This is a declaratory relief action to establish the value of certain property as a basis for determining the rental to be paid therefor.
The property in question has a frontage of approximately 35 1/2 feet and a depth of approximately 149 1/2 feet. It is situated in Los Angeles on the west side of Broadway between Sixth and Seventh Streets. The respondent has occupied this and adjoining property for some fifty years, and operates thereon its department store known as Bullock's Downtown. The property was originally leased in 1906 for fifty years by respondent's predecessor in interest. Rent was based upon a fixed percentage of the value of the land. In 1943 respondent entered into a new lease for the subject property commencing immediately after the termination of the prior lease.
The new lease was also for a term of fifty years, commencing June 1, 1956. It contained many provisions identical to those of the prior lease. The rent to be paid for the ten-year period commencing June 1, 1956, was set at "an amount equal to five per cent of the appraised value of the leased land fixed as hereinafter provided, but not less than $17,750 per year."
Arbitrators were appointed by the lessee and the lessors, but the arbitrators did not agree upon a valuation nor upon the appointment of a third arbitrator. After the expiration of the periods prescribed in the lease, respondent filed this action, requesting that the court determine the value of the land so that rent could be established as provided in the lease. Appellants answered seeking similar relief and praying for an award of their costs in the proceedings, including attorneys' fees.
The trial court determined that the value called for in the lease was the land's fair market value, and set that value at $478,980. The court entered judgment accordingly, also ordering that each side should bear its own costs. The lessors have appealed.
Appellants properly point out that "value" means value in use (i.e., the utility of an object) as well as value in exchange (i.e., an object's worth in terms of marketable price). (See 2 Bouvier, op. cit. supra, 3387.) But it is clear that the parties did not intend use value in the rental provisions. The lease calls for a determination of the value of the land, not the value of the use of the land for any particular purpose. The entire context shows that the parties had in mind the property's
Appellants argue that "if the parties had intended market value, they would have said market value." However, we have already pointed out that using merely the word "value" in the lease indicates that the parties meant market value. In fact, it seems clear that if the parties had intended anything other than market value, they would have said so expressly.
In this connection appellants also argue "market value" was not intended because, while those words were not used in the rental provisions, they did appear in a provision of the lease concerning repair and maintenance of the building and improvements on the property. It should first be noted that the latter provision deals with an altogether different subject matter — the method of determining the minimum cost of reconstructing improvements under certain conditions. Moreover, reading the lease as a whole makes it obvious that the use of the phrase "market value" in the repair and maintenance section does not indicate that the parties intended some other criterion of value in the rental provisions because of the absence of the word "market." This is illustrated by the condemnation provisions of the lease which make several references to the "value of the land." It is elementary that "value" in connection with condemnation proceedings ordinarily
The final paragraph in the condemnation section lends further support to our conclusion that the parties meant market value in the rental provisions. The paragraph provides that in the event of partial condemnation of the leased property the rent for the balance of the ten-year period during which the condemnation takes place shall be reduced by a sum equal to five per cent per annum "of the amounts awarded as compensation for the land taken and damages to the portion of the land remaining."
The cases relied upon by appellants are not in point. They deal with rental value — the value of the use of the land for any purpose for which it is adapted. Rental value is measured partially in terms of time, by the month or by the year, et cetera. The parties were not fixing rental value in the lease, they were fixing rent. They determined such rent by taking a
From the foregoing it is clear that the trial court did not err in basing his decision as to the value of the property on its fair market value.
"The lease provided that the lessee should pay as rent a sum equal to 5 per cent of the cash value of the demised premises, exclusive of the buildings and improvements which might be thereon.... The court construed the value of the demised property as contained in the lease to mean the cash value of the naked lot with a clear title in fee simple. The complainant insisted that the court ought to find the cash value of the fee simple as depreciated by the lease upon it, or, in other words, the cash value of the reversion.... Anyone buying the reversion would pay more if the lease called for 10 per cent per annum on the value than if it called for 5, as in this case, and
The cases cited by appellants in support of the testimony of their expert are not in point. Those cases involved valuation of a lease or leasehold interest rather than valuation of land.
That the parties did not intend the lessors should recover costs and attorneys' fees in such a suit as the present one is demonstrated by the arbitration provisions in the lease. It is provided that "each party will pay the charges of the arbitrator appointed by it and the expenses incurred by such arbitrator"; and that "the charges for services of the third arbitrator and the other expenses of the arbitration shall be borne by the parties in equal shares." Thus, the parties contemplated that the expenses of arbitration would be shared. No express provision is made in the arbitration section concerning costs and attorneys' fees in a suit to determine the value of the property. Since these expenses are the result of a substitute for arbitration, the obvious conclusion is that the parties intended that they should be shared. If, regardless of the outcome of such a suit, the lessee should be required to pay the lessors' costs and attorneys' fees, then the lessors would always be in a position to hold out for an increase in valuation equal in amount to their costs of litigation which the lessee would have to bear in any event. Such a one-sided advantage could not have been intended by the parties.
The judgment is affirmed.
Herndon, J., concurred.
Mr. Justice Ashburn, deeming himself disqualified, did not participate herein.
"For the ten-year period commencing June 1, 1956, the annual rent shall be an amount equal to five per cent of the appraised value of the leased land fixed as hereinafter provided, but not less than $17,750.00 per year.
"For the remaining part of the term the annual rent shall be an amount equal to five per cent of the appraised value of the leased land fixed as hereinafter provided, but not less than $6,000.00 per year.
"The annual rent shall be paid in twelve equal monthly installments payable in advance on the first day of each calendar month.
"The appraised value of the land shall be determined and fixed as at June 1, 1956, for the purpose of fixing rent for the ten-year period commencing June 1, 1956, as at June 1, 1966, for the purpose of fixing rent for the ten-year period commencing June 1, 1966, as at June 1, 1976, for the purpose of fixing rent for the ten-year period commencing June 1, 1976, as at June 1, 1986, for the purpose of fixing rent for the ten-year period beginning June 1, 1986, and as at June 1, 1996, for the purpose of fixing rent for the ten-year period beginning June 1, 1996. The appraisements shall be of the leased land exclusive of the buildings and improvements on the leased land and shall be made as follows: One hundred twenty (120) days before the commencement of each of said periods the Lessors shall appoint an arbitrator and immediately notify the Lessee in writing of the said appointment and of the name and address of the said arbitrator so appointed by them, and the Lessee shall also similarly at said time appoint an arbitrator and immediately notify the Lessors in writing of the said appointment by it. If the said two arbitrators do not within twenty (20) days after their appointment as aforesaid agree upon the value of the said land, then they shall immediately appoint a third arbitrator, and the decision of any two of said arbitrators shall be binding upon the parties hereto, such decision in each respective instance to be rendered on or before thirty (30) days before the commencement of each of said respective periods. The award by said arbitrators shall be made in writing, signed by said arbitrators in duplicate, one of which documents shall be delivered to the Lessors and one to the Lessee herein. Each party will pay the charges of the arbitrator appointed by it and the expenses incurred by such arbitrator. The charges for services of the third arbitrator and the other expenses of the arbitration shall be borne by the parties in equal shares. It is expressly understood and agreed that if the parties hereto can, before the commencement of any of said periods, mutually agree upon the value of said land for either or any of such periods, then no appraisement need be made for any of such periods for which such value is so mutually agreed upon. In such case the amount agreed upon shall be evidenced by a writing, signed in duplicate by the respective parties.
"If for either or any of such periods the parties hereto do not mutually agree upon the value of said land, or if either party hereto for either or any of such periods fails to appoint an arbitrator as hereinbefore provided, or if for any of such periods said arbitrators fail to agree, and failing to agree do not appoint a third arbitrator as hereinbefore provided, or if for either or any of such periods said arbitrator or any two of them, as hereinbefore provided, do not agree upon a valuation before the thirtieth day of preceding such or any of such periods, then the value of said land for such or any of such periods shall be determined by the Superior Court of the County of Los Angeles in an action or actions brought therein for that purpose.
"The provision for minimum rent is not an indication of opinion of value at the present time or for the future and shall not be considered in any way in connection with the appraisements or determinations of value herein provided for."
"If a part of the leased property is condemned and taken and the lease is continued in force and the actual possession of said part is required and taken during a ten-year period for which the appraised value has been fixed on the basis of the entire leased property, the rent for the balance of the said ten-year rent period provided for in Paragraph 4 hereof shall be reduced by a sum equal to five per cent (5%) per annum of the amounts awarded as compensation for the land taken and damages to the portion of the land remaining."
Mr. Sayer testified that he had examined the lease and that he inspected the property and maps of the area; he obtained the assessed valuation of properties in the area; he secured information concerning all the sales of nearby property over a period of five years; he obtained the sales volume figures of lessees in the vicinity; he interviewed owners and proprietors. He stated that he took into consideration all of the above factors. He considered the physical aspects of the property, the terms of the lease concerning the method of appraisal, the rentals being paid in the area, and the effect of decentralization of the downtown property. He gave consideration of varying degrees to at least fifteen of the thirty sales he had investigated, and gave particular consideration to three sales within six months of the date of valuation. He was of the opinion that the market value of the property was $450,000.
Mr. Little also visited the property, obtained records of sales and leases of nearby property within five years, talked to owners, and examined other properties in the vicinity. He obtained the square footage of the various properties and their assessed values. He secured data concerning retail sales volumes in the downtown area. He interviewed buyers and sellers of comparable properties, studied market conditions, spoke with mortgage bankers familiar with the downtown area, and read the lease on the subject property. He considered the size and scope of the subject property to determine its "highest and best use, either with the present or an alternative improvement." He concluded that the property had a fair market value of $443,500.
Mr. Ross testified that he examined the property and photographed it. He obtained information concerning nearby sales, rentals, and so forth. He examined several leases, including the lease in question. He examined much data concerning the conditions of downtown Los Angeles during the period in question. He prepared a map of the area and used it in his considerations. He studied the above data and arrived at a valuation of $450,000.
Cross-examination of each of these witnesses indicated that they were thoroughly familiar with the data upon which they based their opinions, including the rentals of other property in the vicinity.
"If the Lessors without fault on their part shall be made parties to any litigation commenced by or against the Lessee involving the enforcement of any of the rights or remedies of the Lessors against the Lessee, or arising on account of a default of the Lessee in respect of any of the covenants or conditions in this lease, or arising out of the Lessee's use of the leased property or its acts in connection with this lease, then the Lessee will pay all costs and reasonable attorney's fees incurred by or assessed or charged against the Lessors in connection with such litigation, and will also pay the costs and reasonable attorney's fees incurred by the Lessors in enforcing the covenants and conditions of this lease."