DIGITAL EQUIPMENT CORPORATION vs. BRUCE T. QUIRK, Trustee of the Robert Quirk Realty Trust.

This action has been brought by Digital Equipment Corporation ("DEC") against its lessor, Bruce T. Quirk, Trustee of the Robert Quirk Realty Trust (the "Quirk Trust") to obtain a declaration as to DEC's rights pursuant to a certain lease dated December 2, 1985 from Bruce T. Quirk, Trustee of Robert Quirk Realty Trust, to National Semiconductor Datachecker/DTS Corp. ("Datachecker"), of which DEC is the assignee of the lessee's interest (the "Lease") (Exhibit No. l) to make alterations and repairs in premises at 124 Acton Street in Maynard in the County of Middlesex. The complaint recited certain areas where DEC seeks a Court determination that the lessee may make repairs and improvements; the Quirk Trust has no objection to certain improvements which DEC wishes to make, but it construes DEC's rights more narrowly than the lessee. The determination as to what the lessee may do is the sole issue in this action.

The aura which permeates the present litigation stems at least in part from the background of the Lease under review. The Quirk Trust had been embroiled in bitter and expensive litigation between itself and the original lessee named in the Lease, Datachecker. Some aspects of this litigation are found in a series of reported cases, Quirk v. Data Terminal Systems, Inc., 379 Mass. 762 (1980); the second case, also so entitled, found in 18 Mass. App. Ct. 1104 (1984) and the final appellate resolution in 394 Mass. 334 (1985). The background of that litigation, which did not involve DEC, is material to the present case only because it affords some explanation for the lessor's intransigeance in its relationship with DEC. Another element in the picture is the monies paid by DEC to the named lessee for the assignment to it of the lessee's interest in the Lease which admittedly calls for a rent which is below market rent in the area. However, the Lease by its own terms is fully assignable although Datachecker remains liable thereunder.

A trial was held at the Land Court on September 30 and November 10, 1988 at which a stenographer was appointed to record and transcribe the testimony. At the trial Bruce T. Quirk, Trustee of the Robert Quirk Realty Trust, Neil B. Hannon, manager of corporate real estate acquisitions for DEC, and Robert Steven Frank, an attorney at Messrs. Choate, Hall and Stewart, testified. By agreement of the parties the deposition of Frank S. P. Yacino, manager of construction for the so-called "Mill Facility" in Maynard (DEC's corporate headquarters), was introduced into evidence. Certain objections to Mr. Yacino's testimony were made by the defendant, and the rulings thereon appear at the end of this decision. By agreement of the parties, the deposition of James McDonough, an attorney with the law office of Thomas Finnerty and one of the lawyers who represented the Quirk Trust in prior litigation, also was admitted into evidence in lieu of calling the witnesses to testify at trial. Also introduced into evidence were twenty-five exhibits, some of multiple parts, which are incorporated herein for the purpose of any appeal.

The facts in this litigation are largely not in dispute. On all the evidence I find and rule as follows:

1. By instrument dated October 9, 1972, Bowker Land Corp. (a Quirk entity), as lessor, and Data Terminal Systems, Inc., as lessee, entered into an agreement by which the lessor demised to the lessee certain parcels of land in Maynard, together with portions of a building to be erected thereon with the lessee having a right to lease various portions of the building. Ultimately, Building Nos. 1 and 2 were completed and Building No. 3 (all buildings being connected) was in the process of construction when relationships between the original parties deteriorated. The dispute ultimately was resolved by arbitration and in an action to enforce the arbitrators' award, a settlement insisted upon by the then trial justice was reached. The details of the settlement were not a part of the present action, but its broad sweep called for a conveyance by Datachecker to the Quirk Trust of the locus, the retention by Datachecker of an adjacent parcel of vacant land and the execution by the Quirk Trust, as lessor, to Datachecker of a lease dated December 2, 1985 demising "a certain parcel of land shown on a Plan of Land, dated January 28, 1974 by, Colburn Engineering, recorded as Plan No. 44 of 1975 at the end of Book 12751 of the Middlesex South Registry of Deeds, together with all buildings and improvements thereon, now known as and numbered 124 Acton Street" (the "Lease") (Exhibit No. 1). The term and the rental were fixed by arbitrators.

2. The term of the Lease was twenty-two years beginning on December 2, 1985 and ending at 11:59 P.M. on January 1, 2008. The Lease, with its acknowledgements, encompasses only seven and one-half short pages and is lacking many of the details which are usually found in a commercial lease. [Note 1]

3. Nonetheless, there are several provisions in the Lease which are of relevance in deciding the present controversy. These include the following:

. . .

4. Use: Said premises shall be used by Lessee for the purpose of light manufacturing and office space and any other legal use.

5. Lessor's Covenants: Lessor agrees and covenants that it will be responsible for all structural repairs to all buildings on the Premises. In the event that structural repairs to any building on the demised Premises are needed and require immediate correction to prevent loss, or if the Lessor fails to effect adequate repairs, or in the event that the Lessor fails to provide adequate utilities to any building on the leased Premises within a reasonable time, Lessee shall have the right to make the necessary repairs or secure the utilities and offset the cost thereof against rental payments due to the Lessor, or mortgagee, as the case may be.

6. Lessee's Covenants: Lessee agrees and covenants:

(a) It will pay for all utility services supplied to it.

(b) It shall be responsible for and pay for all non-structural repairs and maintenance, except for repairs caused by fire or other casualty which are the obligation of the Lessor as set forth in Paragraph 7 below.

(c) It shall be responsible for the care of lawns and shrubbery and the removal of snow and ice from the Premises.

(d) It shall be responsible for fire and liability insurance in connection with the Premises, including the maintaining of fire insurance on the Premises and its contents and liability insurance on the entire leased Premises in adequate amounts. The amount of said fire insurance will not be less than $4,372,000, adjusted, from time to time, for increases or decreases in the Consumer Price Index for the Boston area, (or if such Index is not maintained by the United States Government such other index or measure of inflation/deflation as is maintained by the United States Government which is most nearly comparable thereto). The Lessee may elect to purchase insurance with a deductible feature. If Lessee so elects it shall reimburse Lessor for any uninsured loss to Lessor which would have been insured if the deductible feature had not been selected, and shall, on Lessor's written request made not more frequently than once per year, provide a representation. [sic] to Lessor that Lessee's net worth is at least four times the amount of the deductible selected by Lessee. Lessee will provide a certificate of insurance to Lessor annually upon Lessor's written request.

(e) It shall pay all real estate taxes with respect to the Premises and any penalties and interest in connection therewith.

. . .

4. The lessee's obligations include the payment of all real estate taxes with respect to the premises, and the lessor undertakes to file applications for abatement upon the request of the lessee.

5. Paragraph 15 of the Lease also grants to the lessee a broad right of assignment and reads as follows:

15. Assignment of Sublease: Lessee shall have the unrestricted right to alienate or transfer its rights under this Lease, provided, however, that Lessee shall remain liable to Lessor for the payment of rent required by Paragraph 3 of this Lease; and provided, further, that Lessee shall not assign the Lease or otherwise alienate or transfer its rights under this Lease to any person or entity whose business at the Premises involves extreme noise or the unacceptable emission of noxious fumes or the handling of hazardous wastes.

6. Negotiations to resolve those terms of the Lease not fixed by arbitration generally were conducted at the Marlborough District Court, sometimes in the presence of the trial justice, and at other times by counsel only, but some of the terms were hammered out in the offices of Boston law firms. At the trial a dispute arose as to whether Bruce T. Quirk, Trustee of the Robert Quirk Realty Trust, and also a member of the bar, made it a condition of the Lease that the lessee have no right to make any alterations in the leased premises. Mr. Quirk so testified, and his testimony is disputed by Mr. Frank who was not, however, at all negotiating sessions; as counsel for Datachecker and a prospective witness at the projected trial, he had withdrawn as counsel. In any event, the Lease is silent on the question of alterations and contains no express prohibition against making them nor any express grant that they may be done.

7. After Datachecker forced the withdrawal of the Quirk Trust from construction of Building No. 3, Bruce T. Quirk was in the premises only with the appraisers from the South Boston Savings Bank which holds a mortgage thereon and with the arbitrators.

8. DEC knew prior to its consummation of the assignment to it (Exhibit No. 5) that the Quirk Trust was unwilling to consider any amendment of the Lease to clarify the rights of the lessee thereunder. It also knew that its right to make alterations it considered necessary was unclear. Indeed, it obtained an agreement with its assignor to assume a portion of the legal expenses should litigation arise over the assignment (Exhibit No. 19). In any event, the business risk was assumed, and the assignment was consummated by the execution of an instrument dated January 13, 1988 between Datachecker, as the assignor, and DEC, as the assignee (Exhibit No. 5). In addition to the monies paid by DEC for the assignment, it also acquired title to a parcel of land in Maynard on Acton Road for the sum of $300,000 and the fixtures and equipment listed on a bill of sale between the parties was also dated January 13, 1988 (Exhibit No. 20) for the additional sum of $200,000.

DEC alleges that the roof requires repairs and that these are of such a nature as to constitute structural repairs which the Lease provides are to be the obligation of the lessor. The Quirk Trust denies that such repairs are structural and that any repairs or changes to the existing roof are DEC's sole expense and responsibility (Exhibit No. 13). Customarily, the roof, exterior walls of a building and interior load bearing walls, steel framework, and elevators would fall within the category of structural repairs. The Lease, as drafted, speaks as of its date of execution so that the prior history as to construction of the buildings is immaterial in determining the obligations of the parties as to repairs. Accordingly, I find and rule that the roof is a part of the structure of the buildings and that the Lease places the obligation to make all structural repairs thereto on the Lessor. This action, however, did not address the question as to whether in fact there are structural repairs to the roof which presently are necessary, and I have made no finding as to this.

The major question presented by this litigation, however, is whether the lessee which is obligated to make all non-structural repairs and maintenance with an exception not here material, may also make alterations to the premises as it may so elect and if so, whether such right is limited by the nature of the alterations, i.e., whether they are designed to change the structure of the building or are less radical in approach.

Part of the controversy here arises from the fact that DEC attempts to have its facilities uniform in certain respects wherever they may be located in order to provide a safe and secure work place for its employees. DEC accordingly seeks to bring the locus into conformity with its other premises at an expenditure of approximately $7,000,000, which the Quirk Trust opposes as resulting in a building at considerable variance from its wishes.

Categories where DEC wishes to make alterations and improvements include a replacement of the present HVAC system, the removal of the present sprinkler system and its replacement by a system recommended by its insurer, Factory Mutual Insurance Co., the configuration of interior partitions, the laying of carpet, the installation of new toilets and general upgrading of the lavatory facilities, a change in the present lighting to parabola lights, a change in the size of the ceiling panels, replacement of existing panels and the installation of a new ceiling in an area now lacking, the installation of a computer room, a telephone and security alarm system tied to the Mill Facility which is DEC's corporate headquarters, the installation of a smoking room which would require venting to the outside, the installation of a water tower, repair of the parking lot and minor repairs such as the replacement of missing downspouts. The specific interior rearrangment of offices, and other layout requirements have not as yet been defined, because the ultimate user within the DEC corporate framework would lead to varying results.

The original proposed occupant within DEC's organization had to change its plans in view of the litigation and the particular user within the DEC corporate framework and its needs had not been established at the time of the trial. The Quirk Trust has agreed that DEC may make any non-structural repairs and indeed does not object to a repair that affects the structure in a minor way. The Quirk Trust has no objection, and I so find, specifically to certain of DEC's proposed improvements. These include additional telephone and security lines, the replacement of stair tiles, resealing the driveway, the repair of bathrooms, the installation of flourescent lights, the replacement of copper piping; the installation of carpets, the repair of kitchen appliances, and the repair or installation of overhead doors. The Quirk Trust continues to object, however, to the installation of the proposed sprinkler system, the relocation of interior walls, the raised floor, the smoking rooms (or at least their venting to the outside) the security system which will involve the affixation of outside cameras and a tie-in to the Mill Facility, and the new HVAC system.

The Massachusetts law of landlord and tenant in the residential field has changed markedly in the last twenty years, and the reports are replete with decisions detailing conflicts in this area. Conversely, they generally are silent as to disputes in the field of commercial leases with little guidance to be gained in the interpretation of the provisions of the net lease negotiated by skilled attorneys for their business clients. Accordingly, authority is sparse in this Commonwealth on which to rely to define the rights and obligations of the lessee in a net lease between business entities - but a net lease lacking many of the usual provisions of such a document. For example, the only provisions relative to the surrender of the premises at the end of the term relate to the optional removal of "all fixtures, machinery, signs or other property . . . in which event the Lessee shall restore the Premises to their original condition, reasonable wear and tear and damage due to fire or other casualty excepted." The Lease, thus, leaves open obligations of the lessee at the end of the term should the removal election not be exercised. It, therefore, is in the context of the milieu in which the Lease was negotiated and the interrelationship of its terms, that this action must be decided.

The dispute between the parties revolves initially around the question as to whether the lessee can make alterations to the premises if it so elects, i.e., in addition to the non-structural repairs and maintenance which it is required to make, and if so, into which category various items fall. As I have suggested, the Massachusetts law on this subject is sparse. In other circumstances the Supreme Judicial Court has defined alterations and repairs. In Boston and Albany Railroad v. Department of Public Utilities, 314 Mass. 634 (1943), the Court had this to say at pages 637-638:

An alteration when used in reference to a structure usually denotes a change or substitution made in a particular part of a structure of such a substantial nature as to make the structure itself or an important part thereof materially different from what it formerly was. On the other hand, a repair is merely correcting the damage done sometimes by accident or fire or other cause, but more often due to the ravages of time and the deterioration resulting from wear and tear, by substituting for the damaged, decayed or worn out parts, new material, usually similar to that replaced, and so restoring the structure to its original sound condition. Repairing is simply mending defective portions of a structure, while an alteration is a change of such a nature and extent as to produce a different structure or a structure so changed in some essential aspects as to constitute a different structure in these particulars. Todd v. Rawley, 8 Allen 51 . Dwight v. Ludlow Manuf. Co. 128 Mass. 280 . Perry v. J. L. Mott Iron Works Co. 207 Mass. 501 . Commonwealth v. Hayden, 211 Mass. 296 . This same distinction between alterations and repairs has been observed in construing leases, and in determining the allocation to principal or income of expenses arising from alterations and repairs of real estate held in trust. Sohier v. Eldredge, 103 Mass. 345 . Jordan v. Jordan, 192 Mass. 337 . Cawley v. Jean, 218 Mass. 263 . Borden v. Hirsh, 249 Mass. 205 . Scott, Trusts § 233.3.

Other than for this definition, which would be useful in allocating the burden of repairs between the parties when the nature of the obligations were at issue, is not helpful in resolving a dispute which concerns voluntary improvements to the leased premises. More important is the doctrine of "ameliorating waste" which is discussed at length in Schwartz, Lease Drafting in Massachusetts, Section 7.50, and which is not the law of Massachusetts. The author states that:

The tenant's power to make repairs, alterations or improvements in the demised premises, . . . is determined by the law of waste, in the absence of any contrary provision in the lease. The law of waste imposes an affirmative duty upon the tenant to make repairs and a negative obligation to refrain from making certain alterations and improvements. Under the applicable common law principles, affirmative action by the tenant affecting the condition of the demised premises will not constitute waste if the "inheritance," i.e. the lessor's reversion, is not thereby injured. It is obvious, therefore, that the tenant may make any repairs to the demised premises he may desire even though not specifically required of him by the law of waste or the provisions of the lease, and any alterations or improvements which do not cause substantial injury and do not injure the reversion. It is not clear, however, precisely what alterations or improvements are deemed nonsubstantial and nonprejudicial to the reversion, and the tenant will act at his peril in making such changes unless a statute or municipal law, or the lease, specifically authorizes or requires him so to act.

Schwartz notes in this discussion that the doctrine of "ameliorating waste" under which a tenant is liable for making improvements even though beneficial to the inheritance was repudiated in this Commonwealth at an early date. Pynchon v. Stearns, 11 Met. 304 , 312 (1846). While Pynchon v. Stearns is a decision involving a life tenant and a remainderman, in view of the nature of the acts complained of, including the erection of houses on the premises, the principle seems equally applicable to the present controversy. Despite these statements in the literature with which Robert S. Schosinski agrees in his work on American Law of Landlord and Tenant, §5.2, this action deals with relatively unchartered ground in this Commonwealth. See also Restatement (Second) of Property §12.2 comment d, reporter's note 5 (1977).

It seems to me, however, that in the context of the present situation in which the instrument to be construed is a virtually net lease for a long term encompassing three connected buildings, where a shell of a building appears from the exhibits (at least as to Building No. 3) to have been delivered to the lessee and where the instrument interposes no restraints on acts by the lessee during the term, the commercially reasonable solution is a construction that permits the lessee at its election to make all non-structural repairs and alterations which it may elect, including the affixation (contemplated in any event by the provisions of paragraph 12) of security devices and lighting to the walls of the building and any repairs normally denoted structural but which do not impair the integrity of the structure of the buildings. DEC also has the right to make holes in the walls of the buildings in order to service various pipes, wires and fixtures, but must fill the cavities in a good and workmanlike manner in removal of the appurtenances which I have found it may install. The repairs which I would deem as unauthorized without the consent of the lessor would include the construction of a new exterior door to the premises, the replacement of the existing roof and the removal or relocation of the load bearing walls. Otherwise, the proposed alterations and repairs which DEC has outlined and is desirous of making within the premises, fall within the guidelines of what is permitted in the absence of an express prohibition in the Lease. This would include replacement of the HVAC system, removal and replacement of the sprinkler system, the reconfiguration of interior partitions, the laying of carpets, improvements in the lavatory facilities, a change in the ceiling panels and the lighting, the installation of a computer room and a smoking room and the introduction of a telephone and alarm system tied to the Mill Facility including the mounting of outside cameras. As set forth in my findings, some of these items are unobjectionable to the lessor. To the extent that the Quirk Trust has objections I find and rule that the right to make such improvements is authorized by the law of the Commonwealth absent any express provision in the Lease.

As set forth above, the Quirk Trust moved to strike portions of the deposition transcript of Frank S. P. Yacino on two grounds, one that the plaintiff had failed to identify Mr. Yacino as an expert witness to be called at trial, and secondly, that portions of the depositions were objectionable as hearsay. The objection based on the Yacino status as an expert witness is misplaced since it was the Quirk Trust which took Mr. Yacino's deposition, not the plaintiff, with the plaintiff accordingly having full right to cross-examine him. Moreover, I do not believe that Mr. Yacino was called as an expert as distinguished from his role as an employee of DEC. Accordingly, I disallow paragraph 9 of the motion to delete since it is grounded solely on this basis. However, paragraph 10 of the motion raises objections to certain testimony as being hearsay and I concur so far as subparagraphs b, c, e and f are concerned and grant the motion as to them.

Judgment accordingly.