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Johnson Realty Corp. v. Mansfield Bldg. Corp.

MARCH 8, 1955.




Appeal from the Circuit Court of Cook county; the Hon. ROBERT JEROME DUNNE, Judge, presiding. Decree affirmed.


In this case the trial court in a declaratory judgment proceeding construed the provisions of a sublease from plaintiff to defendant Mansfield Building Corporation, leasing property at the northeast corner of State and Adams streets, Chicago. The court adopted the construction contended for by plaintiff, found against Mansfield, and entered an order requiring it to pay to plaintiff $8,889.27 plus costs of litigation including attorneys' fees, as provided by the lease. From this decree Mansfield has taken an appeal.

The defendant trustees of the estate of Rowe, ground lessors, own the fee and in 1944 leased the property for a term of approximately 99 years to DeMet's 143 S. State St. Inc. DeMet's assigned its interest to the 135 South State Street Corporation, whose name was later changed to C.N. Johnson Realty Corporation, the plaintiff. Plaintiff subleased the premises in question to Mansfield Building Corporation for a period from May 1, 1946 to July 31, 1993.

The only substantial issue is between plaintiff and Mansfield. It arises over the construction of a provision which allows Mansfield to deduct "excess taxes" (which we will later explain) from the rental to be paid. The same question arose between the ground lessors and the plaintiff and an agreement was reached between them by which plaintiff pays rental to the ground lessors on the same basis as it now seeks to have Mansfield account to it. The provisions of the ground lease are relevant to a construction of the sublease and for that reason the ground lessors have filed a brief in order, as they say, that the court may not by interpretation affect their interest. As our conclusions do not affect the ground lessors, we will not have occasion again to refer to their interest.

The ground lease provides that the lessee shall pay:

1. A fixed annual rental, payable in monthly installments,

2. All real estate taxes, and

3. A percentage rental, in addition to the fixed rental, of 4 per cent of the main floor retail sales in excess of $3,000,000 annually. We will call this "additional rental."

From this additional rental lessee is entitled to deduct "excess taxes." As this is the hub of the controversy, we quote that portion of Article II of the ground lease which covers this provision:

". . . in the event that during any year in which such additional rental shall be paid the general taxes which shall have accrued for such fiscal year shall be greater than the general taxes for the year 1944, the excess of such general taxes shall be deducted from and serve as a credit to the Lessee as against such additional rental for such respective fiscal year."

For the purpose of computation of the additional rental, the lease fixes a fiscal year commencing August 1st and ending July 31st of the following year. At the end of each fiscal year, the lessee is required to furnish lessor with an accounting statement within 60 days showing the excess of main floor sales above $3,000,000 for the preceding fiscal year and is required to pay the additional rental thereby shown within 90 days after expiration of the fiscal year. If there is an objection to this accounting statement it is required to be made within 60 days from receipt of the statement, and machinery is provided for arbitration.

The sublease, like the ground lease, provides for a fixed annual rental and for similar additional rental and has a similar plan for accounting, payment, objection and arbitration. The provision with respect to additional rental gives Mansfield an election of one of two methods. The method Mansfield elected requires it to pay the amount of additional rental which plaintiff is required to pay the ground lessors under the terms of the ground lease, plus certain additional sums representing the profit of plaintiff. Thus the provisions of the ground lease before mentioned determine the liability of Mansfield to plaintiff.

The nature of the issue is well stated in a memorandum filed by the trial court as follows:

"The controversy between the parties arises from the fact that the rentals reserved under both leases are determined on a fiscal year basis and, in addition, that the rental obligation is diminished by the amount that the general real estate taxes in any fiscal year exceed the actual general taxes for the calendar year 1944. The fiscal year ends on July 31st. Consequently, since the actual general taxes for a part of each fiscal year will not be known until tax bills are issued during the next calendar year, the lessees under both leases are required to estimate those taxes in advance for purposes of payment to their respective lessors. The question then arises whether, ...

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