State, Dep't of Economic & Community Dev. v. Attman/Glazer PB Co.

ORDER PER CURIAM. For reasons to be stated in an opinion later to be filed, it is this 13th day of May, 1991 ORDERED, by the Court of Appeals of Maryland, a majority of the Court concurring, that that part of the judgment of the Circuit Court for Anne Arundel County ordering that appellee, Attman/Glazer P.B. Company, perform its agreements: (1) to admit the public necessity for and valid public purpose of the condemnation action entitled State of Maryland v. Attman/Glazer P.B. Company, Case No. 1121327, and (2) to accept the sum of seven million five hundred eighty-three thousand three hundred thirty-three dollars and thirty-three cents ($7,583,333.33) as the fair market value of the property condemned is affirmed, and it is further ORDERED that that part of the judgment of the Circuit Court for Anne Arundel County which directs the appellant to continue to pay rent for the property which is the subject of these proceedings until payment by the State of Maryland of the award in the condemnation action referred to above in accordance with that court’s previously entered orders is affirmed, and it is further ORDERED that that part of the judgment of the Circuit Court for Anne Arundel County which declares that the appellant is entitled to set off against the additional rent due under the lease between the parties (resulting from the conversion of storage areas in the property to office use) the appellant’s cost of making the conversion is reversed, and it is further ORDERED that the case shall be remanded to the Circuit Court for Anne Arundel County for further proceedings on the appellant’s claim for damages occasioned by the delay ⁵⁹⁶ caused by appellee’s failure to perform its agreements relating to the condemnation action entitled State of Maryland v. Attman/Glazer P.B. Company. Costs to be paid, two-thirds by the appellee and one-third by the appellant. Mandate to issue forthwith.

OPINION KARWACKI, Judge. On May 21, 1981, Attman/Glazer P.B. Company (AG), a limited partnership, leased an office building which it was to construct on land to be known as 45 Calvert Street in Annapolis to the State of Maryland for use of the Department of Economic and Community Development (DECD). The lease was restated by the parties with slight modifications on February 4, 1982. The original term of the lease was for five years, but the State was given the option to renew the lease for two additional terms of five years each.

The building was completed, and by amendment to the lease, the parties agreed that the original term of the lease would commence on October 29, 1983. The rent for the leased premises was based upon the building’s net usable office space and net usable storage space. 1 After completion of the building, it was determined that it contained 75,000 square feet of net usable office ⁵⁹⁷ space and 10,000 square feet of net usable storage space. The State paid rent based upon this determination from the commencement of the lease term on October 29, 1983. Under the lease, the State, as lessee, only had the right to make improvements to the premises with the prior written consent of AG. 2 On May 2, 1985, Mr. John Juba of DECD wrote AG, requesting permission to convert a portion of the basement of the building from storage to office use.

Mr. Lowell R. Glazer, a general partner of AG, replied by letter of May 7, 1985, stating: “Dear Mr. Juba: I received your request of May 2 for additional office space and conference room in the basement at 45 Calvert Street. You have my permission to proceed. I must remind you that we are still in the final stages of obtaining our occupancy permit and you might experience difficulty in obtaining permits and approval from the City of Annapolis. You can be assured that you will have our full cooperation.

I am forwarding a copy of this letter and your specifications to Steve Harris so that we might help you coordinate your work with the City. ⁵⁹⁸ I will also have to review the area being remodeled to see what classification it is on the original basement allocation of rent. If some of the storage area is now being converted to office space, it will have to be reflected in the rent. If you need any additional information, please do not hesitate to contact me.” Over the next three years the improvements were completed at a cost to the State in excess of $165,000. Attman/Glazer Building Co., which is owned by the general partners of AG, was the general contractor for this conversion of 8,000 square feet of storage space to office space.

The State continued to pay rent based on the original allocation of office and storage space for the next four years. AG never made any demand for increased rent which Mr. Glazer had referred to in his letter approving the conversion of space in the basement of the building. At trial, he explained that AG was silent on the issue of increased rent because “we had what we felt was a ... good tenant in a building on a long-term lease.” On March 9, 1988, the State notified AG that it was exercising its option to renew the lease for an additional five year term. On May 2, 1988, the State sent AG a copy of the agenda item of the Board of Public Works approving that renewal.

That agenda item noted that the State would continue to pay rent for 75,000 square feet of office space and 10,000 square feet of storage space. In its Budget Bill for fiscal year 1990, which became effective on July 1, 1989, the General Assembly appropriated funds for the State’s acquisition of the building it was leasing from AG at 45 Calvert Street in Annapolis. That acquisition had been contemplated by the State and AG since the inception of the State’s tenancy. Paragraph 22 of the lease provided: “The Lessee has advised the Lessor that it anticipates that it may effect the condemnation of the Premises and all of the land appurtenant thereto (comprising approxi ⁵⁹⁹ mately .946 acres) during the term of this Lease or any renewal term thereof.

In the event that the property is condemned by the Lessee (or any agency or instrumentality of the Lessee) during the term of this Lease or any renewal thereof, and if such Petition for Condemnation contains an offer based on the average of three appraisals obtained as specified below, net of all costs incident to the condemnation proceedings and transfer of title for the property anticipated to be condemned, the Lessor agrees, intending to be absolutely bound hereby (i) to admit the public necessity for and valid public purpose of such condemnation and (ii) to accept the sum based on the average of the three appraisals for its interest in the property. The Lessor and the Lessee agree that the foregoing agreements of the Lessor shall be null, void and of no effect whatsoever (and shall not be admitted into evidence in any condemnation proceeding) unless the Lessee offers the sum based on the average of the three appraisals for the property in a Condemnation Petition filed during the term of this Lease or any renewal thereof.” It was undisputed at trial that this method of acquisition was chosen over a purchase option in the lease in part because of objections which the City of Annapolis had to the development of a building at the site of 45 Calvert Street by AG which might be offered for sale to a public agency, thereby removing that real estate from its assessable tax base. (The building site was located in an urban renewal area over which the City of Annapolis possessed development control.) 3 It was also undisputed that the condemnation mode of acquisition by the State was preferred by the partners of AG because they would receive more beneficial federal and state income tax treatment from such an acquisition than from a sale of the property. ⁶⁰⁰ AG had followed the State budget process and was aware in December of 1988 of the distinct possibility that the State would condemn its interest in the property. On March 28, 1989, Mr. Glazer wrote to the State demanding increased rent for the 8,000 square feet of basement area in the building which had been converted from storage to office space.

He proposed that the increase would be effective with the first monthly installment of rent due by the State in November of 1988 by virtue of the renewal of the lease effective on October 29, 1988. In June, 1989, AG retained a real estate appraiser, M. Ronald Lipman, to evaluate the value of its interest in 45 Calvert Street. As AG expected, on July 6, 1989, the State notified AG that it was initiating steps for its possible condemnation of the property pursuant to Paragraph 22 of the Lease. 4 Also, on July 11, 1989, it replied to Mr. Glazer’s letter of March 28, 1989, stating: “Our records indicate that the State has paid all costs connected with the conversion of storage space to other uses. Therefore, we do not believe you have any cause to change the rent as stated in the original lease document.” ⁶⁰¹ Consistent with Paragraph 22 of the lease, the State and AG named experts to appraise 45 Calvert Street.

The State selected Donald XJrquhart, and AG named M. Ronald Lip-man. XJrquhart and Lipman jointly selected Mr. Philip Klein to serve as the third appraiser. Before any of the appraisals had been completed, an attorney representing AG wrote to the appraisers, requesting that each compute alternative valuations of the property: one based its value after deducting the leasehold interest of the State and the other disregarding the existence of the lease. Each of the appraisers complied.

The average of the three appraisals which took the State’s leasehold interest into account was $7,583,383; the average appraisal value disregarding the lease was $9,550,000. While the appraisals were being formulated, Mr. Glazer wrote to the State on October 19, 1989, again demanding increased rent for the 8,000 square feet of basement area that had been converted from storage use to office space from October 29, 1988, until the State acquired the leased premises by condemnation. That letter concluded: “Pursuant to Paragraph 27 of the Lease Agreement, this letter will constitute written notice of the default by the State. If the State has not cured this default within 45 days, we will be forced to terminate the lease and take possession of the premises.

If you have any questions with regard to this matter, please do not hesitate to contact me.” Responding on November 27, 1989, the State’s representative wrote: “Our office has reviewed your request for additional rent monies concerning storage space that was converted to office use. As we have previously explained, we do not feel obligated in any way to adjust the rent since all conversion was done at the State’s expense. We do not believe that we are in default of the lease agreement as you have stated in your letter. However, in order to fully protect our interests, if you do not rescind your demand for rent by the end of the ⁶⁰² week, the State will file a declaratory judgment action in order to ensure that our full interests under the lease are protected.” On December 4, 1989, the State filed a Complaint for Declaratory and Equitable Relief in the Circuit Court for Anne Arundel County (Civil Action No. 3113812).

It sought a declaration that (1) AG had waived any right it may have had to declare the State in default on the lease for not paying higher rent on the space which had been converted from storage to office use; (2) if AG had not waived the right to higher rent for the converted space, the State was entitled to credit for the cost of converting the space; and (3) the State was not in default on the lease because the cost of converting the space exceeded the alleged rent due. It also asked for an order enjoining AG from commencing any eviction proceeding to regain possession of 45 Calvert Street and for any other and further relief to which it might be entitled. AG filed an answer to the complaint. Neither party requested a jury trial.

On January 19,1990, the State filed a petition in the same court (Civil Action No. 1121327) to condemn AG’s interest in 45 Calvert Street. On February 16, 1990, the State amended that petition to offer $7,583,333 for AG’s interest, net of all costs incident to the condemnation proceedings and transfer of title for the property. In its answer to the amended petition for condemnation, AG refused to admit that the condemnation was for a valid public purpose and denied that the amount offered was proper. Thereafter, the State amended its action for declaratory and equitable relief by adding a Count II in which it sought specific performance by AG of its obligations under Paragraph 22 of the lease.

AG answered the amended complaint and demanded a trial by jury. On the State’s motion, AG’s jury-trial demand was stricken. After a bench trial, the court ordered: (1) that AG was compelled to admit the public necessity for and valid public purpose of the action to condemn ⁶⁰³ AG’s interest in 45 Calvert Street and to accept the sum of $7,583,333 for that interest; (2) that State should pay AG increased rent from November 1988 forward associated with the conversion of the space in the basement of the leased premise from storage to office use until the State remits payment to AG of the award in the pending condemnation action; and (3) State should set off against the additional rent that amount which it expended in the conversion of the basement space. The court stayed further proceedings in the condemnation action pending appellate review of its judgment in the instant case.

Both parties appealed to the Court of Special Appeals. Thereafter, we granted both parties’ petitions for a writ of certiorari prior to consideration of the case by the intermediate appellate court. In its appeal the State presents these questions: “1. Does the State’s obligation to pay rent terminate after the State exercises an option to purchase through the initiation of a condemnation proceeding? 2.

May a circuit court order the State to pay rent when no funds have been appropriated for that purpose?” AG in its cross-appeal raises these issues: “1. Did the circuit court err by interpreting Paragraph 22 of the Lease Agreement between the State and Attman/Glazer to require that the State’s below-market leasehold interest rate be considered in determining the compensation due to Attman/Glazer upon the State’s acquisition of the building? 2. Did the circuit court err by striking Attman/Glazer’s Demand for Jury Trial when Attman/Glazer’s demand was made within 15 days of filing the Answer to the Amended Complaint? 3. Did the circuit court err by ruling that increased rent to which Attman/Glazer was entitled under Paragraph 14 of the Lease Agreement must be offset by the ⁶⁰⁴ State’s cost of making improvements when the lease expressly provided for increased rent, but did not provide for an offset?” We will address the questions presented by AG in its cross-appeal before turning our attention to the issues raised by the State’s appeal.

I. Paragraph 22 of the lease contains the agreement of the parties as to the compensation due AG in the event that the State opted to exercise its absolute right of eminent domain over AG’s interest in the property during the original term of the lease or during any renewal term. As we noted earlier, this agreement was entered deliberately because the City of Annapolis had conditioned AG’s right to develop 45 Calvert Street on AG’s promise that it would not sell the property to a public agency and on AG’s desire to gain preferential income tax treatment for its partners on any acquisition of the property by the State. AG argues that Paragraph 22 is ambiguous as to the compensation due AG in any condemnation by the State. It posits, therefore, that the trial court improperly excluded parol evidence as to the subjective intent of the parties when they entered the agreement.

We disagree and explain. We have long adhered to the law of objective interpretation of contracts. Cloverland Dairy Farms, Inc. v. Fry, 322 Md. 367, 373 , 587 A.2d 527, 530 (1991); Feick v. Thrutchly, 322 Md. 111, 114 , 586 A.2d 3, 4 (1991); General Motors Acceptance Corp. v. Daniels, 303 Md. 254, 261 , 492 A.2d 1306, 1310 (1985); Orkin v. Jacobson, 274 Md. 124, 128 , 332 A.2d 901, 903 (1975); Kasten Constr. v. Rod Enterprises, 268 Md. 318, 329 , 301 A.2d 12, 18 (1973). Thus, in interpreting a contract the court must “determine from the language of the agreement itself what a reasonable person in the position of the parties would have meant at the time it was effectuated.

In addition, when the language of the contract is plain and unambiguous there is no room for construction, and a ⁶⁰⁵ court must presume that the parties meant what they expressed. In these circumstances, the true test of what is meant is not what the parties to the contract intended it to mean, but what a reasonable person in the