1

 The Honorable Ralph R. Erickson, United States District Judge for the District

of North Dakota, sitting by designation. 

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

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No. 07-1663

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STL 300 N. 4th, LLC, *

*

Plaintiff-Appellant, *

*

STL 400 N. 4th, LLC, *

*

Plaintiff, *

* Appeal from the United States

v. * District Court for the

* Eastern District of Missouri.

Value St. Louis Associates, L.P., *

*

Defendant-Appellee, *

*

Integrity Real Estate Corp., *

*

Defendant. *

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Submitted: January 14, 2008

 Filed: September 3, 2008

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Before COLLOTON and SHEPHERD, Circuit Judges, and ERICKSON,1

 District

Judge.

___________

SHEPHERD, Circuit Judge.
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In this diversity action, plaintiff STL 300 N. 4th LLC appeals the district court’s

grant of summary judgment and declaratory judgment in favor of defendant Value St.

Louis Associates, L.P. For the reasons explained below, we reverse and remand. 

I.

On April 21, 1964, a ground lease was entered into for real estate located at 300

North 4th Street in St. Louis, Missouri; the lease was amended on September 1, 1967.

STL 300 N. 4th LLC (“STL 300,” “landlord,” or “lessor”) is the successor in interest

to the original landlord and is the current owner of the real estate; Value St. Louis

Associates, L.P. (“Value,” “tenant,” or “lessee”) is the successor in interest to the

original tenant and is the current owner of the apartment building and other

improvements built on the real estate. 

As amended, the ground lease provides for a 76-year lease term and is

scheduled to terminate on April 20, 2040. The lease sets the annual rent for the first

40 years of the term and provides that the annual rent is to be recalculated in the 40th,

52nd, and 64th years, or 2004, 2016, and 2028, at a sum equal to six percent of the

“then appraised value of the demised premises” with a stipulation that no increase

shall exceed 25 percent of the last previous annual rent or be less than $209,034.12

or the last preceding annual rent, whichever is higher. The lease provides that

“[a]ppraisals shall be made by three qualified appraisers, one of whom shall be

appointed by Landlord, one by Tenant, and the third by the appointed appraisers.” 

At issue in this case is the definition of the term “demised premises.” STL 300

argues that “demised premises” means a “hypothetical fee simple interest” in the land,

that is the value of the land without consideration of the effect of the lease. Value

contends that “demised premises” is defined as a leased fee interest in the land, that

is the value of the land subject to the lease. The third appraiser valued the property

based on the two separate definitions. Under STL 300’s approach, the third appraiser
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 Value’s appraiser valued the property at $2.32 million. The record does not

contain the appraised value of the real estate calculated by STL 300’s appraiser. 

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valued the property at $8.33 million. Under Value’s definition, the third appraiser

valued the property at $2.7 million.2

 The impact of these vastly different appraisals

is significant. If STL 300’s approach is correct, the cost of the annual rent will

increase by 25 percent; otherwise the rent will remain at its current level. Value’s

appraiser noted in his report that, under Value’s leased fee theory, “[t]here would

appear to be little or no probability of future increases in the base rent of $209,034.”

STL 300 initiated this diversity action seeking a declaratory judgment. Both

parties agree that Missouri law governs the interpretation of the lease. In granting

summary judgment, the district court sided with Value and determined that the proper

definition of “demised premises” under the lease is the value of the property taking

into consideration the lease. The district court based its decision in part on language

from the preamble of the lease which describes the metes and bounds of the property

and sets forth certain easements to the property. At the conclusion of the preamble,

the lease provides that “[t]he above described premises are hereinafter referred to as

the ‘demised premises.’” The critical paragraph from the preamble, with the

handwritten and initialed additions italicized, is as follows:

TOGETHER WITH all of the right, title and interest, if any, of the

Landlord, of, in and to the beds of the streets, roads and avenues in front

of and adjoining the above described premises; but subject, however, to

all applicable building and zoning restrictions, regulations, and

resolutions and ordinances, as the same may affect the demised premises;

subject to easements created or to be created in favor of applicable

governmental authorities or jurisdiction and the public utility companies

for the installation of sewer lines, water mains, fire hydrants, gas, electric

and telephone and other service over, under and through the streets

named above also subject to the Lessee’s fee interest in and to the

buildings to be erected upon the premises above described, which they

hereby retain.
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Relying upon this language, the district court held that 

the handwritten language makes it clear that the plain meaning of the

language of the Lease[] establishes that the parties intended the demised

premises to be subject to the lessee[’s] fee interest in the buildings which

by the very definition of a leased fee interest means that any appraisal of

the demised premises must be based on the Landlord[’s] ownership

interest in the land with the rights of uses and occupancy conveyed by

the Lease[] to the Tenant[], the rights of each being specified in the

Lease[]. 

In support of this position, the district court relied on Mo. Baptist Children’s Home

v. State Tax Comm’n of Mo., 867 S.W.2d 510, 511-12 (Mo. 1993) (en banc), wherein

the Missouri Supreme Court held that in assessing commercial property for tax

purposes, the “[t]rue value in money” of the property “is the price which the property

would bring from a willing buyer when offered for sale by a willing seller” or “the fair

market value of the property on the valuation date.” Id. at 512. Such assessment

required consideration of the impact of a long-term lease on the property. Id. The

district court went further to state that “even assuming, arguendo, that the Lease [is]

ambiguous, which [it] clearly [is] not, the court finds that the Tenant[’s] position is the

most rational and probable interpretation.” The district court explained that as the

time remaining on the lease shortens, the value of the property, and subsequently the

rent amount, will increase because STL 300 will be nearing the point at which it will

acquire ownership of all improvements, including the buildings erected on the land.

In a separate order, the district court concluded, based on the lease’s provision

for appointment of a third appraiser, that the intent of the parties was to give the third

appraiser’s determination of value binding effect should there be a deadlock between

the parties’ appraisers. The district court deemed the appraisal process to have failed

when the parties decided not to follow the procedure outlined in the lease, instead

instructing the third appraiser to alternately determine the value under the two
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different theories. Thus, the district court held the value of the demised premises to

be $2.7 million, the appraised value determined by the third appraiser under Value’s

leased fee interest theory. 

On appeal, STL 300 raises two arguments. First, it claims the district court

erred in construing the plain terms of the lease to define “demised premises” as the

value of the land subject to the ground lease. STL 300 contends (1) the definition of

“demised premises” in the lease is clear when the lease is reviewed in its entirety, (2)

the rent-adjustment provision of the lease supports a finding that the parties intended

the appraisal to be made without consideration of the lease, (3) Value’s approach

likely would cause the absurd result of the amount of rent remaining constant during

the 76-year term of the lease, and (4) the district court’s reliance on Missouri Baptist

is misplaced. Second, STL 300 claims that the district court erred in declaring the

value of the property based solely on the third appraiser’s determination without

permitting STL 300 the opportunity to develop the record further. 

Value responds that the language of the lease unambiguously dictates that the

“demised premises” should be based on a leased fee interest in the land, and that

controlling Missouri law, specifically the Missouri Baptist case, supports that position.

Value also takes exception with STL 300’s claim that the district court erred in

declaring the value of the property based on the third-party appraisal. 

II.

In this appeal of “the district court’s grant of summary judgment, our review

is de novo, and we apply ‘the same standards as the district court and view[] the

evidence in the light most favorable to the nonmoving party.’” C.B.C. Distrib. &

Mktg., Inc., v. Major League Baseball Advanced Media, 505 F.3d 818, 821 (8th Cir.

2007), cert. denied, 128 S. Ct. 2872 (2008) (quoting Travelers Prop. Cas. Co. of Am.

v. Gen. Cas. Ins. Co., 465 F.3d 900, 903 (8th Cir. 2006)). The grant of summary
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judgment is appropriate where “there is no genuine issue as to any material fact and

. . . the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c). We

review the district court’s interpretation of Missouri state law de novo. C.B.C.

Distribution, 505 F.3d at 821. “When state law is ambiguous, we must ‘predict how

the highest court of that state would resolve the issue.’” Id. at 821-22 (quoting Clark

v. Kellogg Co., 205 F.3d 1079, 1082 (8th Cir. 2000)). 

Interpretation of a contract is a question of law in Missouri, and the general rule

of construing a lease agreement is to ascertain the intentions of the parties and to give

effect to those intentions. See Speedie Food Mart, Inc. v. Taylor, 809 S.W.2d 126,

129 (Mo. Ct. App. 1991) (“The primary rule in the interpretation of a contract is to

ascertain the intention of the parties and to give effect to that intention.”). In

determining the parties’ intentions, we consider the entire lease and apply a reasonable

construction to the lease. Dunn Indus. Group, Inc. v. City of Sugar Creek, 112

S.W.3d 421, 428 (Mo. 2003) (en banc) (per curiam) (“The terms of a contract are read

as a whole to determine the intention of the parties and are given their plain, ordinary,

and usual meaning.”); Howe v. ALD Servs., Inc., 941 S.W.2d 645, 650-51 (Mo. Ct.

App. 1997) (“In construing the lease agreement, we follow the general rules of

construction governing contracts. Two basic principles for construing contracts are:

1) all provisions of a contract must, if possible, be given effect, and 2) a contract

should be given a reasonable construction.” (internal citations and footnotes omitted)).

Neither STL 300 nor Value contends that the language of the lease is

ambiguous, rather both claim that the lease is clear in its definition of “demised

premises” and in the parties’ intentions. “A contract is ambiguous only if its terms are

susceptible to fair and honest differences. A contract is not ambiguous merely

because the parties disagree as to its construction.” Dunn Indus., 112 S.W.3d at 428

(citing Helterbrand v. Five Star Mobile Home Sales, Inc., 48 S.W.3d 649, 658 (Mo.

Ct. App. 2001). “To determine whether a contract is ambiguous, we consider the
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whole document and give the words used their natural and ordinary meaning.”

Helterbrand, 48 S.W.3d at 658. 

Viewing the lease as a whole, we note that the preamble thereof begins by

stating that the landlord “does demise and lease, . . . subject to the conditions

hereinafter expressed, the real property bounded and described as follows.” The lease

then gives a physical description of the property. Following the physical description,

the lease provides that it is subject to certain specific easements. Next the lease

contains the paragraph Value claims supports its position. This paragraph indicates

that the lease includes the landlord’s interest in “the beds of the streets, roads and

avenues in front of and adjoining the above described premises” but that the lease is

subject to zoning restrictions and regulations, easements, and “the lessee’s fee interest

in and to the buildings to be erected upon the premises above described, which they

hereby retain.” This restriction recognizes that the landlord has no interest in the

buildings constructed and that the tenant retains ownership of the buildings erected

upon the property. 

Other references to the “demised premises” in the lease support a finding that

“demised premises” refers to the land. For instance, the lease provides (1) that the

tenant has “the right to demolish, tear down or otherwise remove any buildings or

improvements located on the demised premises” at the time the lease is entered into;

(2) that the tenant will maintain insurance for “all buildings and improvements now

existing or hereafter erected upon the demised premises”; (3) that the tenant will

comply with all applicable laws and ordinances “whether or not the same require

structural repairs or alterations, which may be applicable to the demised premises, and

the sidewalks, curbs and vaults, if any, adjoining the demised premises or the use, or

manner of use, of the demised premises”; and (4) that should excavations be

undertaken on adjoining premises, the tenant shall permit the landlord or his agents

“to enter the demised premises and to shore the foundations and walls thereof, and to

do any other act or thing necessary for or incidental to the safety or preservation of the
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demised premises.” These characterizations of “demised premises” in the lease show

that the parties intended “demised premises” to mean the vacant and unimproved land

itself, without consideration of the tenant’s lease interest. Thus, looking at the lease

as a whole, we hold that “demised premises” means a hypothetical fee simple interest

in the land, or the value of the land without consideration of the effect of the ground

lease. 

This approach is supported by other cases which have determined the proper

interpretation of similar instruments is to disregard the effect of the lease on the value

of the property. See First Nat’l Bank of Mobile v. Duckworth, 502 So.2d 709, 712

(Ala. 1987) (“Based upon sound reasoning from other jurisdictions and the logical

intentions of the parties, we hold that the existence of the lease itself should not be

considered in determining the value of the leased premises.”); Olympia & York 2

Broadway Co. v. Produce Exch. Realty Trust, 462 N.Y.S.2d 456, 458 (N.Y. App. Div.

1983) (“By . . . specifically providing that the value of the land was to be considered

as vacant and unimproved, the parties manifested a clear intention that existing

structures, encumbrances and leases not be taken into account in fixing value.”);

Bullock’s, Inc. v. Security-First Nat’l Bank of Los Angeles, 325 P.2d 185, 191 (Cal.

App. Ct. 1958) (“While rental income is normally a proper factor to be considered in

determining the value of property, it obviously cannot be considered when property

is being appraised for the very purpose of determining the rent which should be

paid.”); Schipper & Block, Inc., v. Carson Pirie Scott & Co., 256 N.E.2d 854, 860 (Ill.

App. Ct. 1970) (holding that an appraiser should not have “tak[en] into consideration

as a depreciating factor the influence of the lease itself which required reappraisals

every ten years” as to do so is “improper and unfair to the lessor”). 

Further, reliance upon Missouri Baptist is not helpful to Value. That case was

relevant to the proper calculation of real estate taxes based on the fair market value of

the property, and the Missouri Supreme Court determined that, for purposes of

“[p]lacing a value on real property” the state tax commission was “quite correct to
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consider actual rent as a factor in determining the value of the property under the

income capitalization method.” Mo. Baptist, 867 S.W.2d at 513. That ruling

regarding the calculation of taxes under state law is not persuasive in this situation

where the calculation of rental payments under a lease agreement is at issue. 

The second issue raised on appeal concerns the district court’s holding that the

appraisal of the third appraiser is binding on the parties because the appointment of

a third appraiser “would be rendered meaningless if the appraisal of the third appraiser

were not binding on the parties.” We reject this approach. The lease provides for the

appointment of three appraisers initially and as a matter of course. All three

appraisers are, under the lease, required to perform an appraisal of the demised

premises. Certainly, we could foresee a circumstance where the parties are unable to

reach an agreement on the value of the property after reviewing all three appraisals.

In that situation, the opinions of a non-partisan appraiser might be given more weight

by a court, however this lease does not provide for the third appraiser to serve as a

tiebreaker or for his appraisal to be binding on the parties. 

III.

Accordingly, we reverse the district court’s entry of summary judgment in favor

of Value and declaratory judgment as to the appraised value of the demised premises

and remand this matter to the district court for further consideration consistent with

this opinion. 

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