Cousin Joshua Stein sent me a copy of an article in the May/June 2012 issue of Probate & Property. It’s by Mark A. Senn, and it’s entitled Writing Good, Legal Sense and More or Less. (Go here for a PDF copy.) As you can tell from the title, it’s a little offbeat, but it contains a couple of tidbits that I found useful.
For purposes of this post, what’s of interest is a case mentioned in the article, Trustees of First Union Real Estate Equity & Mortgage Investments v. Mandell, 987 F.2d 1286 (7th Cir. 1993) (PDF copy here). It provides another example of antecedent ambiguity, which is a kind of ambiguity that I mentioned most recently in this August 2013 post and this March 2013 post. I’ve explored this kind of ambiguity less than other kinds, so I like to keep track of examples as I encounter them.
Here’s the language at issue (emphasis added):
Section 5. Additional rent. (a) Tenant shall pay, from time to time, to Landlord as additional rent fifty percent (50%) of any and all percentage rent which S.S. Kresge Company, or its successor or assigns, pays to Tenant under their lease for part or all of the Demised Premises during the initial term and any period thereof, promptly after Tenant receives such percentage rent payments. Tenant shall forward with such payment such reports as Tenant shall receive from S.S. Kresge Company showing the computation of percentage rents.
And here’s some of what the court had to say:
The question before us is whether the ground lease will require Mandell to continue paying percentage rent to Merchants Bank after the expiration of the initial period of the building lease should both Mandell and Kresge exercise one or more of their respective five-year options to extend.
As with many contract cases, the dispute resulting in this litigation did not arise until many years after the contract’s execution. In this case, the parties had no occasion to question the ground lease until early 1990 when First Union decided to sell its interest in the ground lease. The potential buyer refused the deal because of a perceived ambiguity in section 5(a). Specifically, the buyer was concerned with the italicized language in section 5(a) quoted above which reads “and any period thereof.” If these words refer to the term “initial term,” then percentage rent would seemingly cease upon the expiration of the twenty-five-year period. If, however, the words refer to the term “their lease,” then the obligation to pay percentage rent presumably would continue during any extension of the ground lease. Faced with this interpretive dilemma, First Union contacted Mandell requesting a position on the percentage rent issue. Not surprisingly, Mandell responded that he understood the lease to mean that percentage rent was collectible only during the initial term.
Viewing the ground lease as a whole, the [district] court opined that “[i]t is more likely that the parties included the clause to clarify that the obligation to pay additional rent under the Ground Lease extended to percentage rent received during any period of the Kresge Lease.” Dist.Ct.Op. at 14 (emphasis in original, footnote omitted). While aware that neither party proffered a perfect interpretation of the ambiguous terms, the court was convinced that having “and any period thereof” refer to “their lease” would result in the least amount of redundancy and surplusage.
In conclusion, when considering section 5(a) with a mind toward common sense and the motivations and objectives underlying the ground lease—as we must under Indiana’s authorities—we can only conclude that the original parties intended the phrase “and any period thereof” to refer to the antecedent term “their lease” rather than “initial term.” Accordingly, the tenant under the ground lease is bound contractually to pay the landlord percentage rent during any extension of the building lease, should both the building and ground leases be extended.
By now you’re tired of hearing this from me, but from the perspective of those who draft or review contracts, what the court concluded is less relevant that the fact that this dispute could easily have been avoided. The moral of this story is that although a thereof or thereunder allows you to be concise, you have to make sure that it’s perfectly clear what exactly it refers to.
(If a thereof or thereunder saves you just a few words, get rid of it, whether or not it presents the possibility of confusion. They add a fusty air to contracts, so you should use them only if they offer real economy.)
5 thoughts on “More Antecedent Ambiguity: “Thereof””
You have also advised not to use different terms for the same thing, lest courts conclude you must have meant different things. In that light, what do you make of “during the initial TERM and any PERIOD thereof”?
If the drafter had said “during the INITIAL term and ANY term thereof,” would the antecedent ambiguity around “thereof” have existed?
The usual way of drafting something like what the landlord intended is, “the initial term and any extension [or renewal] thereof,” or better, “the initial term and any extension [or renewal] term,” or, “the initial term, as it may be extended….” Of course, the latter two of those eliminate the “thereof,” and all of them would probably have avoided the issue here.
I usually avoid referring to the “initial” term of a lease, as opposed to just its term. References to the “initial” term can creep in and result in limitations a party didn’t intend when the term is later extended.
I agree completely. My point, poorly made, was that the actual problem was less due to failure to make an antecedent clear than to the poor choice of the phrase “any period” to mean “any term” (whether initial or not). Any of your three versions, with or without the word “initial,” would have solved the presented problem and been more elegant, too.
I know you’re not particularly interested in the court’s conclusion, but I can’t help but comment how wrong I think they got it. If the drafters meant to include all terms of the agreement, why would they have mentioned the “initial term” at all? Also, you have to go past “for part or all of the Demised Premises” to get to the word “lease”. It’s a pretty tortured interpretation to say the drafters intended “thereof” to apply to a subject that far back in the sentence. I think a plain reading would suggest it was meant to refer to the period of time that comes right before it in the sentence.
It seems clear to me that the parties’ intent in adding the italicized language was merely to clarify that rent paid during only a portion of the initial term should be included as well as rent paid over the entire initial term. I find it interesting that by trying to clarify something that didn’t need clarifying, the parties actually opened the door for a court to come to a completely different interpretation from what they intended.