Court Interprets Rent Escalation Clause in Commercial Lease Based on Equitable Principles

The New York Supreme Court Appellate Division, Fourth Department, recently decided a case entitled Mfrs. and Traders Trust Co. v. Niagara Falls Mall, Inc., 124 A.D.3d 1253 (2015), in which it held that the landlord was entitled to rent arrears pursuant to a rent adjustment clause in a commercial lease agreement dating back to 1968. The term of the original lease was thirty three (33) years with two five year renewal options. The lease provided for an annual minimum guaranteed rental, and for adjustments of the rental amount during the 10th, 20th and 30th lease years pursuant to a formula based upon the appraised valuation of the property during the adjustment years. The tenant bank commenced an action seeking a declaratory judgment to establish the rights of the parties vis a vis the rent adjustment clause in the lease. The Appellate Division found that the lower court properly declared that the landlord was entitled to increased rent from 1999 through 2007. Plaintiff’s request for declaratory relief was broad enough to encompass that period and, moreover, plaintiff’s conduct during the litigation reflected its “acquiescence in a rental adjustment for that period.” The Court held that “[A]n action for a declaratory judgment is ‘governed by equitable principles’ ” and concluded that the lower court’s declaration that tenant owed increased rent for that period was “consistent with equitable principles.” However, the Appellate Division found that the lower court erred in calculating the amount of the 20th- and 30th- year rental adjustments. In construing the provision in the lease, the Court held that its objective is to give the language used by the parties a “fair and reasonable meaning.” The Court concluded that the construction urged by the tenant gives the language of that provision such a meaning, while the construction urged by the landlord rendered meaningless the minimum guaranteed rental provision in the lease.

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