the landlord included in the Overhead Charge expenses associated with the entire building, irrespective of address, and not just the segment of the building identified as 89 Washington Street. On the other hand, the survey for 89-91 Washington Street shows multiple buildings, and the trial court stated that a photograph of 89 Washington Street reflected a three story building distinct from its neighbors. The landlord had also wrongfully included in the Overhead Charge some expenses related to 93 Washington Street, admittedly a building separate from the 89 Washington Street building with its multiple addresses.
While Branco, the tenant's principal, questioned the landlord's definition of "the Building," he did not expressly testify to his understanding of the property encompassed in the term "the Building" nor did he directly refute the property manager's testimony on this point. While he objected to the inclusion of expenses attributable to 93 Washington Street, he testified that he had no objection to paying his pro rata share of the tax bill for the property even though it covered the large building with multiple addresses.
The trial court concluded that "the Building" consisted only of the property known as 89 Washington Street, and not the other addresses that the landlord contended were part of "the Building." We do not discern that this finding is supported by sufficient credible evidence in the record. Indeed, most of the discussion on the record regarding the scope of "the Building" centered on premises at 93 Washington Street. With the exception of the treatment of the 93 Washington Street expenses, we do not see that the question of the meaning of "the Building" was squarely presented to the trial court. Accordingly, we remand in order that proofs may be taken to determine the parameters of "the Building" referenced in Paragraph 42 of the lease.
The trial court correctly found that expenses for 93 Washington Street may not be included in the Overhead Charge because that building is separate from 89 Washington Street and owned by a different corporation. In addition, the trial court correctly held that expenses for the coin operated laundry at 93 Washington Street may not be included in the Overhead Charge even though that laundry is used by tenants from 89 Washington Street.
The next area of dispute concerns the type of expenses that may be included in the Overhead Charge.
Paragraph 42(b)(i) sets forth the specific expenses for general overhead incurred in owning and operating the building that may be included in the Overhead Charge. These expenses include real estate taxes, specified insurance, and water and sewer charges. These "general overhead charge for owning and operating the Building" are not limited to common areas of the building. Paragraph 42(b)(ii) deals with common area expenses.
Because workers' compensation insurance was not specifically listed in Paragraph 42(b)(i) as an included insurance, the trial court correctly held that costs of workers' compensation insurance may not be included in the Overhead Charge.
With respect to water and sewer charges, Paragraph 46(e) and (f) expressly require the tenant to pay for the water and sewer charges for the demised premises. However, the trial court correctly held that Paragraph 42 cannot be reasonably interpreted as requiring the tenant to pay for water and sewage charges of other tenants in the building; Paragraph 42(b)(iii) (z) expressly excludes "water and sewer charges attributable to other tenants in the building."
Since real estate taxes are included in the general operating costs of the building under Paragraph 42(b)(i) and indeed Branco testified that he should pay his share of this expense, we reverse the trial court's decision that the tenant is not responsible for its share of the 2006 taxes. The amount of that share must await a determination on the parameters of "the Building."
Paragraph 42(b)(ii) allows the landlord to include in the Overhead Charge expenses for the common areas of "the Building." The record supports the trial judge's conclusion that the basement is not a common area.
The landlord also objects to the accounting ordered by the trial court. The trial court ordered that the landlord provide a full accounting of the Overhead Charge for 2006 and subsequent years.
While the landlord was entitled to an Overhead Charge for the year 2006, the amount of that charge was not readily calculable from the record. Branco testified to the difficulty he had in matching the landlord's receipts and proofs with the calculation of the Overhead Charge. The trial court noted the problems with the proofs. It indicated that a group of receipts were for kitchen cabinets for apartments and for maintenance and repairs to residential apartments which are not properly included in the Overhead Charge. Some receipts were illegible or appeared to be modified. The court had concerns about the credibility of the landlord's property manager who testified to the calculation of the Overhead Charge. Recalculation of the Overhead Charge was also necessary in light of the court's decision that certain expenses must be excluded from the calculation.
Under these circumstances, the court had the discretion to require the landlord to recalculate the amount of the Overhead Charge and to have that calculation done by a professional. See Anzalone v. Anzalone Bros., 185 N.J. Super. 481, 489 (App. Div. 1982) (regarding the court's power to appoint an accountant in a general equity matter). However, in order to conclude the litigation, provision should have been made to have the matter returned to court once the accounting was done.
We reverse the trial court's determination that a similar accounting must be done every year. The lease does not set forth that requirement. The court cannot make a better contract for the parties than the one they have made nor may it alter the contract for the benefit of one party or the other. Karl's Sales & Serv., Inc. v. Gimbel Bros., Inc., supra, 249 N.J. Super. at 493.
In summary, we reverse the trial court's decision regarding the meaning of "the Building" in Paragraph 42 of the rider to the lease, and remand for further fact-finding on that issue. We affirm the trial court's decision that costs and expenses, including laundry room expenses, for 93 Washington Street may not be included in the Overhead Charge.
We conclude that the general overhead expenses identified in Paragraph 42(b)(i) are not limited to the common areas. We affirm the trial court's decision that workers' compensation insurance may not be included in the Overhead Charge. We affirm the trial court decision that water and sewer charges attributable to other tenants may not be included in the Overhead Charge. We reverse the trial court's decision that the 2006 real estate taxes are excluded from the 2006 Overhead Charge.
We conclude that the costs and expenses listed in Paragraph 42(b)(ii) are limited to the common areas. We affirm the trial court's finding that the basement is not part of the common area.
We affirm the trial court's decision to order an accounting for the 2006 Overhead Charge, and remand in order that the amount of Overhead Charge due may be adjudicated once the accounting is obtained. We reverse the determination that such an accounting is required in future years.
Affirmed in part, reversed in part, and remanded.