State, Dept. of Economic and Community Development v. Attman/Glazer P.B. Co.

• Decision Date: 01 September 1990
• Docket Number: No. 130,130
• Citation: 594 A.2d 138,323 Md. 592
• Parties: STATE of Maryland, DEPARTMENT OF ECONOMIC AND COMMUNITY DEVELOPMENT v. ATTMAN/GLAZER P.B. COMPANY
• Court: Maryland Court of Appeals

Page 592

323 Md. 592

594 A.2d 138

STATE of Maryland, DEPARTMENT OF ECONOMIC AND COMMUNITY DEVELOPMENT v. ATTMAN/GLAZER P.B. COMPANY.

No. 130 Sept. Term, 1990.

Court of Appeals of Maryland.

Per Curiam Order May 13, 1991.

Opinion Aug. 26, 1991.

Evelyn O. Cannon, Asst. Atty. Gen. (J. Joseph Curran, Jr., Atty. Gen., Lucy Cardwell, Asst. Atty. Gen., Douglas N. Silber, Asst. Atty. Gen., on brief), Baltimore, for petitioner/cross-respondent

Kurt J. Fischer (Francis B. Burch, Jr., Robert J. Mathias, Thomas P. Lloyd, Piper & Marbury, on brief), Baltimore, for respondent/cross-petitioner.

Argued before MURPHY, C.J., and ELDRIDGE, RODOWSKY, McAULIFFE, CHASANOW and KARWACKI, JJ.

ORDER

PER CURIAM.

For reasons to be stated in an opinion later to be filed, it is this 13th day of May, 1991

ORDERED, by the Court of Appeals of Maryland, a majority of the Court concurring, that that part of the judgment of the Circuit Court for Anne Arundel County ordering that appellee, Attman/Glazer P.B. Company, perform its agreements: (1) to admit the public necessity for and valid public purpose of the condemnation action entitled State of Maryland v. Attman/Glazer P.B. Company, Case No. 1121327, and (2) to accept the sum of seven million five hundred eighty-three thousand three hundred thirty-three dollars and thirty-three cents ($7,583,333.33) as the fair market value of the property condemned is affirmed, and it is further

ORDERED that that part of the judgment of the Circuit Court for Anne Arundel County which directs the appellant to continue to pay rent for the property which is the subject of these proceedings until payment by the State of Maryland of the award in the condemnation action referred to above in accordance with that court's previously entered orders is affirmed, and it is further

ORDERED that that part of the judgment of the Circuit Court for Anne Arundel County which declares that the appellant is entitled to set off against the additional rent due under the lease between the parties (resulting from the conversion of storage areas in the property to office use) the appellant's cost of making the conversion is reversed, and it is further

ORDERED that the case shall be remanded to the Circuit Court for Anne Arundel County for further proceedings on the appellant's claim for damages occasioned by the delay Costs to be paid, two-thirds by the appellee and one-third by the appellant.

caused by appellee's failure to perform its agreements relating to the condemnation action entitled State of Maryland v. Attman/Glazer P.B. Company.

Mandate to issue forthwith.

OPINION

KARWACKI, Judge.

On May 21, 1981, Attman/Glazer P.B. Company (AG), a limited partnership, leased an office building which it was to construct on land to be known as 45 Calvert Street in Annapolis to the State of Maryland for use of the Department of Economic and Community Development (DECD). The lease was restated by the parties with slight modifications on February 4, 1982. The original term of the lease was for five years, but the State was given the option to renew the lease for two additional terms of five years each. The building was completed, and by amendment to the lease, the parties agreed that the original term of the lease would commence on October 29, 1983.

The rent for the leased premises was based upon the building's net usable office space and net usable storage space. ¹ After completion of the building, it was determined that it contained 75,000 square feet of net usable office space and 10,000 square feet of net usable storage space. The State paid rent based upon this determination from the commencement of the lease term on October 29, 1983.

Under the lease, the State, as lessee, only had the right to make improvements to the premises with the prior written consent of AG. ² On May 2, 1985, Mr. John Juba of DECD wrote AG, requesting permission to convert a portion of the basement of the building from storage to office use. Mr. Lowell R. Glazer, a general partner of AG, replied by letter of May 7, 1985, stating:

"Dear Mr. Juba:

I received your request of May 2 for additional office space and conference room in the basement at 45 Calvert Street. You have my permission to proceed.

I must remind you that we are still in the final stages of obtaining our occupancy permit and you might experience difficulty in obtaining permits and approval from the City of Annapolis.

You can be assured that you will have our full cooperation.

I am forwarding a copy of this letter and your specifications to Steve Harris so that we might help you coordinate your work with the City.

I will also have to review the area being remodeled to see what classification it is on the original basement allocation of rent. If some of the storage area is now being converted to office space, it will have to be reflected in the rent.

If you need any additional information, please do not hesitate to contact me."

Over the next three years the improvements were completed at a cost to the State in excess of $165,000. Attman/Glazer Building Co., which is owned by the general partners of AG, was the general contractor for this conversion of 8,000 square feet of storage space to office space.

The State continued to pay rent based on the original allocation of office and storage space for the next four years. AG never made any demand for increased rent which Mr. Glazer had referred to in his letter approving the conversion of space in the basement of the building. At trial, he explained that AG was silent on the issue of increased rent because "we had what we felt was a ... good tenant in a building on a long-term lease."

On March 9, 1988, the State notified AG that it was exercising its option to renew the lease for an additional five year term. On May 2, 1988, the State sent AG a copy of the agenda item of the Board of Public Works approving that renewal. That agenda item noted that the State would continue to pay rent for 75,000 square feet of office space and 10,000 square feet of storage space.

In its Budget Bill for fiscal year 1990, which became effective on July 1, 1989, the General Assembly appropriated funds for the State's acquisition of the building it was leasing from AG at 45 Calvert Street in Annapolis. That acquisition had been contemplated by the State and AG since the inception of the State's tenancy. Paragraph 22 of the lease provided:

"The Lessee has advised the Lessor that it anticipates that it may effect the condemnation of the Premises and all of the land appurtenant thereto (comprising approximately .946 acres) during the term of this Lease or any renewal term thereof. In the event that the property is condemned by the Lessee (or any agency or instrumentality of the Lessee) during the term of this Lease or any renewal thereof, and if such Petition for Condemnation contains an offer based on the average of three appraisals obtained as specified below, net of all costs incident to the condemnation proceedings and transfer of title for the property anticipated to be condemned, the Lessor agrees, intending to be absolutely bound hereby (i) to admit the public necessity for and valid public purpose of such condemnation and (ii) to accept the sum based on the average of the three appraisals for its interest in the property. The Lessor and the Lessee agree that the foregoing agreements of the Lessor shall be null, void and of no effect whatsoever (and shall not be admitted into evidence in any condemnation proceeding) unless the Lessee offers the sum based on the average of the three appraisals for the property in a Condemnation Petition filed during the term of this Lease or any renewal thereof."

It was undisputed at trial that this method of acquisition was chosen over a purchase option in the lease in part because of objections which the City of Annapolis had to the development of a building at the site of 45 Calvert Street by AG which might be offered for sale to a public agency, thereby removing that real estate from its assessable tax base. (The building site was located in an urban renewal area over which the City of Annapolis possessed development control.) ³ It was also undisputed that the condemnation mode of acquisition by the State was preferred by the partners of AG because they would receive more beneficial federal and state income tax treatment from such an acquisition than from a sale of the property.

AG had followed the State budget process and was aware in December of 1988 of the distinct possibility that the State would condemn its interest in the property. On March 28, 1989, Mr. Glazer wrote to the State demanding increased rent for the 8,000 square feet of basement area in the building which had been converted from storage to office space. He proposed that the increase would be effective with the first monthly installment of rent due by the State in November of 1988 by virtue of the renewal of the lease effective on October 29, 1988. In June, 1989, AG retained a real estate appraiser, M. Ronald Lipman, to evaluate the value of its interest in 45 Calvert Street.

As AG expected, on July 6, 1989, the State notified AG that it was initiating steps for its possible condemnation of the property pursuant to Paragraph 22 of the Lease. ⁴ Also, on July 11, 1989, it replied to Mr. Glazer's letter of March 28, 1989, stating:

"Our records indicate that the State has paid all costs connected with the conversion of storage space to other uses. Therefore, we do not believe you have any cause to change the rent as stated in the original lease document."

Consistent with Paragraph 22 of the lease, the State and AG named experts to appraise 45 Calvert Street. The State selected Donald Urquhart, and AG named M. Ronald Lipman. Urquhart and Lipman jointly selected Mr. Philip Klein to serve as the third appraiser. Before any of the appraisals had been completed, an attorney representing AG wrote to the appraisers, requesting that each...