Court Opinion

ID: 2733279
Source: CourtListenerOpinion
Date Created: 2014-09-16 18:08:30.565415+00
Date Added: 2024-06-11T12:16:12.507142
License: Public Domain

FILED
                                                                                                             COURT OF At PEALS
                                                                                                                  DIVISION Ii

                                                                                                         2 0 1 4 SEP 16 '‘ AM 1 :   00

                                                                                                             ST

                                                                                                             BY
                                                                                                                         U
      IN THE COURT OF APPEALS OF THE STATE OF WASHINGTONN'`

                                                      DIVISION II

    VIKING BANK,                                                                         No. 44925 -1 - II

                                            Respondent,

           v.

                                                                                  PUBLISHED OPINION
    FIRGROVE COMMONS 3, LLC,

                                            Appellant.

          MAxA, J. —       Firgrove Commons 3, LLC ( Firgrove) appeals the trial court' s declaratory

judgment that its tenant, Viking Bank, does not owe management fees Firgrove incurred with

respect to its lease with Viking Bank. Firgrove argues that Viking Bank is responsible for the

management        fees because the lease         provides   for " triple   net" rent,'   and states that the tenant will

pay all costs and expenses incurred in connection with the leased property. Clerk' s Papers ( CP)

at 16. However, we hold that when viewed as a whole, the lease does not require Viking Bank to

pay management fees. Accordingly, we affirm.

                                                            FACTS

          Firgrove owns a parcel in a four -
                                           parcel business development in Puyallup known as the

Firgrove Commons Shopping Center. A fast food restaurant and an office /retail building occupy

1
    The trial   court   stated   that "[   a] triple net lease means the tenant pays the taxes, the insurance,
costs of repair, and costs of maintenance."               CP   at   102.
44925 -1 - II

two of the other parcels in the shopping center, and the fourth parcel remains undeveloped. The

four parcels share common areas, including areas used for ingress and egress.

         In 2008, Firgrove entered into a long term commercial ground lease of the parcel with

Viking Bank. As contemplated in the lease, Viking Bank constructed a building on the leased

premises for use as a retail banking facility. In March 2010, Viking Bank moved into its newly

constructed building and began paying rent to Firgrove.

          The lease provides that Viking Bank will be responsible for the base annual rent. The

lease   states   that the   rent shall   be   paid as " `   triple   net' rent without   deduction   or offset."   CP at

102. It further explains that

           i]t is the intent of the parties, except as is otherwise provided in this Lease, that
          Base Annual Rent provided to Landlord shall be absolutely net to Landlord, and
          Tenant shall pay all costs, charges, insurance premiums, taxes, utilities, expenses,
          and prorated share of maintenance for common area CAM expenses, and
          assessments of every kind and nature incurred for, against, or in connection with
          the Ground Leased Premises and Property.

CP at 102.

          Under the lease Viking Bank also must pay a portion of the common area maintenance

 CAM) expenses. The lease defines " CAM Expenses" as " the reasonable costs and expenses of

maintaining       or   repairing any     entrances    to    or sidewalks within [ the    development]."     CP at 16. But

Viking Bank otherwise is responsible for maintaining the non -common leased premises. Section
7. 1 of the lease expressly provides that Viking Bank will maintain its leased premises at its own

expense. And CAM expenses do not include the cost or expense of snow removal, landscaping,

or other work done on or around the leased premises itself. Further, the lease requires Viking

                                                                     2
44925 -1 - II

Bank to pay the parcel' s property taxes directly to Pierce County and either pay or cause to be

paid all utilities used on the premises, including sewer and trash disposal.

         Without consulting Viking Bank, Firgrove hired a property manager to manage the

Firgrove Commons Shopping Center. The property manager maintained the common areas

through its employees or hired independent contractors to do maintenance, and billed the

tenants /owners for their shares of CAM expenses. The property manager also negotiated a

contract with a company to do sweeping and snow /ice removal for the common area driveways.

The property manager performed other administrative functions regarding Viking Bank' s lease,

such as billing Viking Bank for monthly rent, property taxes, and sewer charges. Firgrove

agreed to pay the property management company a fee equal to five percent of Viking Bank' s

rent for work relating to Viking Bank' s lease.

         In November 2010, the management company (on behalf of Firgrove) billed Viking Bank

for the five percent property management fee. Viking Bank refused to pay the fee. Viking Bank
then filed a complaint for declaratory judgment seeking the trial court' s determination of whether

or not it owed Firgrove the management fees under the terms of the lease. Firgrove filed a

counterclaim alleging that Viking Bank breached the lease by failing to pay the management fee.

         After a one -day bench trial, the trial court concluded that the lease does not expressly or

implicitly require Viking Bank to pay the management fee Firgrove incurred for the leased

property, and that Viking Bank was not in breach of the lease. Firgrove appeals.

                                             ANALYSIS

          The parties dispute whether the terms of the lease require Viking Bank to reimburse

Firgrove for the fee it paid the property management company for work relating to Viking

                                                   3
44925 -1 - II

Bank' s lease. The lease does not expressly address responsibility for management fees. Viking

Bank argues that the lease does not contemplate management fees because the parties intended

the bank to manage its own premises. It further argues that Firgrove' s interpretation creates

uncertainty by allowing the landlord to alter the terms of the agreement by unilaterally hiring a

third party to perform administrative tasks that it could do itself and negotiating a management

fee that is not related to the time, efforts, or costs expended for the work performed on the leased

premises. Viking Bank contends that if Firgrove intended to hire a management company and

pass along that cost to the tenant, it should have negotiated that term and specifically addressed it

in the lease.

          Firgrove argues that the plain language of section 3. 5 of the lease requires Viking Bank to

pay the management fee. Firgrove emphasizes that under section 3. 5, the rent Viking Bank pays
will   be " triple   net" and "   absolutely   net"   to Firgrove. Br.    of   Appellant   at   15. Firgrove argues that

if Viking Bank does not pay the management fee, the rent will not be absolutely net. Further,

Firgrove points out that section 3. 5 expressly provides that Viking Bank must pay " all costs,

charges ...     expenses ...      of   every kind     and nature   incurred ...   in connection with the Ground

Leased Premises         and   Property," and argues that the management fee is such an expense. CP at

16.

          We agree with Viking Bank and hold that the lease does not require Viking Bank to

reimburse Firgrove for the management fee it unilaterally incurred for its own benefit and

convenience.

                                                              4
44925 -1 - II

A.        STANDARD OF REVIEW

          When a court relies on inferences drawn from extrinsic evidence, interpretation of a

contract is a question of fact. Berg v. Hudesman, 115 Wash. 2d 657, 667 -68, 801 P.2d 222 ( 1990).

But contract interpretation is a question of law when the interpretation does not depend on the

use of extrinsic evidence.       Wash. State Major League Baseball Stadium Pub. Facilities Dist. v.

                      Kiewit Constr. Co., 176 Wash. 2d 502, 517, 296 P.3d 821 ( 2013);
Huber, Hunt & Nichols -                                                                              see also

Mut. of Enumclaw        v.   USFIns. Co., 164 Wash. 2d 411, 424     n.   9, 191 P.3d 866 ( 2008) ( noting that

when a contract presents no ambiguity and no extrinsic evidence is required to make sense of the

contract terms, contract interpretation is a question of law); Keystone Masonry, Inc. v. Garco

Const., Inc., 135 Wash. App. 927, 932, 147 P.3d 610 ( 2006) ( "[ a] bsent disputed facts, the legal

effect of a contract is a question of law that we review de novo. ").

          We review a trial court' s decision following a bench trial by asking whether substantial

evidence supports the trial court' s findings of fact and whether those findings support the trial

court' s conclusions of law. Casterline v. Roberts, 168 Wash. App. 376, 381, 284 P.3d 743 ( 2012).

Substantial evidence is the quantum of evidence sufficient to persuade a rational, fair -
                                                                                        minded

person the premise is true. Sunnyside Valley Irrigation Dist. v. Dickie, 149 Wash. 2d 873, 879, 73
P.3d 369 ( 2003).      The application of the law to the facts is a question of law that this court

reviews    de   novo.   Brundridge   v.   Fluor Fed. Servs., Inc., 164 Wash. 2d 432, 441, 191 P.3d 879

 2008).    Therefore, we review the trial court' s conclusions of law pertaining to contract

interpretation de novo. See Mitchell v. Wash. State Inst. ofPub. Policy, 153 Wash. App. 803, 814,

225 P.3d 280 ( 2009).

                                                         5
44925 -1 - 1I

         Here, the trial court heard testimony and considered documentary evidence before

interpreting the lease provisions. However, the court did not rely on any extrinsic evidence as

contemplated in Berg in interpreting the lease. Accordingly, we interpret the lease as a matter of

law based on a de novo standard of review.

B.         PRINCIPLES OF CONTRACT INTERPRETATION

           The primary objective in contract interpretation is to ascertain the mutual intent of the

parties at the time they executed the contract. Int' l Marine Underwriters v. ABCD Marine, LLC,

179 Wash. 2d 274, 282, 313 P.3d 395 ( 2013).               Washington follows the " objective manifestation

theory" of contract interpretation, under which the focus is on the reasonable meaning of the

contract language to determine the parties' intent. Hearst Commc 'ns, Inc. v. Seattle Times Co.,

154 Wash. 2d 493, 503, 115 P.3d 262 ( 2005). "             We generally give words in a contract their

ordinary, usual, and popular meaning unless the entirety of the agreement clearly demonstrates a

contrary intent."     Hearst, 154 Wash. 2d at 504. And we view the contract as a,whole, interpreting

particular language in the context of other contract provisions. See Weyerhaeuser Co. v.

Commercial Union Ins. Co., 142 Wash. 2d 654, 669 -70, 15 P.3d 115 ( 2000).

           To assist in determining the meaning of contract language, we also apply the " context

rule" adopted in Berg, 115 Wash. 2d at 666 -69. This rule allows examination of the context

surrounding a contract' s execution, including the consideration of extrinsic evidence to help

understand the parties' intent. Hearst, 154 Wash. 2d at 502. However, extrinsic evidence is to be

used " `   to determine the meaning of specific words and terms used' and not to ` show an intention

independent     of   the instrument'   or   to ` vary,   contradict or   modify the   written word.' "   Hearst, 154
44925 -1 - II

Wn.2d      at   503 (   emphasis   in   original) ( quoting. Hollis v.     Garwall, Inc., 137 Wash. 2d 683, 695 -96,

974 P.2d 836 ( 1999)).

            If a contract provision' s meaning is uncertain or is subject to two or more reasonable

interpretations after analyzing the language and considering extrinsic evidence ( if appropriate),

the provision is ambiguous. See Jensen v. Lake Jane Estates, 165 Wash. App. 100, 105, 267 P.3d
435 ( 2011).       We generally construe ambiguities against the contract' s drafter. Pierce County v.

State, 144 Wn.          App.   783, 813, 185 P.3d 594 ( 2008);        see also Johnny' s Seafood Co. v. City of

Tacoma, 73 Wn.            App.   415, 420, 869 P.2d 1097 ( 1994) ( noting            that ambiguities in lease drafted

by   a   lessor   are resolved     in favor   of   the lessee).   However, if the drafter is unknown or if the

parties drafted the contract together, we will adopt the interpretation that is the most reasonable

and just. See Berg, 115 Wash. 2d at 672.

C.         ANALYSIS OF LEASE SECTION 3. 5

           The crucial provision in the lease is section 3. 5, which states:

           All Base Annual Rent payable hereunder                  shall   be   paid as "   triple net" rent without

            deduction or offset. It is the intent of the parties, except as is otherwise provided
           in this Lease, that Base Annual Rent provided to Landlord shall be absolutely net
           to Landlord, and Tenant shall pay all costs, charges, insurance premiums, taxes,
            utilities, expenses, and prorated share of maintenance for common area CAM
            expenses, and assessments of every kind and nature incurred for, against, or in
            connection with the Ground Leased Premises and Property.

CP   at   16 (   emphasis added).        This provision requires an analysis of the meaning of "triple net"

rent and " absolutely net" rent.2

2 As noted above, in interpreting this contract language we are allowed to consider extrinsic
evidence regarding the context surrounding the contract' s execution. Here, the trial court noted
no evidence that provided any meaningful assistance in ascertaining the parties' intent regarding
the meaning of these terms.
                                                                   7
44925 -1 - II

          The Washington Real Property Deskbook defines a " triple net" lease as one in which the

tenant   pays all expenses (               property taxes   and   insurance), maintenance, and utilities. 2 WASH.

STATE BAR ASS' N, WASHINGTON REAL PROPERTY DESKBOOK SERIES: REAL ESTATE ESSENTIALS

                               4th
  18. 1( 2),    at   18 -5 (         ed.   2009) ( DESKBOOK).       Black' s Law Dictionary defines a triple net lease

as one in which "the lessee pays all the expenses, including mortgage interest and amortization,

leaving   the lessor       with an amount          free   of all claims."    BLACK' S LAW DICTIONARY 972 ( 9th ed.

2009).    In the only published Washington case discussing triple net leases, our Supreme Court

stated without citation that a triple net lease means " the tenant bears the operating expenses."

See Fisher Props., Inc.               v.         Mayfair, Inc., 115 Wash. 2d 364, 370 n.1, 798 P.2d 799 ( 1990).
                                           Arden -

The Deskbook defines an " absolute net" lease as one that implies that the landlord is to have no

expense associated with                the property. §      18. 1( 2).   No Washington cases discuss the meaning of

 absolutely net" rent. None of these definitions specifically mention management fees in

connection with a triple net lease or an absolute net lease.

          Firgrove points out that the common understanding of a triple net lease is a broad shifting

of expenses from the landlord to the tenant. It argues that the characterization of the lease as

  triple net" or " absolute net" demonstrates that the parties intended to allocate to the tenant all

the expenses in connection with the leased property, leaving the landlord with no expenses.

According to Firgrove, the plain language of section 3. 5 supports this conclusion in that it

requires the tenant to pay all costs, charges, and expenses " of every kind and nature" incurred in

connection with the leased property. CP at 16. Firgrove argues that under this analysis, Viking

Bank must be required to pay management fees.

                                                                         8
44925 -1 - II

         We disagree, and hold that that the language of section 3. 5 and the contract as a whole

does not support Firgrove' s position for three reasons. First, many of the management

company'    s   duties —such   as collecting rent, property taxes, and sewer charges from Viking Bank

  relate to administration and enforcement of the lease provisions. But section 3. 5 requires the

tenant to pay expenses " incurred for, against, or in connection with the Ground Leased Premises

and   Property." CP at 16. In other words, the tenant must pay only those expenses incurred in

connection with the leased property, not expenses incurred in connection with the lease. The

management company' s collection activities involved expenses in connection with the lease but

not the leased property. Therefore, they are not within the scope of section 3. 5.

         Second, section 3. 5 states a general term ( all costs, charges, and expenses) followed by

specific terms ( insurance premiums, taxes, utilities, prorated share of maintenance for CAM

expenses, and assessments of       every kind). Under the maxim ejusdem generis, a general term

used in conjunction with specific terms will be deemed to include only those things that are in

the same class or nature as the specific ones. Simpson Inv. Co. v. Dep' t ofRevenue, 141 Wash. 2d
139, 151, 3 P.3d 741 ( 2000) ( discussing the    maxim as a rule of   statutory interpretation);   Kitsap

County v. Allstate Ins. Co.,     136 Wash. 2d 567, 590 -91, 964 P.2d 1173 ( 1998) (   discussing the

maxim as a principle of contract      interpretation).   Here, payment of the expenses specifically

listed in section 3. 5 is necessary for the tenant' s continued use and occupancy of the leased

premises. As such, payment of these expenses benefits the tenant. But payment of the expense

for collecting rent, taxes, and utility payments is not necessary for continued use and occupancy,

and did not benefit Viking Bank. Instead, hiring a management company to collect these

                                                         9
44925 -1 - II

payments was for Firgrove' s own benefit and convenience. Therefore, expenses relating to the

management company' s collection activities are not within the scope of section 3. 5.

          Third, other lease provisions show that the parties contemplated that Viking Bank, and

not Firgrove or its agents, would assume responsibility for many of the duties the management

company undertook. Specific lease provisions require Viking Bank to ( 1) pay rent without

notice or      demand ( section 3. 1); (        2) pay the property taxes directly to the taxing authority and

retain   a tax service to notify           landlord the taxes have been       paid ( section   3. 2); (   3) pay all utilities

including       water,     heat,   gas,   electricity, trash disposal,   sewers ( section   3. 3); (   4) carry

comprehensive liability insurance, fire and extended coverage property insurance ( section 11. 1,

 2);   and (   5)   maintain   the leased      premises ( section   7. 1).   In other words, under the lease Viking

Bank is contractually obligated to act as the " manager" of the leased property. Interpreting

section 3. 5 as requiring Viking Bank to pay a property management company to duplicate its

own management responsibilities would be inconsistent with the other lease provisions.

          Based on this analysis, we hold that under section 3. 5 Viking Bank is not required to pay

the management fees to the extent they relate to collecting rent, property taxes, and sewer

charges from Viking Bank, or any other lease administration activities.

          However, Firgrove argues that the management company' s services are needed in order

to provide common area maintenance. Both sections 3. 4 and 3. 5 expressly require Viking Bank

to pay CAM charges, which are the " reasonable costs and expenses of maintaining or repairing

any    entrances      to   or sidewalks within [the       development]."        CP at 16. Viking Bank does not

dispute this obligation, and in fact has paid all CAM charges for which it has been billed. As a

                                                                 10
44925 -1 - II

result, if the management company' s services are necessary for common area maintenance,

Viking Bank is required to pay expenses associated with those services.

         Here, Firgrove made no effort to allocate a portion of the management company' s fee to

CAM charges, and instead charged Viking Bank a percentage of the rent for all management

services. Based on the analysis above, we hold that Viking Bank had no obligation to pay that

unallocated percentage.

         The trial court concluded that Viking Bank was not required to pay the charged

management fee. Accordingly, the trial court entered a declaratory judgment in favor of Viking

Bank. We affirm the trial court' s ruling.

D.       ATTORNEY FEES ON APPEAL

         Firgrove and Viking Bank both request reasonable attorney fees on appeal based on

section 18. 8 of the lease which provides that the prevailing party is entitled to reasonable

attorney fees. 3 When a contract provides for an attorney fee award in the trial court, the party

prevailing before this court may seek reasonable attorney fees incurred on appeal. First- Citizens

Bank & Trust Co.         v.   Reikow, 177 Wn.       App.    787, 799, 313 P.3d 1208 ( 2013); see also RAP 18. 1.

Here the lease    provides      that "[   i] f either party retains an attorney to enforce or interpret this

Lease, the prevailing party         shall   be   entitled   to   recover ...   reasonable attorneys' fees and costs

incurred through litigation,        bankruptcy       proceedings, and all appeals."        CP at 31.

         As the prevailing party, Viking Bank has a contractual right to recover its attorney fees

and costs under the terms of the lease. Accordingly, we hold that Viking Bank is entitled to

3 The parties stipulated that their claims for attorney fees in the trial court would be determined
 after our   decision.
44925 -1 - II

recover its attorney fees and costs on appeal. We deny Firgrove' s request for attorney fees and

costs because it is not the prevailing party.

         We affirm.

 We concur:

                                                 12