On appeal from the Superior Court of New Jersey, Chancery Division, Essex County, Docket No. C-295-08.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Stern, Graves, and J.N. Harris.
This appeal involves one of the most recognizable structures in downtown Newark, The Legal Center at One Riverfront Plaza. This facility, a twenty story, 418,889-square foot Class A office building located in the heart of the Newark Renaissance, directly to the north of Pennsylvania Station, is home to several of New Jersey's largest law firms. One of those firms, plaintiff Sills Cummis & Gross, P.C. (Sills), appeals from a Chancery Division declaratory determination.*fn1 That ruling provided instructions to arbitrators who were recruited by the parties to ascertain the "fair market rental value" of premises as between Sills and its landlord, defendant Matrix One Riverfront Plaza, L.L.C. (Matrix). Because we believe that even as he adhered to common sense, the particular instructions given by the Chancery Division judge imperfectly parsed the unambiguous contractual parameters of the parties' arrangement. Consequently, we modify the judgment below.
Effective on September 1, 1989 (but to commence on October 1, 1989), Sills' predecessor*fn2 and then-landlord Newark Legal and Communications Center Urban Renewal Corporation (Legal Center Corporation),*fn3 entered into a twenty-five year Agreement of Lease (lease) for office space in a high rise office building known as The Legal Center, located in Newark. Several years later, the Legal Center Corporation assigned its rights under the lease to Matrix, who currently acts as Sills' landlord.
Throughout the course of the last twenty years, the parties entered into several formal lease amendments, called either Supplemental Agreements or Amendments to Lease (collectively lease supplements). By May 2008, the parties had agreed to at least eight lease supplements, plus two letter agreements that adjusted their respective rights, duties, and obligations under the original lease.
The lease described the premises being rented by Sills from the Legal Center Corporation as "the said spaces, fixtures, improvements, and other property of the Legal Center Corporation" as shown in several sketches and blueprints marked as exhibits and annexed to the lease. Effectively, the premises referred to in the initial lease gave Sills floors ten through thirteen of the facility, out of which the law firm would operate its business. Pursuant to the lease, Sills was not permitted to use the premises for any activity other than as offices dedicated to the practice of law. In Supplemental Agreement No. 2, dated April 1, 1990, Sills and the Legal Center Corporation expanded the premises to include areas in the facility for a mailroom and records storage. In Supplemental Agreement No. 7, dated August 30, 1999, Sills obtained the right to use portions of the facility's ninth floor, which were also absorbed into the parties' description of the premises.
Because the facility was located in downtown Newark, where parking spaces were scarce, the Legal Center Corporation, at the inception of the lease, offered to provide Sills with 150 around-the-clock parking spaces for Sills' "shareholders, directors, officers, members, or employees." The parking spaces were conveniently located in the subterranean parking garage (constructed by a third-party, NEDC Riverfront Corporation (NEDC)) partially within the footprint of the Legal Center Corporation's facility.
Paragraph 49 of the original lease specifically provided that these parking spaces would be made available at no additional cost to Sills. If the lease between Sills and the Legal Center Corporation terminated prematurely in whole or in part, Sills would surrender parking spaces to the landlord in the ratio of one parking space per 600 rentable square feet of space in the premises so terminated.
As noted, the parking area intended for Sills' use was not controlled by the Legal Center Corporation. Therefore, a collateral agreement between the landlord and garage owner NEDC was necessary. On October 20, 1989, the Legal Center Corporation and NEDC inked an agreement (Parking Agreement) for the Sills' parking spaces, which cost the Legal Center Corporation $1,250,000,*fn4 plus ongoing maintenance charges over the ensuing twenty-five years. The Parking Agreement provided that the parking spaces were for the exclusive benefit of Sills. If another tenant took over the premises, that new tenant would not automatically be entitled to those parking spaces, as the rights to them would revert back to the garage proprietor, with a prorata reimbursement to the landlord of the initial $1,250,000 payment.
On May 31, 1997, Sills and the Legal Center Corporation executed Supplemental Agreement No. 3, in which several of the economic elements of the lease were changed, including a shortened term from the initial twenty-five years to nineteen years. Instead of the full quarter-century tenure, the parties agreed to two three-year renewals to round out the original letting, which permitted Sills, at its option, to extend the lease for three years at a time. If either of these three-year extension options were exercised, the "annual basic rental" that Sills would pay during that extension would "be equal to ninety percent (90%) of the fair market rental value of the premises, as determined by the Legal Center Corporation."
If Sills disagreed with its landlord's determination of the "annual basic rental," it was permitted to initiate an alternative dispute resolution mechanism - specifically, arbitration*fn5 - to answer the following contractually-strict question:
What is the fair market rental value for the premises for the three (3)-year extension period?
Furthermore, Supplemental Agreement No. 3 instructed the arbitrators exactly how to calculate the fair market rental value in Section 4(b)(i):
In determining fair market rental value, the arbitrators shall consider the premises in its "as is" condition, as if the premises were vacant and unencumbered by the Lease, as herein amended, and shall take into account all appropriate factors including, without limitation, that (1) the Legal Center Corporation will not pay a brokerage commission in connection with such extension; (2) the Lessee will not receive a finishing allowance or free rent period or other concessions then being offered to tenants entering into new leases for space of comparable size to the premises at the Legal Center or in comparable office buildings located in the Newark, New Jersey submarket; (3) no consideration is to be given to the fact that the building in which the premises is situated is owned by a subsidiary corporation of a public ...