2301 M STREET COOPERATIVE ASSOCIATION, Appellant/Cross-Appellee,
v.
CHROMIUM LLC, Appellee/Cross-Appellant.
Argued
September 15, 2016
Page 83
Appeals from the Superior Court of the District of Columbia,
(CAB-6766-08), (Hon. Michael L. Rankin, Trial Judge)
Thomas
F. Murphy, Washington, DC, for appellant/cross-appellee.
Stephen
O. Hessler, Washington, DC, for appellee/cross-appellant.
Before
Blackburne-Rigsby, Chief Judge,[*] and Glickman and Fisher,
Associate Judges.
OPINION
PER
CURIAM:
Page 84
These
consolidated appeals arise from a dispute between a tenant
and the new owner over the correct formula for calculating
rent increases under the parties lease agreement. At issue
is whether to use the rent escalation formula explicitly set
forth in the lease agreement, or the formula used by the
prior landlord for nearly thirty years. The rent would be
much higher if the landlord had employed the formula in the
lease during that period, and that formula would call for
greater rent increases in the future. The tenant, 2301 M
Street Cooperative Association ("the Cooperative"),
argues that the lease agreement is ambiguous and should be
interpreted to conform to the prior landlords actual
practice. Alternatively, the Cooperative argues that, by
their past practice, the then-parties to the lease implicitly
modified its rent formula. The new and current owner and
landlord, Chromium LLC ("Chromium"), argues that
the rent escalation formula in the lease is not ambiguous and
should apply as written.
The
trial court agreed with Chromium insofar as prospective
application of the lease formula is concerned. However, it
rejected Chromiums argument for retroactive application of
that formula to past rent increases, which would result in a
higher base rent for future calculations. For the reasons
that follow, we affirm.
I. Factual and Procedural Background
A. History of the Lease Agreement
On May
6, 1980, property developer M & 23rd Partnership entered into
an air rights lease agreement[1] with the Cooperative for
the residential portion of an unfinished building located at
2301 M Street in Northwest DC.[2] The lease contains a rent
escalation clause that recalculates rent every five years,
beginning ten years after the "Lease Commencement
Date," based on fluctuations in the Consumer Price Index
("CPI"). Section 4 (A) of the lease defines the
"Lease Commencement Date" as "the date of this
Lease Agreement." Section 5 (B)(1) sets forth a specific
formula for calculating rent increases[3] and provided that
rent "shall be increased, but never decreased, by the
application of the terms of this [section]." On December
8, 1981, one year and seven months after the lease was
signed, M & 23rd Partnership conveyed the Residential Section
to the Cooperative with a signed warranty deed.[4]
In
1983, the Pedas Group acquired the lease and assumed the
interests of M & 23rd Partnership as the Cooperatives new
Page 85
landlord. It retained Lenkin Company Management to manage the
building. Lenkin Company Management, and by extension the
Pedas Group, interpreted the "Lease Commencement
Date" in Section 4 (A) to be December 8, 1981, the date
the Residential Section was delivered to the Cooperative,
rather than May 6, 1980, the date the lease agreement was
signed by all parties. Additionally, Lenkin Company
Management and the Pedas Group applied the following formula
to determine the amount of the rent increase pursuant to the
rent escalation clause under Section 5 (B)(1):
Current Rent x (Current CPI - Base CPI) x .25
Base CPI
This
formula, referred to by the parties as the "Historic
Method," increases rent by twenty-five percent of the
rate of inflation each time it is adjusted. However, the
Historic Method does not conform to the rent escalation
formula explicitly set forth in Section 5 (B)(1), which
states that current rent should be multiplied by twenty-five
percent of a fraction, "the numerator of which is the
CPI at the date of adjustment and [ ] the denominator of
which is the CPI at the immediately preceding date of
adjustment[:]"
Current Rent x Current CPI x .25
Base CPI
We
refer to this version of the rent escalation formula as the
"Textual Method." The Textual Method would almost
always increase rent by a minimum of twenty-five percent
because in periods of inflation, the CPI rises. In contrast,
the Historic Method would only increase rent by one quarter
of the rate of inflation, because the Historic Method
subtracts the "Base CPI" from the "Current
CPI" in the numerator of the fraction.[5]
Lenkin
Company Management used the Historic Method to calculate rent
escalations in 1991, 1995, 2000, and 2005.[6] In November
2007, Chromium acquired the property and assumed the
responsibilities of the Pedas Group under the lease. It did
not retain Lenkin Company Management as property manager.
When the time for another rent escalation calculation
approached in 2010, Chromium informed the Cooperative that it
would not use the same method of calculating rent escalations
as the previous landlord. Instead, it would calculate rent
increases based on the Textual Method set forth by the
express language of Section 5 (B)(1). It also would interpret
the "Lease Commencement Date," ...