Expo Properties, LLC v. Experient, Inc ( 2020 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 19-1750
EXPO PROPERTIES, LLC; MERCHANTS PROPERTIES, LLC,
Plaintiffs - Appellants,
v.
EXPERIENT, INC.,
Defendant - Appellee.
Appeal from the United States District Court for the District of Maryland, at Baltimore.
George L. Russell, III, District Judge. (1:14-cv-00688-GLR)
Argued: January 28, 2020 Decided: April 15, 2020
Before GREGORY, Chief Judge, WILKINSON and WYNN, Circuit Judges.
Affirmed by published opinion. Judge Wynn wrote the opinion, in which Chief Judge
Gregory and Judge Wilkinson joined.
ARGUED: Matthew John Connolly, NUTTER, MCCLENNEN & FISH, LLP, Boston,
Massachusetts, for Appellants. Christine Pham, ROSENBERG MARTIN GREENBERG,
LLP, Baltimore, Maryland, for Appellee. ON BRIEF: Michael A. Schlanger,
SCHLANGER LITIGATION CONSULTING LLC, Washington, D.C., for Appellants.
Gerard P. Martin, ROSENBERG MARTIN GREENBERG, LLP, Baltimore, Maryland,
for Appellee.
WYNN, Circuit Judge:
Plaintiffs-Appellants Expo Properties and Merchants Properties own an office
complex in Maryland, which they leased to Defendant-Appellee Experient. When the lease
term ended, there were disputes over the condition the premises should be in when
Defendant vacated, and who should pay for any work to put the premises into that
condition. Some general provisions in the parties’ lease suggested that all costs should go
to Defendant, but other, specific, provisions outlined how costs should be shared.
In the ensuing litigation, Plaintiffs relied on an estoppel certificate from several
years prior, signed by Defendant, that suggested a lease modification had occurred to
conform the lease to Plaintiffs’ reading. Plaintiffs argued that Defendant’s liability
stemmed from that lease modification. When both parties moved for partial summary
judgment, the district court held that no lease modification had occurred. For the reasons
that follow, we affirm the district court.
I.
At bottom, this case is about a Lease that covered an office building complex (the
“Premises”) in Frederick, Maryland. The origins of this Lease lie several decades ago with
predecessors-in-interest to today’s parties. While this case turns on unambiguous language
found within the four corners of the Lease, the history of the Premises and the Lease is
relevant to Plaintiffs’ arguments.
In March 1994, original landlord John Laughlin leased the Premises to original
tenant Galaxy Registration, Inc. The original Lease had a term of five years with a renewal
option for another five years. As a commercial lease, it spanned thirty-one articles, with
2
subparts, including some articles that used general language to obligate the tenant to cover
large categories of expenses, but also some articles with tailored cost-sharing provisions.
Later that month, landlord Laughlin and tenant Galaxy executed an amendment to the
Lease, which concerned the construction of a 25,700 square foot addition to the Premises.
This amendment was signed by both Laughlin and Galaxy. 1 In April 1997, a Second
Amendment—also signed by both Laughlin and Galaxy—adjusted the rent. Both
amendments also adjusted the term of the Lease.
In May 1998, landlord Laughlin wrote a letter (the “1998 Letter”) to tenant Galaxy.
The 1998 Letter concerned the terms of the Lease and arose from a dispute over who would
pay for a new fire protection system. According to the 1998 Letter, Galaxy had told
Laughlin that Galaxy was not responsible under the Lease for any costs associated with
work done on building infrastructure. Laughlin wrote the 1998 letter to “point out” that this
was not what the Lease said. J.A. 377. The 1998 Letter states, in relevant part, “our lease
makes it clear that all costs for repairs, maintenance, and capital improvements will be
borne by [the tenant] as they had been in the past when I owned both the company and the
building.” J.A. 377. In support, Laughlin only cited Article 4 (D) of the Lease. Article 4
(D) and its subparts related to “Additional Rent Payments.” J.A. 334-36. The 1998 Letter
was signed by landlord Laughlin only.
1
Over the life of the Lease, there would be four more amendments, all bearing the
title “Amendment,” and all signed by landlord and tenant together. There is no dispute that
these five amendments modified the Lease.
3
In 2002, the parties executed a Third Amendment to renew the Lease for an
additional five-year term. This Third Amendment also noted that Galaxy had become Expo
Exchange, LLC. The name change was on account of a change in ownership structure.
Tenant Expo Exchange is not to be confused with Plaintiff-landlord Expo Properties.
In 2004, original landlord Laughlin transferred his interest in the Lease to Expo
Properties, LLC—one of the Plaintiffs in this case. Landlord Expo Properties and tenant
Expo Exchange executed a Fourth Amendment in 2005 wherein the tenant leased more
space that had been constructed. The Fourth Amendment specified that the additional
space, totaling approximately 11,150 square feet, would be rented on a “Triple Net” basis.
J.A. 369. This is the first and only time “net lease” language appears in either the Lease or
the five uncontested amendments.
In 2006, Merchants Properties, the second Plaintiff in this case, acquired all
membership interests in landlord Expo Properties. In the course of the acquisition, tenant
Expo Exchange signed an Estoppel Certificate for Merchants Properties. 2 Merchants
Properties needed this Estoppel Certificate because it was securing a loan to finance the
purchase, and receipt of the Estoppel Certificate was a condition of the loan. Tenant Expo
2
An estoppel certificate is:
A signed statement by a party (such as a tenant or a mortgagee) certifying for
another’s benefit that certain facts are correct, such as that a lease exists, that
there are no defaults, and that rent is paid to a certain date. A party’s delivery
of this statement estops that party from later claiming a different set of facts.
Estoppel Certificate, Black’s Law Dictionary (10th ed. 2014).
4
Exchange executed the Estoppel Certificate because Article 26 of the Lease required it to
do so. Article 26 specified that if the Lease had been modified, an estoppel certificate would
state the way in which it was modified and include a copy of the modification agreement.
On its first page, the Estoppel Certificate recited that the original Lease had been
“modified and amended” by a list of instruments, including, without elaboration, the
“[l]etter dated May 1, 1998 from John R. Laughlin to Mr. Michael Goodwin, President and
CEO of Galaxy . . . .” J.A. 373. Another provision in the Estoppel Certificate stated that
Articles 4 D(2), 4 D(3), and 8 were “clarified” by the 1998 Letter, and that “Tenant
acknowledges that all repairs . . . are the responsibility of Tenant . . . .” J.A. 375. In this
same provision, the Estoppel Certificate quoted Article 8 of the Lease “in pertinent part.”
J.A. 375. It did not specify that any of the language of Article 8—or the language of any
other article—had been modified or deleted.
After the issuance of the Estoppel Certificate, Defendant Experient became
successor in interest to tenant Expo Exchange. This created the present alignment of
parties: Plaintiffs Expo Properties and Merchants Properties as landlords, and Defendant
Experient as tenant.
In 2011, the parties executed a Fifth Amendment to extend the Lease to July 2013.
This Fifth Amendment, in its recitals, defined “the existing Lease” as “the LEASE
5
AGREEMENT executed between [the parties] on March 17, 1994; its Four subsequent
Amendments . . . and the Estoppel Certificate dated July 18, 2006.” J.A. 384. 3
The instant dispute began in 2012 when Defendant was preparing to vacate the
premises. In June 2012, Expo Properties requested that Defendant provide inspection
reports for the roof of the building, as well as the heating, ventilation, and air conditioning
(“HVAC”) systems. In January 2013, Defendant sent summary reports to Expo Properties.
Expo Properties responded later that month with a letter that told Defendant to make the
repairs recommended in the summaries. The letter also notified Defendant that Expo
Properties would send its own inspectors and Expo Properties expected Defendant to make
any additional repairs or replacements that the new inspectors identified. This letter
supported the repair and replacements demand with reference to the Fifth Amendment to
the Lease, the Estoppel Certificate, and the 1998 Letter. It characterized the Estoppel
Certificate and 1998 Letter as amendments to the Lease.
Subsequently, Expo Properties’ inspectors, KCI Technologies, Inc., prepared a
detailed assessment of the Premises, dated May 30, 2013. That same day, Expo Properties
sent the KCI assessment to Defendant with an email reiterating that “all of the work
identified in . . . the KCI report should be performed by [Defendant] before the expiration
3
Before the district court, Plaintiffs argued that this paragraph of the Fifth
Amendment expressly incorporated the Estoppel Certificate into the Lease. The district
court held it did not because recitals are not an operative part of an agreement. Expo
Properties, LLC v. Experient, Inc, No. GLR-14-688, 2016 WL 3997290, at *8 (D. Md. July
26, 2016); see Sprint Nextel Corp. v. Wireless Buybacks Holdings, LLC, 938 F.3d 113, 127
(4th Cir. 2019) (“Maryland law recognizes the general principle that . . . recitals are not
binding . . . .”). Plaintiffs have not renewed this argument on appeal.
6
of the Lease term.” J.A. 139. Defendant did not perform the requested work. After
Defendant vacated on schedule in July 2013, Plaintiffs sued in the District Court of
Maryland for breach of contract, promissory estoppel, negligence, and declaratory relief. 4
In September 2015, Defendant moved for partial summary judgment. Defendant’s
claims from that motion that are relevant to this appeal are: (1) neither the 1998 Letter nor
the Estoppel Certificate amended the Lease; (2) Defendant was not obligated to replace
HVAC units and carpeting; and (3) Defendant was not obligated to pay for structural
repairs that Plaintiffs had not made and charged costs for as additional rent during the Lease
term. 5 Plaintiffs responded with a cross-motion for partial summary judgment. Plaintiffs
sought a declaratory judgment that, relevantly: (1) the Estoppel Certificate had amended
the Lease; (2) Defendant was required to pay for all repairs to the Premises; and (3)
Defendant was required to return the Premises in the same good order and original
condition in which Defendant and its predecessors received them.
At the heart of these claims were Article 8 of the Lease, which had a cost-sharing
provision for structural repairs, and Article 24, which had an “ordinary wear” surrender
clause exception. The Article 8 provision was relevant for Defendant’s claims (1) and (3)
and Plaintiffs’ claims (1) and (2). Plaintiffs took the position that the Lease bound the tenant
to a sweeping obligation to pay for any and all costs related to the building in every
instance—entirely contrary to any sort of cost-sharing under Article 8. Therefore, Plaintiffs
4
In the ligation before the district court, the negligence claim was dismissed.
5
Defendant also moved for summary judgment that it was not obligated to remove
interior walls and that Plaintiffs were not entitled to holdover rent. The district court did
not grant summary judgment on these issues and they are not relevant to this appeal.
7
pursued the theory that the Estoppel Certificate and the 1998 Letter amended the Lease to
eliminate the Article 8 cost-sharing provision, as well as any other cost-sharing language
in the Lease. Article 24’s ordinary wear provision is relevant to Defendant’s claim (3) and
all of Plaintiffs’ claims. The issue was whether the “ordinary wear” exception applied to
the return or replacement of the HVAC units and carpets.
The district court granted full or partial summary judgment to Defendant on the
claims relevant to this appeal. First, the district court held that neither the Estoppel
Certificate nor the 1998 Letter amended the Lease. For the HVAC units, the district court
held that the Lease required Defendant to pay for repairs and to return the Premises in the
same good order and condition which Defendant received them, except for ordinary wear.
Because Plaintiffs contended that the Lease required Defendant to replace HVAC units that
were installed when the building was constructed and to replace original thermostats with
programmable thermostats, the district court determined that Plaintiffs were actually
asking for upgrades—which the Lease did not require Defendant to perform. While the
same “ordinary wear” exception applied to carpets as to HVAC units, because the Lease
had a separate provision for carpets that created a dispute of material fact, the district court
granted in part and denied in part Defendant’s motion as to carpeting. Finally, as to the roof
and other structural repairs, the district court held that Article 8 of the Lease required the
landlord to exercise its option to enter the Premises and make necessary structural repairs
during the term of the Lease in order to charge costs to the tenant as additional rent; because
the Lease had expired, Plaintiffs could no longer pass costs to Defendant. Accordingly, the
district court granted Defendant’s motion as to structural repairs.
8
This treatment of Defendant’s motion necessarily meant that the district court
denied Plaintiffs’ converse claims: the Estoppel Certificate did not amend the Lease,
Defendant was not required to pay for all costs associated with the building, and
Defendant’s obligation to return the Premises in the same good order and condition in
which they were received was subject to an ordinary wear exception.
Following the district court’s decision, Plaintiffs gave notice of appeal. Shortly
thereafter, the parties stipulated to dismissal with prejudice of all remaining claims before
the district court. This included dismissal of the carpet claim.
II.
This Court reviews a grant of summary judgment de novo. Lee v. Town of Seaboard,
863 F.3d 323, 327 (4th Cir. 2017). The review consists of whether there are any genuine
issues of material fact, or whether the district court erred in applying the substantive law.
Id. This Court views the evidence in the light most favorable to the nonmoving party. Id.III.
Plaintiffs direct our attention to three purported errors of the district court. Plaintiffs
allege that the district court erred (1) by rejecting the proposition that estoppel certificates
are legally binding; (2) by not interpreting the lease to give effect to its “net lease” nature;
and (3) by ruling inadmissible course of performance evidence that the parties treated the
lease as a net lease and that the parties treated the Estoppel Certificate as legally binding.
Generally, Plaintiffs would like the Estoppel Certificate to control this case—either
as a contract amendment in the traditional sense, or as a clarification of an ambiguity in the
original Lease, or as a special legal document in a class of its own. Thus, instead of
9
challenging the district court’s decision piece-by-piece, Plaintiffs advocate for a
sweepingly different interpretation of the Lease.
But after conducting a de novo analysis of the Defendant’s obligations under the
Lease, we find no error in the district court’s decision. Not only was the district court
correct that the Estoppel Certificate in this case did not alter obligations under the Lease,
but it was also correct that the Lease was unambiguous regarding the disputed items and
therefore properly held that Plaintiffs’ parol evidence was inadmissible.
A.
We begin with the question of whether either the 1998 Letter or the Estoppel
Certificate modified the Lease. Plaintiffs characterized these documents as lease
modifications because, in their theory of this case, the 1998 Letter and the Estoppel
Certificate restructured the Lease by eliminating any and all cost-sharing provisions and
language, thereby making the tenant solely responsible for all building costs. Because
neither document evinces mutual assent to modify the Lease, we hold that neither
document modified the cost-sharing provisions in the Lease.
The Lease contained a choice-of-law provision specifying Maryland law, and the
parties do not dispute that Maryland law applies. Under Maryland law, to modify a
contract, “there must be mutual assent.” L & L Corp. v. Ammendale Normal Inst., 236 A.2d
734, 736 (Md. 1968). Manifestation of mutual assent includes two issues: “(1) intent to be
bound, and (2) definiteness of terms.” Cochran v. Norkunas, 919 A.2d 700, 708 (Md.
2007). There are many factors that may be relevant to determining mutual assent, “but the
most important factor is the language of the agreement.” Id. at 709. Turning to the language
10
of the agreement, Maryland uses the “law of the objective interpretation of contracts.”
Calomiris v. Woods, 727 A.2d 358, 363 (Md. 1999). Thus, “[the] search to determine the
meaning of a contract is focused on the four corners of the agreement.” Cochran, 919 A.2d
at 710.
Starting with the Estoppel Certificate, like the district court, we find it significant
that the Estoppel Certificate was signed by one party only. This, despite an integration
clause in the Lease that required amendments to be signed by both landlord and tenant. In
contrast, the five uncontested amendments to the Lease were signed by both parties. So,
within the four corners of the relevant documents, there is no evidence of intent to be
bound. Furthermore, as the district court noted, the Estoppel Certificate does not label itself
as an amendment to the Lease. It also does not describe how it modifies any obligation
under the Lease. It neither inserts language nor deletes language. Nowhere does it state that
it eliminates any cost-sharing provisions of the Lease. While it quotes Article 8 (which
related to disputed structural repairs) “in pertinent part” and does not quote the cost-sharing
portion of that section, a quotation “in pertinent part” is not equivalent to an intentional
deletion of language not quoted. J.A. 375. Thus, the Estoppel Certificate also lacks
definiteness of terms.
The 1998 Letter has the same shortcomings as the Estoppel Certificate: it is signed
by only one party and does not specify how it would modify the Lease. Furthermore, the
1998 Letter does not mention Article 8. Accordingly, because they lack mutual assent,
neither the Estoppel Certificate nor the 1998 Letter modified the Lease.
11
On appeal, Plaintiffs contend that mutual assent was irrelevant to the analysis here
because requiring mutual assent “misses the whole point of an estoppel certificate, not just
the estoppel certificate in this case, but every estoppel in every case in every state going
back decades.” Appellants’ Br. at 40. This is not correct. See, e.g., Pocatello Hosp., LLC
v. Quail Ridge Med. Inv’r, LLC, 330 P.3d 1067, 1074 (Idaho 2014) (“[I]f an estoppel
certificate does not explicitly modify the terms of the lease, it is not a mechanism by which
a lease agreement may be modified.”). Just as every lease is different, every estoppel
certificate is also different. Moreover, there is no national law of estoppel certificates. See
HRC Guam Co. v. Bayview II LLC, 2017 Guam 25 ¶¶ 39-43 (discussing state-by-state
variation in enforcement of estoppel certificates).
But there is state contract law. This Estoppel Certificate did not satisfy the
requirements of Maryland contract law for modification of a contract. Therefore, it did not
modify the Lease under Maryland law. 6
6
Plaintiffs also argue that because Defendant executed the Estoppel Certificate for
the benefit of the parties involved in Merchant Properties’ purchase of Expo Properties,
Defendant gave consideration that rendered a promise contained in the Estoppel Certificate
enforceable against Defendant. Plaintiffs suggest that so long as both a promise and
consideration exist among a group of parties, the promise is enforceable as a contract.
Plaintiffs cite the commentary to § 71 of the Restatement (Second) of Contracts for support.
That section states, “It matters not from whom the consideration moves or to whom it goes.
If it is bargained for and given in exchange for the promise, the promise is not gratuitous.”
Restatement (Second) of Contracts, § 71 cmt. e (Am. Law Inst. 1981) (emphasis added).
That statement is distinguishable from Plaintiffs’ contention because, here, Plaintiffs want
to enforce a purported promise made by the same party who gave the consideration, rather
than a promise made to the party that gave the consideration.
We further note that Plaintiffs have gestured towards, but not expanded, a theory of
promissory estoppel. Under Maryland law, promissory estoppel has four elements, one of
which is “a clear and definite promise.” Pavel Enters., Inc. v. A.S. Johnson Co., Inc., 674
12
B.
In the alternative, Plaintiffs argue that the 1998 Letter and the Estoppel Certificate,
as well as course-of-performance evidence and trade-usage evidence, clarified an
ambiguity in the Lease, and in that way eliminated any cost-sharing. Plaintiffs’ proposed
ambiguity is that the Lease obligated Defendant to pay “100 percent of the cost of all
maintenance and repairs (including structural repairs), no matter what the amount was, and
no matter whether the cost was characterized as an expense or a capital improvement,” but
this was inconsistent with the cost-sharing provisions contained in Articles 6 and 8 of the
Lease. Appellants’ Br. at 43. In effect, Plaintiffs present a circular argument that the Lease
is ambiguous because it says something contrary to their litigation position. The district
court held that the Lease unambiguously does not allocate all costs for all maintenance and
repairs, no matter what, to the tenant. We agree. Accordingly, Plaintiffs’ parol evidence is
inadmissible on this point.
Maryland follows the “law of the objective interpretation of contracts.” Calomiris,
727 A.2d at 363. “[A] written contract is ambiguous if, when read by a reasonably prudent
person, it is susceptible of more than one meaning.” Id. A determination of ambiguity
includes consideration of “the character of the contract, its purpose, and the facts and
A.2d 521, 532 (Md. 1996). The district court found that the Estoppel Certificate “makes no
promises.” Expo Properties, 2016 WL 3997290, at *8. As Plaintiffs did not develop—
either here or before the district court—their contention that this Estoppel Certificate, an
instrument which traditionally makes representations of fact, contained a promise, we do
not consider this issue. See Belk, Inc. v. Meyer Corp., U.S., 679 F.3d 146, 152 n.4 (4th Cir.
2012) (party that mentioned argument in a header but did not develop that argument waived
it).
13
circumstances of the parties at the time of execution.” Id. (quoting Pac. Indem. Co. v.
Interstate Fire & Cas. Co., 488 A.2d 486, 488 (Md. 1985)). “[T]he clear and unambiguous
language of an agreement will not give []way to what the parties thought that the agreement
meant or intended to mean.” Id. (quoting Gen. Motors Acceptance Corp. v. Daniels, 492
A.2d 1306, 1310 (Md. 1985)). Therefore, a court may consider the context of a transaction
or the custom of the trade, but may not consider intentions and negotiations of the parties.
Id. “[O]nly where there is an ambiguity in the contract is the conduct of the parties available
as practical construction of its meaning.” Walker v. Associated Dry Goods Corp., 189 A.2d
91, 97 (Md. 1963). “[W]hen the language of the contract is plain and unambiguous there
is no room for construction, and a court must presume that the parties meant what they
expressed.” Gen. Motors Acceptance Corp., 492 A.2d at 1310.
The Lease contains cost-sharing provisions for specific items. The parties plainly
and unambiguously expressed that they meant to share certain costs. Article 8 of the Lease
addresses repairs, including structural repairs (such as roof work), providing in relevant
part:
Tenant shall be responsible to make all necessary repairs during the term . . .
to the roof . . . [,] the exterior walls, foundations, sidewalks, parking lots, and
driveways, and Tenant agrees that Landlord is under no obligation to perform
any repairs and/or maintenance with respect to the Leased Premises. . . .
[Landlord] shall have . . . [the] right . . . to enter . . . [and] to make such
reasonable structural repairs and maintenance . . . as the Landlord may deem
necessary or proper. The cost of all structural repairs and maintenance,
whether performed by the Tenant or Landlord, shall be borne by the Tenant
as additional rent hereunder, except in those instances where (i) the structural
repair or maintenance is not made necessary in whole or in part as a result of
Tenant’s negligence, (ii) the cost of an item of structural repair or
maintenance is Five Thousand Dollars ($5,000.00) or more, and (iii) the
actual economic life of such structural repairs or maintenance is in excess of
14
the term of the Lease then in effect, in which case one half (1/2) of the cost
thereof shall be paid by the Tenant as additional rent hereunder and one half
(1/2) of the cost thereof shall be paid by the Landlord.
J.A. 341-42.
Thus, with respect to the roof and other structural items, the tenant is responsible
for making necessary repairs during the term of the Lease, although the landlord has a right
to enter the Premises and make repairs the landlord deems necessary. Except in the
enumerated circumstances, the tenant bears the costs for the necessary repairs made by
either the tenant or the landlord, paying them “as additional rent.” In the enumerated
circumstances, however, the tenant and landlord split the costs evenly.
Considering the character of this contract—a renewable commercial lease with a
five-year term—there is nothing out of the ordinary about Article 8. Where the tenant
caused a problem by its negligence, the tenant pays. Otherwise, for expensive work that
will benefit the landlord even after the tenant leaves, the landlord must pay some of the
cost. Moreover, the structure of the provision conditions the tenant’s cost-burden on a
repair having been made, which limits the tenant’s obligation to repairs from which the
tenant will benefit during the tenancy. Thus, looking to the context of the transaction,
Article 8 is a reasonable Lease provision as drafted.
Nevertheless, Plaintiffs point to other Lease sections which they contend conflict
with Article 8’s cost-sharing provision and render the Lease ambiguous. Specifically,
Plaintiffs claim that Article 8 was internally ambiguous by making the tenant responsible
for all necessary repairs but then including a cost-splitting provision, and that Article 8 is
15
inconsistent with Articles 2, 4, and 6, which all contain sections broadly allocating costs to
the tenant.
But Article 8 is not inconsistent with itself, or with other provisions in the Lease.
Article 8 starts by allocating costs to the tenant. It then says, “except in those instances,”
and proceeds to set out the instances in which the tenant and landlord will share costs. The
cost-sharing provision here is a cogent and specific exception to a general rule.
Article 2 of the Lease concerns the landlord’s delivery of the Premises in “as is”
condition, condition of improvements, and tenant’s fixturization. J.A. 332. It provides that
the landlord “shall not be responsible to perform any work with respect to the [Premises],
it being expressly understood that any work, special installations, and other fit-ups shall be
carried out by the Tenant at Tenant’s sole cost and expense in accordance with Plans . . .
that are subject to the prior written approval of the Landlord.” J.A. 332-33. The section
goes on to forbid mechanics’ liens that affect the Landlord’s interest in the Premises, and
to state that the Landlord has made no promises to remodel the Premises. In sum, this part
of the Lease limits the landlord’s obligations with respect to the delivery and upgrade of
the Premises. It does not conflict with the structural repairs cost-sharing of Article 8.
Article 4 of the Lease relates to the tenant’s rental covenants, and it contains many
subsections. Plaintiffs focus their arguments on Article 4 (D)(2) and Article 4 (D)(3).
Article 4 (D)(2) of the Lease provides in relevant part:
Tenant agrees to pay the costs and expenses paid or incurred by or on behalf
of Landlord for managing, operating, maintaining and repairing the Leased
Premises, including, without limitation, the cost of . . . maintenance and
repair and replacement of utility systems, . . . except as hereinafter provided.
16
J.A. 334-35.
Article 4 (D)(2) does not conflict with Article 8. Again, Article 8 starts with the
proposition that the tenant bears costs for repairs made, but then states that in specified
circumstances the costs will be split. The Article 4 (D)(2) language that the tenant agrees
to pay costs mirrors Article 8’s starting proposition. To the extent Article 4 (D)(2) and
Article 8 both address maintenance and repair of the Premises, the specific exception to the
general rule—that is, the cost-sharing provision of Article 8—is unambiguous.
Nor is there any inconsistency between Article 4 (D)(3) and Article 8. Article 4
(D)(3) allocates to the tenant the costs of capital improvements that are intended to reduce
“Landlord expenses” as well as capital improvements that are required by law. J.A. 335.
For more expensive improvements that are not required by law, the landlord must seek the
tenant’s prior written approval, which is not to be unreasonably withheld. “Landlord
expenses” is not a defined term in the Lease, but Article 4 (D)(2), immediately preceding,
obligates the tenant to pay “expenses paid . . . by . . . [the] Landlord.” J.A. 334. Thus, one
effect of Article 4 (D)(3) is to require the tenant to pay for some capital improvements
when those capital improvements benefit the tenant by reducing its obligation to cover
landlord expenses. Where the landlord’s proposal is unreasonable, the tenant may refuse.
Plaintiffs have not made any argument how Article 4 (D)(3), specifically, conflicts with
other provisions of the Lease, except that it evinces a general theme that the Lease allocates
most costs to the tenant. As explained above, the Article 8 cost-sharing provision is a
specific and unambiguous exception to any general cost allocations and is therefore not
inconsistent with Article 4 (D)(3).
17
Finally, Plaintiffs point to Article 6 (C) and (L). Article 6 (C) provides:
Tenant shall keep at its own expense (except as otherwise provided
hereinbelow) the exterior and interior of the Leased Premises, together with
all windows and glass, . . . heating, [and] air conditioning . . . in good order
and condition and surrender the same at the Lease Expiration Date in the
same good order in which they are received. . . Landlord agrees that in the
event that a repair or replacement (i) is not made necessary in whole or in
part as a result of Tenant’s negligence, (ii) is Five Thousand Dollars
($5,000.00) or more in amount, and (iii) has an actual economic life in excess
of the term of the Lease then in effect, the Landlord shall be responsible for
one-half (1/2) of the cost of such repair or replacement and the Tenant shall
be responsible for one-half (1/2) of the cost of such repair or replacement.
J.A. 338.
As with Article 8, Article 6 (C) starts with a general statement about the tenant’s
responsibility for costs, but then contains a cost-sharing provision that is a specific
exception. Article 6 (C) makes the status of the cost-sharing provision as an exception
explicit by stating “except as otherwise provided hereinbelow.” J.A. 338. Thus, Article 6
(C) is not internally inconsistent, nor is it inconsistent with Articles 2, 4, or 8, for the same
reasons that Article 8 is not inconsistent with those Lease sections.
Article 6 (L) addresses alterations to the Premises. It too has general language about
the tenant’s responsibility for “interior repairs, replacements, fixtures, and decorations.”
J.A. 340. Again, such general language is not inconsistent with the Article 8 cost-sharing
provision.
18
As the cost-sharing provisions of the Lease are not ambiguous, we do not consider
parol evidence such as course-of-performance evidence. We also do not resort to the
Estoppel Certificate or the 1998 Letter to resolve an ambiguity, as no ambiguity exists. 7
C.
Having addressed which documents constitute the Lease and whether the Lease is
ambiguous as to cost-sharing, we now turn to structural repairs and HVAC units.
1.
The district court granted Defendant’s motion for summary judgment as to the roof
and other structural repairs. As discussed above, Article 8 governs these items, and Article
8 is unambiguous. A repair must be made during the term of the Lease in order to be
charged to the tenant, and some repairs may fall into the cost-sharing provision exception
which obligates the landlord to split the cost with the tenant. The Landlord has a right to
enter the Premises and make repairs that the Landlord deems necessary, which the landlord
may then charge to the tenant, but the landlord must exercise this right, including actually
making the repairs, in order to pass on the cost for a repair. The Landlord having not made
repairs during the term of the Lease, Defendant is not obligated to pay Plaintiffs’ structural
7
With respect to Plaintiffs’ trade-usage-evidence argument, Plaintiffs contend that
the district court erred by not examining “commercial realities,” as evidenced by its failure
to cite, among other non-binding authorities, dictionaries. Appellants’ Br. at 47-48.
Plaintiffs suggest that if the district court had examined the definition of “net lease,” it
would have found the Lease ambiguous. There is no obligation for a district court to cite a
dictionary when ruling on a motion for summary judgment—especially where a
purportedly disputed term, “net lease,” does not appear in the original Lease. Plaintiffs’
attack on the district court’s citations is without merit.
19
costs, which Plaintiffs first demanded only two months before the Lease expired. We affirm
the district court on this issue.
2.
The district court also granted Defendant’s motion for summary judgment as to the
HVAC units. The issue was the condition of the Premises upon surrender. The district court
found that Article 6 (C) and Article 24 of the Lease both related to surrender. Article 6 (C),
quoted at length above, concerned “heating, air conditioning and other mechanical
equipment” and generally obligated the tenant to surrender them “in the same good order
in which they are received.” J.A. 338. Then, Article 24 obligated the tenant to “return the
[Premises] . . . in as good condition as when Tenant originally took possession, ordinary
wear . . . and damage resulting from the act of Landlord . . . excepted.” J.A. 352. Under
Maryland law, if “one [contract provision] is general in character and the other is specific,
the specific stipulation will take precedence over the general, and control it.” Heist v. E.
Sav. Bank, FSB, 884 A.2d 1224, 1228 (Md. Ct. Spec. App. 2005) (quoting Fed. Ins. Co. v.
Allstate Ins. Co., 341 A.2d 399, 407 (Md. 1975)). The district court ably applied this rule
to the Lease. Article 24 was the more specific provision with respect to the return of the
Premises. Therefore, Defendant was required to return the Premises in the same good order
and original condition in which they were received, except for ordinary wear. The district
court correctly held that the contested HVAC work, specifically replacement of HVAC
units and replacement of original thermostats with programmable thermostats, constituted
“upgrades” not required under the Lease. J.A. 1007.
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Plaintiffs argue that an ordinary-wear exception does not relieve a tenant of repair
or replacement obligations. The truth of that proposition will depend on lease provisions
in every case. For example, Plaintiffs rely entirely on a case from the Northern District of
Illinois, where the court applied Illinois contract law to a lease with a provision that
obligated the tenant to undertake replacements of disputed items “whether ordinary or
extraordinary.” Schultz Bros. Co. v. Osram Sylvania Prods., Inc., No. 10 C 2995, 2011 WL
4585237, at *2 (N.D. Ill. Sept. 30, 2011). This Lease lacks such an “ordinary or
extraordinary” clause. Moreover, on appeal, Plaintiffs have not presented an argument for
why replacing HVAC equipment with the newest model does not constitute an “upgrade”
outside the scope of the Lease. Accordingly, we affirm the district court as to the HVAC
units.
IV.
Plaintiffs sued to enforce promises that the Defendant never made. For the reasons
above, the district court properly granted summary judgment to the Defendant.
AFFIRMED
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