ALCHEMY COMMUNICATIONS CORP. and ALCHEMY COMMUNICATIONS LIMITED
PARTNERSHIP #1
Plaintiffs
v
.
PRESTON DEVELOPMENT COMPANY, and FLORA DEVELOPMENT, LLC
Defendants
Womble Carlyle Sandridge & Rice, PLLC, by John C. Cooke and
Christine Carlisle Odom, for plaintiff-appellees.
Higgins, Frankstone, Graves & Morris, P.A., by David J. Hart,
for defendant-appellant.
MARTIN, Judge.
Defendant Flora Development, LLC (hereinafter "Flora"),
appeals from a declaratory judgment in which the trial court
declared the meaning of several provisions in a commercial lease.
The trial court entered judgment declaring the rights of the
parties under the lease and dismissing defendants' counterclaims in
which defendants sought possession and rentals, based upon
assertions that plaintiffs, Alchemy Communications Corp. and
Alchemy Communications Limited Partnership #1 (hereinafter
"Alchemy"), were in default of the lease.
Briefly summarized, the evidence showed the following facts:
In 1986, Adelphi Broadcasting Company sold radio station WKIX-AM to Metroplex Communications of North Carolina, Inc. (hereinafter
"Metroplex"). As a part of the sale, Metroplex and Adelphi Realty
Company (hereinafter "Adelphi"), an affiliate of Adelphi
Broadcasting Company, entered into a lease dated 2 September 1986
in which Adelphi leased the transmitter site to Metroplex. The
transmitter site is approximately twenty-five acres in size and
consists of five towers, each over 400 feet high, a small building
housing the transmission equipment and underground copper wires
radiating 360 degrees that run from each of the towers to the edge
of the transmitter site. Under the lease, Metroplex leased the
transmitter site from Adelphi for fifty years, with an option to
extend the lease for fifty additional years. Thus, the lease term
expires in the year 2036 but may be extended until the year 2086.
The annual rent due the landlord under the lease is an amount equal
to the annual ad valorem real property taxes assessed against the
transmitter site.
In 1989, plaintiff Alchemy purchased WKIX-AM from Metroplex
and assumed its obligations under the lease. On 1 January 1994,
plaintiff Alchemy changed the call letters of WKIX-AM to WYLT-AM,
and then again on 31 July 1995 from WYLT-AM to WRBZ-AM. In
addition to changing the call letters, plaintiff Alchemy changed
the format of WKIX-AM from primarily a music format to a sports and
talk format. Plaintiff Alchemy also moved its offices. The only
characteristic common to the former WKIX-AM and the present WRBZ-AM
is that they both broadcast on the 850-AM frequency.
On 25 January 1995, an affiliate of defendant Flora acquiredfee simple title to the transmitter site and surrounding land.
Timothy R. Smith testified in a deposition on behalf of defendant
Flora that with the lease in place, the transmitter site has a
negative value. According to Smith, if defendant Flora could oust
plaintiff Alchemy, the transmitter site's raw land value would be
between 1.25 million and 2.5 million dollars. After realizing that
the land in question would be much more valuable to defendant Flora
if there were no lease, defendants attempted to negotiate a
relocation deal with plaintiff Alchemy. However, this attempt was
abandoned after plaintiff Alchemy determined that relocation would
not be economically feasible.
Thereafter, defendants devised a plan to encircle the
transmitter site with new development. This triggered plaintiffs
to file a declaratory judgment action against defendants.
Plaintiffs sought a declaration of the meaning and application of
the lease's express covenant of quiet enjoyment. After plaintiffs
instituted its declaratory judgment action, on 26 May 1999,
defendant Flora sent plaintiff Alchemy written notice of default on
grounds that plaintiff Alchemy had: (1) failed to use the premises
for the transmission of WKIX-AM; (2) licensed the use of the
premises to WRBZ-AM; and (3) assigned the lessee's interest without
defendant Flora's consent. The notice gave plaintiff Alchemy ten
days to cure the alleged defaults. After plaintiffs failed to cure
the defaults alleged by defendants, on 18 June 1999, defendants
filed counterclaims against plaintiffs seeking possession of the
premises and the fair rental value of the premises from the date oftermination to the date that plaintiffs vacate the premises.
Defendants sought summary judgment as to their counterclaims
and plaintiffs sought summary judgment as to defendants'
counterclaims. Both motions were denied on 16 December 1999.
After a non-jury trial, the trial court entered judgment on 18
August 2000 declaring the rights of the parties and dismissing
defendants' counterclaims. The trial court stated in its judgment
that it was basing its decision only upon the four corners of the
lease and the facts which appeared to be undisputed between the
parties. Defendant Flora appeals.
9. Pursuant to the Lease, the initial Lease
term expires in the year 2036 and may be
extended for another fifty (50) years or until
the year 2086. The annual rent due the
landlord is to be in the amount of the annual
ad valorem real property taxes assessed
against the Transmitter Site. Put another
way, the annual rent under the lease is
determined by the amount of the real property
tax assessed against the Transmitter Site each
year.
Based on these undisputed findings and the lease, the trialcourt made conclusions of law as to the meaning of the lease, the
legal effect of the change of the radio station call letters in
1994 and 1995, and the legal effect of possible future call letter
changes. The court stated in its judgment that it based its
decision upon the four corners of the lease and the facts which
appear to be undisputed between the parties. The court ruled that
the change in call letters by plaintiff Alchemy from WKIX-AM to
WYLT-AM and then to WRBZ-AM did not constitute a breach of the
lease, nor would any subsequent change in call letters by a
rightful tenant constitute a breach of the lease. The trial court
also dismissed defendant's counterclaims.
Defendant Flora contends that the trial court erred in
concluding that the lease extends to the licensee of the radio
station which broadcasts at 850-AM. Defendant argues that the
lease and specifically Section 7 is unambiguous and that the trial
court improperly considered extrinsic evidence under the parol
evidence rule. We hold that the trial court properly determined
that plaintiff Alchemy had not breached the lease by changing the
radio station's call letters.
"The terms of a lease, like the terms of any contract, are
construed to achieve the intent of the parties at the time the
lease was entered into." Lexington Ins. Co. v. Tires Into Recycled
Energy and Supplies, Inc., 136 N.C. App. 223, 225, 522 S.E.2d 798,
800, (1999), disc. review denied, 351 N.C. 642, 543 S.E.2d 872
(2000). Additionally, the Court should reject an interpretation ofthe terms of a lease which would be unreasonable or unequal if this
can be done consistently with the tenor of the agreement. Discount
Corp. v. Mangel's, 2 N.C. App. 472, 163 S.E.2d 295 (1968).
Further, "a construction which is most obviously just is to be
favored as being most in accordance with the presumed intention of
the parties." Id. at 477, 163 S.E.2d at 299.
Even though words in a lease seem clear and unambiguous, a
latent ambiguity exists if their meaning is less than certain when
viewed in the context of all the surrounding circumstances.
Jefferson-Pilot Life Ins. Co. v. Smith Helms Mulliss & Moore, 110
N.C. App. 78, 429 S.E.2d 183 (1993). If a latent ambiguity exists,
preliminary negotiations and surrounding circumstances may be used
to determine what the parties intended; id., for as our Supreme
Court has noted, "he who stops at the letter 'goes but skin-deep
into the meaning.'" Temple Co. v. Guano Co., 162 N.C. 87, 90, 77
S.E. 1106, 1107 (1913) (citations omitted). A lease should not "be
interpreted according to the strict letter, especially if it will
defeat the manifest intention, as gathered from the whole
instrument." Id. at 90, 77 S.E. at 1107. Another rule of
interpretation for leases is that an undefined word in a lease
"should be given its natural and ordinary meaning." Charlotte
Housing Authority v. Fleming, 123 N.C. App. 511, 514, 473 S.E.2d
373, 375 (1996).
Since this case deals with a lease provision that plaintiffFlora argues places a restriction on the use of the land, we must
refer to rules regarding the interpretation of use restrictions.
Use restrictions in leases will not be implied and will be
construed against the landlord. See e.g., Jenkins v. Rose's
Stores, Inc., 213 N.C. 606, 197 S.E. 174 (1938); James A. Webster,
Jr., Webster's Real Estate Law in North Carolina, § 12-20, at 511
(Patrick K. Hetrick & James B. McLaughlin, Jr. eds., 5th ed. 1999).
Such a provision must be explicit and unambiguous. Forrest Drive
Assoc. v. Wal-Mart Stores, Inc., 72 F. Supp. 2d 576 (M.D.N.C.
1999). A mere statement of the purpose of a lease or words that
describe the use of the premises are deemed permissive rather than
restrictive. James A. Webster, Jr., Webster's Real Estate Law in
North Carolina, § 12-20, at 511 (Patrick K. Hetrick & James B.
McLaughlin, Jr. eds., 5th ed. 1999).
Applying these rules to the lease at issue in this case, we
first note that there is a latent ambiguity in the words "Radio
Station WKIX-AM" found in Section 7 of the lease. On their face,
the words seem to be clear and unambiguous. However, when looking
at the whole instrument and the surrounding circumstances, these
words are less than certain. Therefore, it is appropriate for the
trial court to consider such evidence as preliminary negotiations
and surrounding circumstances in order to clarify the terms and
determine what the parties intended. See Thomco Realty, Inc. v.
Helms, 107 N.C. App. 224, 418 S.E.2d 834, disc. review denied, 332N.C. 672, 424 S.E.2d 407 (1992).
From a review of the lease in its entirety and considering
extrinsic facts, it is clear that the original parties to the lease
used the call letters, WKIX, to describe and name the radio station
and not to restrict the use of the transmitter site only to a radio
station using particular call letters. Bernard Mann, owner of
Adelphi (original lessor), provided the following explanation for
the phrase "radio station WKIX-AM" Section 7 of the lease during
his deposition:
Hart: But why specifically does it say
radio station WKIX-AM?
Mann: That's what it was called at that
time.
Hart: If your intent was to limit it to AM
radio transmission purposes, wouldn't
it have been sufficient to end that
clause after the word "towers", so that---
Mann: But that was the name of it. That
was the name of the radio station.
Hart: Why was it important to name the
radio station?
Mann: How do you refer to it unless you
name it?
Hart: Well, you can call it -- couldn't
this section reasonably say, the
lessee may use the premises only
for the purpose of thereupon maintaining
it's AM transmitter and AM transmission
towers?
Mann: I suppose it could, but it had a
name, we used the name.
Hart: How many times does the ---
Mann: It's not any different than having a
driver's license and you get married, so you get your name chan
ged. You're
still permitted to drive.
Section 19 of the lease also provides insight into the original
parties' intent. Section 19, in relevant part, provides the
following:
(19) ASSIGNMENT AND SUB-LEASING. Lessee shall
not assign, mortgage or encumber this lease or
the Premises without the prior written consent
of the Lessor in each instance which consent
shall not be unreasonably withheld.
Notwithstanding the foregoing, Lessor consents
to the assignment or sublease by Lessee of its
interests under this lease to the transferee
of its license for the operation of WKIX-AM .
. . .
It can be deduced from the automatic consent for assignment or
sub-lease of the original tenant's interests under the lease to the
transferee of the radio station's license that the original parties
knew that the radio station license might be transferred from time
to time and the transferee/licensee would automatically be assigned
or sub-leased the transmitter site. We must also note that it was
clear that the original parties intended to have a long-term lease,
the transmitter site was built and was being used to broadcast the
radio station's signal at the time of the lease's formation, and
the original parties were in the AM radio business. Thus, the
original parties knew the technical meaning, the use and purpose of
AM radio call letters generally and "WKIX-AM" particularly. After
reviewing the undisputed extrinsic facts and the lease itself, we
conclude that the term "WKIX-AM" in Section 7 of the lease was
simply descriptive of the AM radio station that broadcasts at 850-
AM and does not restrict the use of the transmitter site to theradio station WKIX-AM. Accordingly, Alchemy is not in default for
changing the call letters to WYLT-AM and then to WRBZ-AM.
Defendant Flora complained of, but did not assign error to,
the trial court's dismissal of defendants' counterclaims before
they presented any evidence. The trial court's ruling that the
change in call letters did not constitute a breach of the lease
necessarily rendered moot defendant's counterclaims seeking
possession of the premises and the fair rental value of the
premises from the date of termination to the date that plaintiffs
vacate the premises. Since the trial court concluded that there
was no breach in the lease, there was no date of termination.
Affirmed.
Judge WALKER concurs.
Judge TYSON concurs in the result.
TYSON, Judge, concurring in the result.
I agree with the majority's decision that plaintiff Alchemy
did not breach its lease merely by changing the radio station's
call letters. I write separately because the lease does not
contain a latent ambiguity that would permit extrinsic evidence or
testimony. I would construe the lease within its four corners.
The trial court based its interpretation upon the “four
corners” of the lease, and found that the lease did not contain
ambiguity. Accordingly, extrinsic evidence should not have been
allowed to explain the terms of the unambiguous lease.
If a writing is unambiguous, “all prior and contemporaneousnegotiations . . . are deemed merged in the written agreement . .
. . [P]arol testimony . . . or conversations inconsistent with the
writing, or which tend to substitute a new and different contract
from the one evidenced by the writing, is incompetent.” Neal v.
Marrone, 239 N.C. 73, 77, 79 S.E.2d 239, 242 (1953) (citations
omitted). Trial courts that do not specifically find an ambiguity
in a fully integrated writing, should refrain from smuggling
extrinsic matters into evidence to explain the document.
I agree with the majority that “the Court should reject an
interpretation of the terms of a lease which would be unreasonable
or unequal if this can be done consistently with the tenor of the
agreement.” I do not agree, however, that the lease, construed as
a whole, is ambiguous. “An ambiguity exists where the language of
a contract is fairly and reasonably susceptible to either of the
constructions asserted by the parties.” Glover v. First Union
National Bank, 109 N.C. App. 451, 456, 428 S.E.2d 206, 209 (1993)
(citing St. Paul Fire & Marine Ins. V. Freeman-White Assoc., 322
N.C. 77, 366 S.E.2d 480 (1988) (emphasis supplied)).
Here, the plain language of the lease allows the lessee and
its assignees to use the premises to operate and maintain a radio
station including transmitter and transmission towers “for any and
all uses which are ancillary to the use of this property for . . .
radio transmission purposes.” The parties remain bound to the
terms of the lease regardless of how valuable the land containing
the premises later becomes. Defendant landlord, as successor-in-interest to Adelphi Realty Company, purchased the land subject to
the lease in this action. Mosely & Mosely Builders, Inc. v. Landin
Ltd., 97 N.C. App. 511, 525, 389 S.E.2d 576, 584 (1990).
I concur in the result.
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