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Bargain Basement
by Ron Davis

Hopes rose for tenants of a Long Island, NY, shopping center when they learned that a new tenant had signed a lease for space there. That’s because each tenant pays a large rental portion (which is used to pay for common-area upkeep) based on the percentage of the tenant’s leased floor space to the total leased space in the shopping center.

But the shopping center owners, the principals of VW II, L.P, quickly dashed those hopes. They pointed out that the tenants’ leases state that the basis of the apportionment rent is the center’s “grade-level” leasable floor space. The new tenant, they added, was simply leasing storage space in the center’s basement, so there would be no rent reduction for the existing tenants.

In fact, the lease of each tenant contains a provision stating that in measuring the aggregate gross leasable floor space of the shopping center, “areas located in…basement areas shall be excluded.”

In response, the tenants argued that the provision may be read to exclude only those basement areas used for maintenance and operations of the shopping center. In leasing to a new tenant, they added, the shopping center is in fact enlarging its leasable space.

A New York appellate court rejected the argument of the tenants, explaining, “The language of the lease, which is clear and unambiguous, expressly excludes basement areas from the calculation of the aggregate gross leasable floor area of the shopping center for purposes of apportioning common-charges rent. Such an interpretation is in conformity with the calculation of each tenant’s share of common charges based on the tenant’s proportionate share of the ‘aggregate gross grade-level floor area of the shopping center.’ Thus, the provision pertaining to the basis of rent is to be enforced as written, and the tenants are not entitled to a reapportionment of their common charges.” (A&J Corporation III v. VW II, L.P., 756 N.Y.S. 2d 603)

Decision: April 2003
Published: July 2003



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