Home MARY W. ERHARD & another vs. F. W. WOOLWORTH CO.

374 Mass. 352

October 5, 1977 - February 13, 1978

Plymouth County

Present: HENNESSEY, C.J., QUIRICO, KAPLAN, LIACOS, & ABRAMS, JJ.

Upon assessment of real estate taxes for a certain year during the period of a lease, a lessee under a covenant to pay "all taxes" on the premises was required to pay them for that entire year. [354]

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A lessee under a covenant to pay all real estate taxes on the premises during the entire year of assessment was not relieved from such obligation by provisions requiring proration of the rent on termination of the lease under an option before expiration of the year [354-355]; by any modification or agreement calling for a proration of taxes [355]; or by any general rule that all obligations of tenants are to be measured by occupancy [355-356].

Leases on premises hereafter executed containing a provision requiring the tenant to pay the real estate taxes assessed thereon will be interpreted as requiring him to pay the amount of taxes allocable to the period covered by the lease, in the absence of a clearly expressed agreement requiring the tenant to pay the taxes for the entire year of assessment, whether or not the lease covers that whole period. [356-358]

BILL IN EQUITY filed in the Superior Court on April 4, 1973.

The suit was heard by Beaudreau, J., on a master's report.

After review by the Appeals Court, the Supreme Judicial Court granted leave to obtain further appellate review.

James T. Ronan for the defendant.

David A. McLaughlin for the plaintiffs.


ABRAMS, J. The plaintiffs, owners of real property which was leased to the defendant F. W. Woolworth Co. (Woolworth), sought a declaration of the "rights and responsibilities of the parties concerning payment of the 1972 real estate taxes," as well as an order compelling Woolworth to pay them the amount of such taxes.

The plaintiff's complaint was referred to a master who filed a report with the Superior Court. In his report the master found for the plaintiffs. A Superior Court judge adopted the master's report and entered judgment for the plaintiffs. The defendant timely filed its notice of appeal. The Appeals Court affirmed the judgment. 5 Mass. App. Ct. 770 (1977). As a result of a suggestion made by the Appeals Court in its recript opinion [Note 1] we granted further appellate

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review. We affirm the judgment as entered by the Superior Court judge.

The facts as found by the master are as follows. The defendant has occupied the premises since 1925 under a lease executed in April of that year. The lease contained the following provision: "The Lessee and its successors hereby covenants with the lessors, their heirs, and assigns that it, and its successors shall pay all taxes, (except Federal and State Income Taxes, and Betterment Taxes) Water Rates, Fire and Plate Glass Insurance on said premises, or any part thereof." The plaintiffs or their predecessors in interest entered into four modifications and extensions of the original lease. At all times the tax clause of the lease was operative, and it remained in effect until the tenancy was terminated under the lease on April 30, 1972. Prior to the termination of the lease, the real estate taxes for 1972 had been assessed. See G. L. c. 58, Section 3.

It is a well settled principle that clauses in leases by which a tenant covenants to pay real estate taxes require the tenant to pay the taxes for the entire year if the taxes are assessed during the period of tenancy. Koshland v. American Woolen Co., 289 Mass. 308 , 311 (1935). Baker v. Horan, 227 Mass. 415 , 419-420 (1917). Welch v. Phillips, 224 Mass. 267 (1916). Richardson v. Gordon, 188 Mass. 279 , 281 (1905). Paul v. Chickering, 117 Mass. 265 (1875). Amory v. Melvin, 112 Mass. 83 , 87 (1873). Wilkinson v. Libbey, 1 Allen 375 (1861). Since the taxes for the year were assessed during the period of Woolworth's tenancy, under the tax clause in the lease Woolworth is required to pay the plaintiffs the amount due for taxes for the entire year of 1972.

Woolworth argues, however, that the provisions of the lease requiring proration of the rent on termination of the lease by the option granted under the contract, a lengthy notice period of 360 days before termination, and removal

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of effects prior to termination indicate that the parties intended that the obligations of the defendant would cease when its occupancy ended. Thus, Woolworth contends that the tax clause should be interpreted as requiring the tenant to pay only the taxes allocable to its period of occupancy during 1972. The tax clause contained in the lease, however, has a specific, well settled meaning. Koshland v. American Woolen Co., supra. Baker v. Horan, supra at 420. Welch v. Phillips, supra at 268. Paul v. Chickering, supra at 267. The parties are bound by this clause, which was not altered by any of the modifications of the contract and which carries a recognized legal interpretation. When a provision with a well established meaning is contained in a contract, that clause, rather than any supposed intentions of the parties gleaned from analysis of other provisions, determines the obligations of the parties.

Woolworth further argues that it is inequitable to interpret the tax clause of the 1925 lease as requiring tenants to pay taxes for the entire year when the taxes have been so increased as to equal almost the amount due for rent. Once again, we note that the clause used in the lease has a well settled meaning. The lease involved in the present case was modified four times, the last time being in 1968, only three years before notice of termination was given. At the time of the modifications the increase in taxes since 1925 must have been apparent. If the defendant had desired to modify the tax clause in the lease, it could have bargained for such a change at the times of these modifications. See Miller v. Wadsworth, Howland & Co., 296 Mass. 172 (1936). No such modification was made. When the basis for a claim of unfairness was known to a party to a contract and that party could have taken action to remedy the problem, contractual provisions agreed on by the parties will not be modified.

Woolworth also relies on May v. Rice, 108 Mass. 150 (1871), to support its contention that it would be inequitable not to interpret the tax clause involved in the present case as having been modified to require payment of the

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taxes only for the period during which the defendant occupied the premises. In May, premises were leased for one year under an oral agreement which required the tenants to pay the taxes. When the lease expired, the parties agreed that the tenants might remain at the premises "at the same rate" as that paid for the previous year and that either party might terminate the tenancy by giving one month's notice. The tenants terminated the contract after occupying the premises for one month under the new agreement. This court concluded that the tenants were liable only for the taxes allocable to this month. However, the court based this conclusion on the fact that the second agreement required payment "at the same rate" as that paid during the prior year. May v. Rice, supra at 152-153. Payment of one month's rent plus payment of taxes for the entire year would result in a higher monthly rate than that required under the first lease. Thus, under the terms of the second agreement, the taxes were to be apportioned. Id. at 153. No such agreement which could be interpreted as calling for a proration of taxes is present in the lease involved in this action. Therefore, May is not applicable in the circumstances of this case. Rather, the line of cases discussed supra, which established that clauses obligating tenants to pay taxes require payment of the amount assessed for the full year, governs the outcome of this action.

Finally, Woolworth contends that the erosion of the doctrine that covenants in leases are independent requires that the obligations of tenants be measured by occupancy. Woolworth argues that this development in the law supports its position that it is liable only for the taxes allocable to the period of its occupancy. While there is a developing tendency to treat some lease covenants as interdependent, no general rule that all obligations of tenants are to be measured by occupancy has evolved. Rather, the courts have focused their attention on the interdependence of the tenant's duty to pay rent and the landlord's duty to maintain premises suitable for the tenant's use. See Boston Hous. Auth. v. Hemingway, 363 Mass. 184 (1973); Dyecraftsmen, Inc. v.

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Feinberg, 359 Mass. 485 (1971); Charles E. Burt, Inc. v. Seven Grand Corp., 340 Mass. 124 (1959); Restatement (Second) of Property, Landlord and Tenant Sections 5.1-5.5 (1977). The treatment of some lease provisions concerning mutual obligations during tenancy as interdependent furnishes no basis for concluding that a tax provision in a lease should be interpreted as requiring proration of the taxes, particularly when the tenant has specifically contracted to pay the taxes for the entire year.

What we have said disposes of the issues presented in this case. However, in considering the application of the general principle governing interpretation of provisions requiring payment of taxes, we have concluded that, because of changes in the nature and conception of leases, interpreting such clauses as requiring payment only of the portion of taxes allocable to the period of tenancy would now be in accord with the expectations of the contracting parties. See Tristram's Landing, Inc. v. Wait, 367 Mass. 622 , 628 (1975). When tenants, particularly residential tenants, sign a lease they assume that they will be paying charges only for the time during which they occupy the premises. If the lease contains a tax clause, the common understanding of tenants would be that they were obligated to pay the taxes allocable to the period of their occupancy. If the landlord wishes to be paid taxes for the entire year, whether or not the tenant occupies the property for that period, the burden should be on him to require explicitly that the tenant is so obligated.

Provisions requiring tenants to pay taxes have had an unambiguous and long settled interpretation. Such provisions were presumably included in leases in reliance on this interpretation. Therefore, tax clauses contained in leases now in existence will be interpreted in accordance with this long-standing construction. However, for tax clauses contained in leases executed after the date of this opinion, we adopt the following rule. A provision in a lease requiring the tenant to pay taxes will be interpreted as requiring the tenant to pay the amount of taxes allocable to the period covered by the lease. The parties, of course, may agree that

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the tenant is required to pay the taxes on the property for the entire year, whether or not the lease covers that whole period. However, such an obligation on the part of the tenant must be clearly expressed. This rule is in accord with the expectations of the parties and places the burden on the landlord to give clear notice to the tenant if the tenant is to be obligated to pay taxes for a greater period than he would otherwise assume.

Judgment of the Superior Court affirmed.


FOOTNOTES

[Note 1] "The case was properly decided on the authority of Koshland v. American Woolen Co. 289 Mass. 308 , 311 (1935), and like cases. If there is to be any change in the rule expounded in those cases, it will have to come from the Legislature or the Supreme Judicial Court." 5 Mass. App. Ct. 770 (1977). We defer to the end of this opinion the issue of a change in this rule.