On appeal from 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NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION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 Fuentes, Graves, and Harris.
This appeal arises from a dispute concerning the scope of arbitration between Matrix One Riverfront Plaza, LLC, (landlord) and Sills Cummis & Gross P.C., (tenant) to determine the fair market rental value of the tenant's premises.
This is the second time this matter has been before us. Sills Cummis & Gross, P.C., v. Matrix One Riverfront Plaza, L.L.C., No. A-3630-08 (App. Div. Dec. 3, 2009). In the first appeal, we reversed the Chancery Division's instructions to the arbitrators and directed the arbitrators not to consider the "exquisitely precise" value of the tenant's parking rights under the lease. Id. at slip op. 23. We also indicated, however, that parking data from comparable leases could be considered by the arbitrators "in a principled fashion," if they determined that it was appropriate to consider that factor in making their fair market rental value determination. Ibid.
On remand, the arbitrators determined that the fair market rental value of the premises was $27.89/sq. ft. According to the arbitrators, this amount is equal to the sum of the previously calculated fair market value of the premises, without any considerations for parking or the value of the tenant's parking rights under the contract. On this record, the Chancery Division granted the landlord's motion to confirm the arbitration award, denied the tenant's motion to vacate the award in part, and confirmed the arbitrator's original award of $24.78/sq. ft., which did not include parking.
The tenant now appeals, claiming that the arbitration award should be vacated or modified because the arbitrators impermissibly considered the actual value of the parking spaces under the contract in violation of our directions in the first appeal. The landlord argues that the award reflected and is supported by information gleaned from comparable data from professional rental properties and is consistent with this court's prior instructions.
Mindful of our standard of review, we defer to the arbitrators and affirm the Chancery Division's confirmation of the award. These are the relevant facts.
The lease agreement at issue here became effective on September 1, 1989, between tenant and landlord's predecessor, the Newark Legal and Communications Center Urban Renewal Corporation (Legal Center Corp.). Under the lease, tenant agreed to rent commercial space located at the Newark Legal and Communications Center (Legal Center) in the City of Newark. The lease was subsequently assigned to the current landlord.
The original lease was for a term of twenty-five years at fixed rents. Section One of the lease defined the area rented by tenant, floors ten through thirteen, as "the premises." In Section Forty-Nine of the lease, the Legal Center Corp. also offered to provide tenant, "at no additional cost," the use of 150 parking spaces in the underground parking garage beneath the Legal Center, which was owned by NEDC Riverfront Corporation (NEDC). The Legal Center Corp. then entered into a Parking Agreement with NEDC, where it agreed to pre-pay the garage operator the cost of the 150 parking spaces for the twenty-five year lease period. The lease further provided that tenant would surrender one parking space for every 600 rentable square feet that was terminated during the lease term. The Parking Agreement also stated that if tenant's lease was prematurely terminated, the control of the 150 parking spaces would revert back to NEDC.
The parties amended or otherwise supplemented the lease agreement eight times over the course of tenant's possession of the premises. Although these amendments expanded the definition of "premises" under the lease, the parking spaces were never added to the definition. On May 31, 1997, the parties executed "Supplemental Agreement 3," which: (1) shortened the fixed term of the lease from twenty-five years to nineteen years, with two three-year extension options; (2) reduced the rent to ninety percent of the fair market value during the extension periods; and (3) contained an arbitration clause in the event of disagreement over the fair market value of the rent, authorizing and directing the arbitrators to determine: "What is the fair market rental value for the premises for the three (3)-year extension period?" The arbitrators were to "consider the premises in its 'as is' condition, as if the premises were vacant and unencumbered by the Lease." In determining the fair market rental value, the arbitrators were to consider "all appropriate factors."
Tenant exercised the first three-year extension option on June 25, 2008. When the parties were unable to agree on a fair market rental value, the matter proceeded to arbitration. As a threshold issue, the parties disagreed as to the scope of the arbitrators' authority and what factors could be considered in determining the fair market rental value. On November 25, 2008, tenant filed a "Complaint for Instructions to Arbitrators and Other Relief," seeking a judicial determination as to whether the arbitrators had the authority to consider the value of the 150 parking spaces available to tenant under the lease in determining the "fair market value" of the "premises." On January 16, 2009, landlord filed an "Answer To Complaint With Counterclaim," seeking the dismissal of the complaint and a Declaratory Judgment that the issue of parking must be considered by the arbitrators.
Soon thereafter, both parties filed summary judgment motions seeking the relief requested as a matter of law.
On March 27, 2009, the trial court entered an order granting landlord's motion for summary judgment (which was technically a cross-motion to tenant's motion for summary judgment) and directed the arbitrators to "consider all appropriate factors when determining the fair market rental value during the Extension Term including the one-hundred fifty (150) underground parking spaces made available to [tenant] under Section 49 of the Lease."
Tenant immediately sought appellate review of the trial court's ruling. While the appeal was pending, the parties agreed to proceed with arbitration according to modified instructions. Under the modified instructions, the arbitrators would make two fair market rental value determinations: (1) a fair market rent for the premises excluding any consideration of parking; and (2) a separate determination of the parking alone. On August 25, 2009, the arbitrators issued a decision stating that the fair market rental value of the premises without parking was $24.75/sq. ft.; the fair market rental value of the parking privileges was $170 per space per month, or $3.14/sq. ft. To arrive at this determination, the arbitrators relied on three "comparable leases," which had parking available within the building.
One of those leases included parking as part of the base rent. The arbitrators subtracted the value of the parking rights from the base rent for purposes of determining the fair market value of the rent without the cost of parking. Despite this attempt at eliminating parking from the equation, the arbitrators found the "inclusion of parking in any comparable lease and its value thereof must be considered in analyzing the effective rent." This part of the ...