Daily Development for Monday, May 3, 2004
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
dirt@umkc.edu <mailto:dirt@umkc.edu>

LANDLORD/TENANT; TENANT’S RESPONSIBILITIES; MAINTENANCE: A requirement in a lease whereby the tenant has to return the “premises” in good order and condition will be construed to apply only to the interior of the building, if the lease otherwise defines premises as interior space, even though it was the clear intent of the parties that surrounding ground was also part of the lease.

South Road Associates, LLC v. IBM, 770 N.Y.S.2d 126 (A.D. 2 Dept. 2003).

A long term lease required that the tenant return the premises in “good order and condition.” The tenant suffered a leak on an underground storage tank on the ground that had been leased along with the building. Although remediation work continued for almost two decades, when the tenant ultimately ended the lease, a small amount of the property required continued pumping and monitoring supervised by the state environmental agency. The landlord alleged that the value of the property was adversely affected as a consequence of this condition, and claimed that the property had not been returned “in good order and condition.”

The court here affirmed summary judgment for the tenant, but with a strong dissent. The majority noted that the definitions section of the lease defined “premises” as “the space being more particulasrly shown on the attached floor plan” consisting of a certain number of square feet in buildings situated on “land.” The majority concluded that it was unavoidable that “premises” as defined in the lease included only the interior space and not the exterior. Since the lease language was clear, no extraneous evidence could be brought forward. Thus, when the tenant returned the property with environmental contamination of the grounds, the tenant did not violate the terms of its lease.

The dissent maintained that the court should give meaning to the overall instrument in determining the intent of the parties. “The meaning of a writing may be distorted where undue force is given to single words or phrases.” The dissent argued that it was clear that the parties intended that the tenant would occupy all the property - land and buildings, and it only made sense that they intended that the entire property be yielded up in good condition.

Comment: A classic conundrum. The dissenting judge may very well be correct that the lawyer who wrote (or inserted) the language in the “yield up” clause was not thinking about the more restrictive definition of the word “premises” appearing elsewhere in the lease. If that lawyer did not think of it, none of the laypersons reading the lease would ever catch the problem. Thus, it is quite likely that the parties signing the lease many decades ago in fact expected that the tenant had the responsibility to return the whole property in good condition.

But these were sophisticated parties represented undoubtedly by people whom they trusted for their competence in the lease negotiations, and the best interests of the marketplace usually are served by requiring parties to live with the outcome of the language that they select. There are devices that expensive lawyers doing important documents often use to test that a defined term is properly used throughout the document. Often this seems like needless overkill, but the investment is appropriate to avoid consequences such as those occurring here.

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