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BUTLER, FITZGERALD & POTTER v. WESTINGHOUSE ELEC.

October 11, 1983

BUTLER, FITZGERALD & POTTER, A Professional Corporation, Plaintiff,
v.
WESTINGHOUSE ELECTRIC CORPORATION, Defendant



The opinion of the court was delivered by: SOFAER

OPINION AND ORDER

 ABRAHAM D. SOFAER, D.J.:

 This is an action for a declaratory judgment as to the rights and obligations under a lease commenced by a law firm, Butler, Fitzgerald & Potter ("BF&P"), that rents office space as a sublessee from the defendant Westinghouse Electric Corporation ("Westinghouse") at 200 Park Avenue, New York City, the Pan Am Building. From the inception of the subtenancy in March 1976, through 1981, BF&P or its predecessor in interest paid all bills for escalation rent, including electric power escalation charges, without objection. When notified by Westinghouse in early 1982 of the increases due for the 1981 calendar year, plaintiff objected but paid under protest. When informed of further increases in early 1983, plaintiff refused to pay and deducted the increases for electric power demanded and paid by plaintiff since 1977 from a bill that covered escalation rent for other items as well. Defendants have counterclaimed for summary judgment and seek both a money judgment in the amount of all escalation rent due and owing by BF&P, and a declaratory judgment to the effect that BF&P is contractually obligated to continue to pay electricity escalation rent as payment becomes due. Defendant also seeks attorneys fees, under a lease provision which obligates BF&P to pay attorneys fees incurred by defendant in prosecuting its counterclaims, based on BF&P's default in payment of escalation rent. For the reasons that follow, the defendant's motion for summary judgment is granted, since there is no genuine issue of fact to be tried.

 Westinghouse's lease with the landlord (the "Main Lease") provides for a flat rental fee, which includes electricity. Article 27.04(a) of the Main Lease provides:

 
Landlord shall furnish to Tenant the electric energy which Tenant requires in the demised premises on a "rent inclusion" basis. There shall be no charge to Tenant therefor by way of measuring the same on any meter or otherwise, the total charge for electric current being included in the fixed annual rental set forth in this Lease . . .

 Under this provision, defendant pays nothing extra for electricity beyond the rent regardless of how much electricity the defendant uses in a given month or year. The Main Lease also provides, however, a mechanism by which the landlord is able to pass on increases in electricity on a yearly basis. Article 28.03 of the Main Lease provides:

 
(c) If in any lease year the Operating Rate for any of the foregoing items of operating expense [Electricity, Art. 28.03(a)(iii)] shall be higher or lower than the Basic Operating Rate, the rent to be paid by Tenant shall be increased or decreased for such Lease Year by adding to or subtracting from the rent reserved in this lease for such Lease year % of the aggregate increased or decreased outlay of the landlord for [electricity] during such Lease year which is attributable to any increase or decrease of the Operating Rate.

 In sum, this provision obligates Westinghouse to pay to landlord escalation rent for a specified portion of the increase in the cost of electricity over a base amount.

 Westinghouse points out that its sublease with BF&P incorporates by reference all the terms and provisions of the Main Lease that are not specifically excluded. Paragraph 14 of the Sublease provides:

 
Except for article 27.04(b), 29, 30, 32, 33 and as may be provided herein to the contrary, all agreements, covenants and conditions contained in the [Main] Lease between Lessor and Sublessor and with aforesaid Lease is by this reference incorporated herein, are hereby made a part of this agreement and such rights and obligations as are contained in the aforesaid lease are hereby imposed upon the respective parties hereto, [Westinghouse] being substituted for the Lessor, and [BF&P] being substituted for [Westinghouse]; provided, however, that [Westinghouse] shall not be liable for any defaults by the Lessor.

 (Emphasis added.) No specific provision in this clause exempts the sublessee from electricity increases. Furthermore, another provision of the sublessee, Paragraph 4, explicitly authorizes sublessor to bill sublessee for its pro rata share "of any increase in taxes and operating expenses," as defined in Article 28 of the main lease:

 
Sublessor shall invoice Sublessee Sublessee's pro rate share of any increase in taxes and operating expenses, said taxes and operating expenses being a portion of the same taxes and operating expenses which Sublessor is required to reimburse Lessor with respect to such year under the provisions stipulated in Article 28 of said Base Lease.

 Article 28.03(a)(iii) of the Main Lease explicitly includes electricity as one of several items of "operating expense." These provisions, defendant claims, unambiguously establish its right to pass on increases in electricity in the agreed proportion.

 Plaintiff correctly notes that Paragraph 14 of the Sublease not only excludes certain specific obligations, but also excludes such terms of the Main Lease "as may be provided herein to the contrary. . . ." Plaintiff contends that the Sublease excludes a requirement that plaintiff pay electricity by providing in Paragraph 5(a) ...


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