Ever wonder what is included in your commercial or residential space when a lease uses the word "premises?" According to the State's highest court, the definition of that term will be governed by the parties' agreement.
In South Road Assoc., LLC v. International Business Machines Corp., a dispute arose as to whether the word "premises" solely encompassed the buildings' interior areas or also included the land upon which the structures had been erected.
IBM occupied several buildings in Poughkeepsie, New York, pursuant to a 1981 lease with its landlord. The agreement described the "premises" in question as follows:
That the Landlord hereby leases to the Tenant and the Tenant hereby hires and takes from the Landlord the space being more particularly shown on the attached floor plan designated Exhibit 'A' (hereinafter called the 'premises') consisting in the aggregate of 113,400 gross square feet in two buildings consisting of 113,400 gross square feet (hereinafter called the 'buildings') situated on real property (hereinafter called the 'land') located at 622 South Road (Route 9), and a Water Tower and appurtenances in the Town of Poughkeepsie, State of New York (her[e]inafter referred to as Buildings 952, 982).During its tenancy, IBM installed an underground chemical-waste storage tank which leaked and contaminated the site's bedrock, groundwater and soil. While IBM accepted responsibility for the spill and agreed to abate the pollution, the landlord still commenced an action in the Dutchess County Supreme Court alleging IBM had breached its lease by failing to return the premises in "good order and condition."
With respect to that particular obligation, the governing agreement provided that at the end of the lease term:
[T]he Tenant will remove its goods and effects...and will (a) peaceably yield up to the Landlord the premises in good order and condition, excepting ordinary wear and tear, repairs required to be made by the Landlord, or damage, destruction or loss by fire or other casualty or by any other cause...and (b) repair all damage to the premises and the fixtures, appurtenances and equipment of the Landlord therein, and to the building, caused by the Tenant's removal of its furniture, fixtures, equipment, machinery and the like and the removal of any improvements or alterations.When the parties moved for summary judgment--that is, a judicial decision deciding the case based solely on the papers presented by the litigants, without the need for a formal evidentiary hearing or trial--the Dutchess County Supreme Court found in the landlord's favor. The Appellate Division, Second Department, reversed concluding that the "clear and unambiguous" language of the parties' lease limited the encompassed space to the building's interior areas and could not "be construed to include the surrounding soil and groundwater." On appeal, the New York State Court of Appeals sided with the Appellate Division and concluded as follows:
Since the meaning of "premises" is clear and unambiguous in the lease, extrinsic evidence such as the conduct of the parties may not be considered. IBM's conduct--placing underground storage tanks in the surrounding land and cleaning the resulting pollution--is not sufficient to create an ambiguity in the lease where the language is clear...The contract, read as a whole, clearly and consistently uses the term "premises" to refer only to interior space and we cannot rely on extrinsic evidence to find otherwise.Clearly, by this decision, the state's highest court is cautioning all parties to a lease to ensure that their agreements are appropriately premised.
For a copy of the Court of Appeals's decision in South Road Assoc., LLC v. International Business Machines Corp., please click on the following link:
http://www.nycourts.gov/reporter/3dseries/2005/2005_02414.htm
For a copy of the Appellate Division's decision in this case, please click on the following link:
http://www.nycourts.gov/reporter/3dseries/2003/2003_19986.htm