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The Importance of a Crystal-Clear Lease

Melvyn B. Ruskin and Eric C. Rubenstein Comments
Continued from page 1

Ambiguous Language

In denying each party’s summary judgment motions, the court decided the lease language was ambiguous at best, and it could not conclusively determine the parties’ intent regarding whether a credit against fixed rent was intended as a result of the reduction in taxes.

The court looked outside the four corners of the lease and examined extrinsic evidence. It noted it would be important to examine prior drafts of the lease to ascertain the intent of the parties. However, neither party produced earlier drafts of the lease. Testimony at trial also failed to offer any indication of intent of a fixed rent reduction.

Only one witness testified about the current norms in the New York City commercial leasing market. Adding to the confusion, the witness’ testimony was actually cited by both sides in support of their respective positions. On one hand, the witness stated it was not common for a tenant to be granted credit against fixed rent when taxes are reduced below the base-year amounts. The same witness later testified he has a number of clients whose leases contain such clauses. Due to the inherent inconsistencies, the court apparently discounted the evidentiary value of the witness’ testimony.

Ultimately, the most compelling factor in the court’s decision was the conduct of the parties. The court found that Citibank had been a party to countless commercial leases in New York City, and Citibank could not identify one instance where it would be entitled to reduction in fixed rent by virtue of a reduction of taxes below the base-year level. It was clear that, based on its past lease negotiations, there was no expectation by Citibank that it would be entitled to a fixed rent reduction under these facts.

Similar Attempts

Several other tenants at 666 Fifth Ave. forged attacks similar to Citibank’s to pursue rent reductions based on the ambiguous clause. In Executive Office Network Ltd. v. 666 Fifth Avenue Partnership, the lower court agreed with the tenant and awarded summary judgment for nearly $500,000. However, the appellate court vacated the award, stating that the lease language was “hopelessly ambiguous,” and directed the case to be tried in an attempt to prove what this poorly drafted language really meant.

A similar challenge was made in Agip Petroleum Co. Inc. v. 666 Fifth Avenue Limited Partnership. Interestingly, this time, the appellate court found no ambiguity in the drafting of the lease contrary to the same court’s holdings in Citibank and Executive Office.

The fact that different panels in the same court had opposing views on substantially the same lease, with similar fact patterns, only further underscores the severity of the problems encountered because of lease ambiguity. But what would cause courts to award summary judgment to two separate tenants, only to have them reversed at the appellate level?

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