2301 M Street Cooperative Association v. Chromium LLC

          Argued September 15, 2016

          Appeals from the Superior Court of the District of Columbia (CAB-6766-08) (Hon. Michael L. Rankin, Trial Judge)

          Thomas F. Murphy for appellant/cross-appellee.

          Stephen O. Hessler for appellee/cross-appellant.

          Before Blackburne-Rigsby, Chief Judge, ^[*] and Glickman and Fisher, Associate Judges.

          OPINION

          Per Curiam

         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 landlord's 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 Chromium's 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 Cooperative's new 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," pursuant to Section 4 (A) of the lease, to be the date the lease was signed, May 6, 1980, as opposed to the date the building was delivered to the Cooperative, December 8, 1981.

         B. The Litigation

         The Cooperative refused to pay the rent as adjusted using the Textual Method, and Chromium responded by terminating the lease and filing suit for possession of the property.^[7] After the Cooperative failed to vacate the Residential Section, Chromium filed a suit for ejectment. The trial court consolidated these cases.

         The trial court held a limited bench trial to determine: (1) the correct interpretation of the rent escalation clause, and (2) the correct "Lease Commencement Date." The trial court heard testimony from: David Schaeffer, the managing member of Chromium; James Chang, the head accountant for Empire Leasing (Chromium's management company); Brian DeHaven, the Director of Commercial Operations for Lenkin Company Management; and Yoav Katz, the Cooperative's expert witness and certified public accountant. At the close of trial, the trial court ordered the parties to file post-trial briefs.^[8] Based on the admitted testimony and evidence presented by both parties, the trial court concluded that (1) the rent escalation clause, as written, is unambiguous in setting forth the Textual Method for calculating the rent escalation; and (2) the Lease Commencement Date is May 6, 1980 - the date the original parties entered into the lease agreement, and not December 8, 1981, the date that the Pedas Group and Lenkin Company Management had used. The trial court accordingly entered judgment in favor of Chromium and ordered that beginning in 2010, the Textual Method be used to calculate rent increases going forward.

         After trial, Chromium issued a notice to the Cooperative that it was recalculating all of the past rent escalations using the Textual Method, thus dramatically increasing the base rent used to calculate the 2010 rent adjustment. The recalculation raised the Cooperative's rent from $7, 503.33 to $17, 700.04 per month. In response, the Cooperative filed a motion to alter or amend the trial court's decision to clarify the obligations of the parties. The trial court issued an order clarifying that Chromium could only apply the Textual Method ...