Opinion
B158163.
7-10-2003
WYLE LABORATORIES, INC., Plaintiff, Cross-defendant and Respondent, v. 128 MARYLAND ASSOCIATES, LLC, Defendant, Cross-complainant and Appellant.
Jackson, DeMarco & Peckenpaugh and Lawrence R. Resnick, for Defendant, Cross-complainant, and Appellant. Reed Smith Crosby & Heafey, James C. Martin and Denise M. Howell, for Plaintiff, Cross-defendant, and Defendant.
Appellant 128 Maryland Associates, LLC (Landlord) appeals from a summary judgment in favor of respondent Wyle Laboratories, Inc. (Tenant) in this action to determine whether Tenant owed property management fees under the lease. Landlord contends: (1) a triable issue of fact exists as to whether Tenant owed property management fees under the lease; and (2) it was denied due process, because it
did not have an opportunity to respond to issues Tenant raised for the first time in its reply to the opposition to the motion for summary judgment. We affirm.
FACTS
The Lease Provisions
Prior to June 1999, Tenant was the owner and sole occupant of a commercial property in El Segundo. In June 1999, Tenant sold the property to WL Development (WLD) and signed a 20-year net lease. Attorney Barbara Wolenty represented WLD and Attorney Ken Goldman represented Tenant. All maintenance and management responsibilities for the property were to be borne by Tenant. There was no mention or discussion of property management fees during the sale and leaseback negotiations. WLD did not anticipate exercising any management control over the physical property unless there was a breach of the lease.
Article IV of the lease provides for rent payments. Section 4.1 requires Tenant to pay a specified annual rent. Section 4.2 provides for additional rent as follows: "Tenant agrees to pay as directed by [WLD] either directly to third parties (in which event proof of payment shall be immediately furnished by Tenant to [WLD]) or as reimbursement to [WLD] immediately upon written request for payment (without relief from valuation and appraisement laws) the following: [P] 1. Tenant agrees to pay before they become delinquent all Real Property Taxes . . . . [P] 2. Any insurance premiums or deductible amounts for any coverages in connection with all or any portion of the Premises paid by [WDL] on its own behalf or as a requirement of any lender of [WDL]. [P] It is the purpose and intent of [WDL] and Tenant that this is a net lease and that the Minimum Annual Rent and all other sums payable by Tenant under this Lease shall, except as herein otherwise provided, be absolutely net to [WLD] so that this Lease shall yield, net, to [WLD] all sums specified to be received by [WLD], and that all costs, expenses and obligations of every kind and nature whatsoever relating to the Premises or any improvements thereon, except as herein otherwise provided, which may arise or become due during the term of this Lease shall be paid by Tenant and that [WLD] shall be indemnified and save harmless by Tenant from and against the same."
Article V of the lease specifically shifts the obtaining and cost of services, alterations and repairs to Tenant. Section 5.1 concerning services provides: "Tenant shall obtain in its own name and pay directly to the appropriate supplier the cost of all utilities and services serving the Premises. [WLD] shall not be liable in damages or otherwise for any failure or interruption of any utility or other service and no such failure or interruption shall entitle Tenant to terminate this Lease or withhold sums due hereunder." Section 5.3 shifts the responsibility for maintenance of the premises to Tenant: "Tenant shall at all times, at Tenants sole cost and expense, keep, repair, replace and maintain the Premises and every part thereof in good condition and repair, ordinary wear and tear and casualty excepted. . . ." In addition, Section 5.4 provides: "It is intended by Tenant and [WLD] that [WLD] shall have no obligation, in any manner whatsoever, to repair and maintain the Premises, all of which obligations are intended to be that of Tenant. . . ."
Article IX of the lease concerns insurance requirements. Section 9.1 provides in pertinent part: "Tenant, at its sole cost and expense, shall purchase and maintain in force at all times during the term, public liability and property damage insurance . . . such insurance to be obtained and maintained for the benefit and protection of both [WLD] and Tenant . . . ." If Tenant fails to carry the required insurance and provide copies of the policies to WLD, section 9.2 provides that "[WLD] shall have the right to obtain such insurance and collect the cost thereof from Tenant as additional rent."
Article XXI of the lease makes it Tenants sole responsibility to comply with environmental laws. Section 21.5 additionally provides that "[WLD] and its agents shall have the right, but not the duty, . . . to inspect the Premises and conduct tests thereon to determine whether or the extent to which there has been a violation of Environmental Laws by Tenant or whether there are Hazardous substances on, under or about the Premises."
Sale of Property to Landlord
In the latter part of 2000, WLD entered into negotiations to sell the property and assign the lease to Landlord. Landlord is owned by 13 investor members. One of the members owns Sandstone Property Management Company, Inc. During the purchase transaction, Sandstone acted as Landlords agent. Tenant continued to be the sole occupant of the premises.
On December 8, 2000, Landlords lender approved Landlords mortgage application. However, the obligation to fund the loan was conditioned upon Landlords satisfaction of the application requirements and several special terms and conditions, including that "[Tenants] lease must contain language allowing Landlord to collect all management and general and administrative cost from Tenant. [Tenants] lease does not contain specific language allowing Landlord to collect management and general and administrative cost." Sandstone called the loan broker to inquire whether the condition could be deleted, because Sandstone interpreted the lease as allowing Landlord to collect management fees. The loan broker replied that the lender wanted specific language in the lease and the absence of specific language created an underwriting complication. After discussing the condition with the lender, the loan broker told Sandstone that the lease was silent as to collecting management fees and the lender would require the specific language in the lease.
On December 8, 2000, Sandstone wrote a letter to WLDs real estate broker John Kiley. Sandstone stated that while Landlord had been using its best efforts to minimize the lenders concerns and expedite reports, Landlord was requesting WLDs assistance in satisfying Landlords contingencies and the lenders two remaining issues. Landlord requested that WLD complete environmental studies. "Furthermore, although the lease is clearly absolute triple net, the lease is silent with respect to allowing the landlord to collect management and general and administrative costs from the Tenant. Please include a clause in the Amendment which specifically allows the Landlord to charge the Tenant a reasonable market fee for said services."
Kiley forwarded the letter to WLDs Attorney Wolenty. On December 15, 2000, Attorney Wolenty responded to Sandstones letter. Attorney Wolenty stated, "we do not feel it is appropriate to request a change of the basic lease economics from the tenant. Since our client performs no property management function, our client does not attempt to collect any property management fee." Subsequently, the lender eliminated the condition requiring an amendment specifically providing for payment of management fees. Landlord completed its purchase of the property on February 22, 2001.
On February 22, 2001, Landlord entered into a property management agreement with Sandstone in which Landlord appointed and retained Sandstone as its exclusive agent for the purposes of operating and managing the property. Under the property management agreement, Sandstone was required to manage the property, including conducting inspections, supervising maintenance work and arranging for improvements, alterations and repairs as required. In addition, Sandstone agreed to contract for services such as electricity, gas, water, steam, telephone, cable or satellite television signals, cleaning, furnace and air conditioning maintenance, security protections, pest control and any other utilities, services and concessions customarily provided in connection with the maintenance, and operation of comparable properties. Sandstone was responsible for collecting rents and other charges due to Landlord from Tenant and maintaining the books, records and accounts of the property. Moreover, Sandstone would handle Tenant requests and negotiations and use reasonable efforts to assure compliance by Tenant with the lease provisions. Sandstone would arrange for repairs, cleaning, painting, decorating, plumbing, improvements and customary maintenance. Sandstone would investigate and recommend insurance. In exchange for Sandstones services, Landlord agreed to pay Sandstone a monthly management fee of three percent of the gross receipts actually collected. Landlord began charging Tenant a monthly management fee of $ 1,995, which Tenant paid under protest.
Sandstone employs property manager Angela Janes to manage the property. Janes visually inspects the property exterior, including inspections to ensure Tenant is complying with lease responsibilities regarding property maintenance; collects and processes rent and produces written records of income and expenses; is responsible for financial oversight, including review of financial statements and accountings that Tenant submits pursuant to the lease; reviews and ensures appropriate insurance coverage; processes insurance claims as required; monitors real estate tax bills for accuracy and payment; coordinates appraisals and tax appeals; ensures compliance with applicable laws and ordinances; monitors legislation and civic matters bearing on lease compliance; renews and complies with licensing and permits; maintains a calendar of property requirements, including improvements, repairs, and maintenance; enforces lease terms and ensures Landlords completion of lease obligations; executes Tenant requests; and prepares reports required by the partnership and lender concerning property.
Property management expert David Redford provided a list of tasks that should be performed by or on behalf of the owner of a leased single-tenant industrial facility within the custom and practice in Southern California real estate management. Specifically, those tasks are: to collect rent; communicate with the tenant; communicate with others concerning property related issues; assure compliance with laws and ordinances; enforce tenant lease terms, including insurance; assure owners adherence to obligations under lease; produce written accountings of income received, expenses paid, and bank accounts maintained on behalf of the property; monitor real estate bills for accuracy and payment; monitor legislation and civic matters bearing on future income or expenses and compliance; maintain a calendar of property requirements; maintain a record of property improvements, alterations, repairs, and maintenance; undertake or supervise remodeling, including review of plans; inspect property for tenant maintenance and condition; contract on behalf of the owner for services and supplies; renew and comply with licensing and permits; and preserve physical assets.
Redford opined that the specific provisions of the lease at issue required additional task to be performed by or on behalf of the owner of the property, namely to conduct surveys and inspections; obtain licenses and permits to operate property; verify tenant expenditures are timely paid; supervise completion of repair report; complete capital improvement review and approval process; verify tenants letter of credit renewal for six years; resolve tenant created issues; verify periodic leak tests for tenants underground storage tanks; review tenants annual financial statements; review alterations to structure and consult with contractors as necessary; process qualifications for any sublease; monitor compliance with environmental laws; monitor any casualty recovery; and assist and coordinate appraisals and tax appeals. In Redfords opinion, a reasonable management fee for the property would range between 1.5 and 3 percent of the annual rental.
PROCEDURAL BACKGROUND
On March 9, 2001, Tenant filed a complaint against Landlord for breach of contract and declaratory relief. The complaint alleged that Tenant was not required to pay property management fees under the lease, including section 4.2, subdivision (2) of the lease. On April 25, 2001, Landlord filed a complaint against Tenant for declaratory relief that the Tenant was required to pay property management fees under section 4.2, subdivision (2) of the lease. On January 28, 2002, Tenant filed a motion for summary judgment on the ground that no provision of the lease permitted Landlord to charge a management fee. On February 11, 2002, Landlord filed an opposition to the motion for summary judgment based on Landlords interpretation that section 4.2 of the lease required Tenant to pay property management fees. Tenant filed a reply on the ground that section 5.1 of the lease expressly provides Tenant the right to obtain "services serving the premises." Landlord filed an objection to evidence Tenant filed in support of the reply on the ground that Landlord had no opportunity to offer conflicting evidence to show the existence of triable issues of fact.
A hearing was held on February 25, 2002. Landlord argued that while section 5.1 delegates responsibility for "services serving the premises" to Tenant, property management services are not "services serving the premises." Landlord argued that property management services are related to the premises, but serve the Landlord. The trial court granted the motion for summary judgment. On March 14, 2002, the trial court entered judgment in favor of Tenant and awarded Tenant $ 25,935 for management fees Tenant had paid Sandstone under protest, $ 1,344.20 for prejudgment interest, $ 4,980.08 for costs, and $ 97,586.67 for attorney fees. Landlord filed a timely notice of appeal.
DISCUSSION
Standard of Review
"`A defendant is entitled to summary judgment if the record establishes as a matter of law that none of the plaintiffs asserted causes of action can prevail. (Molko v. Holy Spirit Assn. (1988) 46 Cal.3d 1092, 1107, 252 Cal. Rptr. 122, 762 P.2d 46, citations omitted.) The pleadings define the issues to be considered on a motion for summary judgment. (Sadlier v. Superior Court (1986) 184 Cal. App. 3d 1050, 1055, 229 Cal. Rptr. 374.) As to each claim as framed by the complaint, the defendant must present facts to negate an essential element or to establish a defense. Only then will the burden shift to the plaintiff to demonstrate the existence of a triable, material issue of fact. (AARTS Productions, Inc. v. Crocker National Bank (1986) 179 Cal. App. 3d 1061, 1064-1065, 225 Cal. Rptr. 203.)" (Ferrari v. Grand Canyon Dories (1995) 32 Cal.App.4th 248, 252.) "There is a triable issue of material fact if, and only if, the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof." (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850.) We review orders granting or denying a summary judgment motion de novo. (FSR Brokerage, Inc. v. Superior Court (1995) 35 Cal.App.4th 69, 72; Union Bank v. Superior Court (1995) 31 Cal.App.4th 573, 579.) We exercise "an independent assessment of the correctness of the trial courts ruling, applying the same legal standard as the trial court in determining whether there are any genuine issues of material fact or whether the moving party is entitled to judgment as a matter of law." (Iverson v. Muroc Unified School Dist. (1995) 32 Cal.App.4th 218, 222.)
Interpretation of the Lease
Section 4.2 of the lease provides that in addition to paying a specified annual rent, Tenant is required to pay property taxes, insurance premiums and deductibles, and "all costs, expenses and obligations of every kind and nature whatsoever relating to the Premises or any improvements thereon, except as herein otherwise provided, which may arise or become due during the term of this lease." Landlord contends that pursuant to this provision, Tenant is required to pay Sandstones property management fee because it is a cost "relating to the premises." We conclude Tenant is not required to pay for Sandstones property management services under the lease.
Our Supreme Court long ago established "the interpretation of a written instrument, even though it involves what might properly be called questions of fact [citation], is essentially a judicial function to be exercised according to the generally accepted canons of interpretation so that the purposes of the instrument may be given effect. (See Civ. Code, §§ 1635-1661; Code Civ. Proc., §§ 1856-1866.) . . . It is therefore solely a judicial function to interpret a written instrument unless the interpretation turns upon the credibility of extrinsic evidence." (Parsons v.Bristol Development Co. (1965) 62 Cal.2d 861, 865, 44 Cal. Rptr. 767, 402 P.2d 839.) The question must be decided de novo by this court, unless the interpretation depends upon extrinsic evidence. (Home Federal Savings & Loan Assn. v.Ramos (1991) 229 Cal. App. 3d 1609, 1613, 284 Cal. Rptr. 1; Broffman v.Newman (1989) 213 Cal. App. 3d 252, 257, 261 Cal. Rptr. 532.) "It is only when the foundational extrinsic evidence is in conflict that the appellate court gives weight to anything other than its de novo interpretation of the parties agreement." (Medical Operations Management, Inc. v. National Health Laboratories, Inc. (1986) 176 Cal. App. 3d 886, 891, 222 Cal. Rptr. 455, citing Garcia v.Truck Ins. Exchange (1984) 36 Cal.3d 426, 439, 204 Cal. Rptr. 435, 682 P.2d 1100.)
"Under the parol evidence rule, extrinsic evidence is not admissible to contradict express terms in a written contract or to explain what the agreement was. [Citation.] The agreement is the writing itself. [Citation.] Parol evidence may be admitted to explain the meaning of a writing when the meaning urged is one to which the written contract term is reasonably susceptible or when the contract is ambiguous. [Citations.] Parol evidence cannot, however, be admitted to show intention independent of an unambiguous written instrument." (Sunniland Fruit, Inc. v.Verni (1991) 233 Cal. App. 3d 892, 898, 284 Cal. Rptr. 824.)
"The words of a contract are to be understood in their ordinary and popular sense, rather than according to their strict legal meaning; unless used by the parties in a technical sense, or unless a special meaning is given to them by usage, in which case the latter must be followed." (Civ. Code, § 1644.) "We interpret the intent and scope of the agreement by focusing on the usual and ordinary meaning of the language used and the circumstances under which the agreement was made." (Lloyds Underwriters v . Craig & Rush, Inc. (1994) 26 Cal.App.4th 1194, 1197-1198.)
"A contract must receive such an interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried into effect, if it can be done without violating the intention of the parties." (Civ. Code, § 1643.) "Moreover, where one construction would make a contract unusual and extraordinary and another construction, equally consistent with the language employed, would make it reasonable, fair, and just, the latter construction must prevail." (Sayble v. Feinman (1978) 76 Cal. App. 3d 509, 513, 142 Cal. Rptr. 895.) "The court must avoid an interpretation which will make a contract extraordinary, harsh, unjust, or inequitable." (Strong v. Theis (1986) 187 Cal. App. 3d 913, 920, 232 Cal. Rptr. 272.)
Although costs "relating to the premises" might include property management fees in some cases, in this case, in the context of the other lease provisions, we conclude section 4.2 does not require Tenant to pay property management fees. A "triple net" lease means "the tenant pays the taxes, the insurance, costs of repair, and costs of maintenance." (6 Matthew Bender, Cal. Real Estate Law & Practice, § 154.10[1], p. 154-10.1.) "The [triple net] lease entitles the landlord to rent net of costs for maintenance, repair, replacement, insurance, and taxes. The long-term net lease is essentially a financing device that gives the tenant the advantages of ownership without the investment of capital or direct obligation under a deed of trust and gives the owner of the property a return on his or her investment without the active responsibilities of investment management." (6 Matthew Bender, Cal. Real Estate Law & Practice, § 154.10[2], p. 154-10.1.)
We conclude the parties did not intend Tenant to pay property management fees, because the lease shifts the responsibility for basic property management functions to Tenant and leaves Landlord with only negligible responsibilities. Rather than require Landlord to arrange for maintenance, alterations and services for the property and receive reimbursement from Tenant, the lease shifts responsibility for obtaining maintenance, alterations and services entirely to Tenant. Tenant pays for the taxes, insurance, maintenance, alterations, and services directly. The property has only one tenant. There is only one monthly rent check for Landlord to collect. No complicated accounting is required, such as is required for buildings with multiple tenants paying percentage rents or proportionate shares of building common area expenses. Because it is a single-tenant property and the lease shifts the responsibility for property maintenance, alterations and services to Tenant, the lease does not contemplate any necessity for Landlord to incur property management services chargeable to Tenant. The lease provisions unambiguously shift all maintenance and operation responsibilities to Tenant; the lease provisions, therefore, impliedly preclude the incurrence by Landlord of management fees chargeable to Tenant.
Even were we to conclude the lease provisions were ambiguous, uncontradicted extrinsic evidence supports finding that Tenant and WLD did not intend Tenant to pay property management fees. Neither Tenant nor WLD discussed property management fees during their negotiations. WLD did not anticipate incurring a property management fee unless Tenant breached the lease and WLD was required to assume Tenants responsibilities. Landlords lender was of the opinion the lease did not unambiguously provide for the payment of a property management fee by Tenant. When Landlord asked WLD to approach Tenant about amending the lease to specifically include payment of property management fees, WLD refused, because it would change the basic economics of the lease. It is clear from the uncontradicted extrinsic evidence that the original parties to the lease did not intend for Tenant to pay property management fees unless Tenant breached its lease obligations and Landlord was required to assume Tenants responsibilities. Summary judgment was properly granted in Tenants favor.
Due Process
Our conclusion that section 4.2 does not allow Landlord to charge Tenant property management fees does not rely on finding property management fees to be "services serving the premises" under section 5.1, except to the extent acknowledged by Landlord. Therefore, we need not consider Landlords contention that it was denied due process because Tenant argued for the first time in its reply to the opposition to the motion for summary judgment that the property management services were "services serving the premises" delegated to Tenant to perform under section 5.1 of the lease. However, we note that Tenant argued in its motion for summary judgment that all of the costs it was required to pay were specified in lease sections 4.2(1), 4.2(2), 5.1, 5.2, 5.3, 5.4, 14.1, and 21.1. It is true that Tenants separate statement of undisputed facts stated, "the Lease provides for a minimum annual rent, and for [Tenant] to pay for all property taxes, insurance, utilities, and repairs on the Premises." As supporting evidence for this statement, Tenant cited only sections 4.2(1), 4.2(2), 5.2, 5.3, 5.4, 9.1, 9.3, 14.1 and 21.1 of the lease. However, Landlord argued its interpretation of section 5.1 during the hearing on the motion for summary judgment. Landlord did not ask for a continuance in order to submit additional evidence. To the extent the lease terms are unambiguous, the extrinsic evidence Landlord contends that it would have submitted would not have been admissible to alter the unambiguous terms of the lease. To the extent the lease terms are ambiguous, Landlord proffers no extrinsic evidence relevant to the intent of Tenant and WLD when they entered into the lease.
DISPOSITION
The judgment is affirmed. Respondent Wyle Laboratories, Inc. is awarded its costs on appeal.
We concur: TURNER, P. J., and ARMSTRONG, J.