805 Third Ave. Co. v. M.W. Realty Associates, 58 N.Y.2d 547 (1982)

Clear, complete writings should generally be enforced according to their terms, especially in real property transactions negotiated between sophisticated, counseled business people at arm’s length.

Summary

This case concerns the enforceability of a 99-year ground lease between landlords and a tenant. The lease contained a renewal clause that, if read literally, would postpone the rent appraisal for the renewal term by 32 years. When the parties disputed the interpretation of this clause, the landlords sought to stay an immediate appraisal. The tenant claimed a scrivener’s error and sought reformation. The court held that the lease was unambiguous and enforceable as written, despite the tenant’s argument that it led to an absurd result. The court emphasized that sophisticated parties negotiated the lease and that commercial certainty in real estate transactions is paramount.

Facts

In 1960, the landlords and tenant entered into a 99-year ground lease for property on Madison Avenue. The lease provided for an initial 33-year term with two renewal options for 33 years each. The lease outlined incremental rent increases during the initial term. The renewal clause (Article 17) stated that neither party could seek an appraisal to determine the rent for the renewal term until twelve months prior to the “expiration” of the renewal term. The tenant constructed a 26-story office building on the property. The tenant exercised its option to renew for the first 33-year renewal term.

Procedural History

The landlords commenced a proceeding under CPLR 7601 to stay the appraisal, arguing it was premature. The tenant sought reformation of the lease based on a scrivener’s error. The Supreme Court granted the petition to stay the appraisal, finding the lease clear and unambiguous. The Appellate Division affirmed. The dissenting justices believed the provision was so at odds with normal business practice as to render its meaning unclear, necessitating a trial. The tenant appealed to the Court of Appeals.

Issue(s)

Whether the word “expiration” in the lease’s appraisal clause (Article 17) was a scrivener’s error, rendering the clause unenforceable as written.

Holding

No, because the lease was unambiguous, and its literal enforcement did not lead to an absurd result or render the lease unenforceable.

Court’s Reasoning

The Court of Appeals held that the lease was unambiguous and enforceable as written. The court emphasized that New York law dictates that clear, complete writings should be enforced according to their terms, especially in real property transactions where commercial certainty is paramount. The court stated: ” ‘It is axiomatic that a contract is to be interpreted so as to give effect to the intention of the parties as expressed in the unequivocal language employed.’ ” The court found that the lease was negotiated by sophisticated business people with counsel. While the retrospective appraisal mechanism might be unconventional, this did not justify ignoring the plain language of the contract. The court rejected the tenant’s claim of scrivener’s error, noting that the statute of limitations for reformation had expired. The court distinguished cases where transposition, rejection, or supplying of words would be appropriate, limiting such actions to instances where an absurdity has been identified or the contract would otherwise be unenforceable. The court reasoned that Article 17, considered in isolation or within the entire lease, was clear, complete, and allowed for the implementation and enforcement of its terms.