Appellant, LaSalle National Bank (LaSalle), brought this declaratory judgment action to construe the provisions of leases that govern the rights of tenants in a shopping center owned by LaSalle. Appellee, Service Merchandise Company, Inc., (Service Merchandise), the defendant in the original action, is a tenant in the shopping center. It also brought a counterclaim against LaSalle for the return of alleged rent overpayments. The district court entered judgment for Service Merchandise on the claim and on the counterclaim. For the reasons set forth in the following opinion, we reverse.

LaSalle owns a shopping center in Oak Lawn, Illinois (Shopping Center). It leases space to various commercial enterprises. The tenants share in the real estate taxes and common area maintenance (CAM) expenses. Each tenant's share is determined by multiplying the total expense for the shopping center by a fraction, the numerator of which is the total number of square feet in the tenant's leased premises, and the denominator of which is the total number of square feet of leasable space in the shopping center.

Two sections of the lease govern the application of this formula. Section 2.31 sets up the basic allocation formula described in the foregoing paragraph. Section 2.42 reserves, inter alia, the right of LaSalle to alter the common areas; this alteration may clearly involve an enlargement or a reduction in the size of the common area. Section 2.4 is expressly subject to the provisions of section 7.13 which authorizes LaSalle to make major alterations to the Shopping Center, including the addition of new structures or the addition of new floors to existing structures.

Section 7.1 states that LaSalle cannot build in the area "outlined in red on Exhibit A." In 1978, the Bank desired to build in the "red outlined area." It sought and obtained the consent of Service Merchandise to do so. However, the contemplated construction also required a zoning variance from the village. To obtain the variance, LaSalle proposed to close off the second floor of a then-vacant building to all uses except for access for the maintenance of mechanical equipment. The village approved the variance by adopting an ordinance that required that this second floor of the building (70,000 square feet) be closed off in accordance with the proposal. To comply with the ordinance, the Bank also had to make many changes that rendered the space structurally nonleasable as well as legally nonleasable.

The Bank notified Service Merchandise that it intended to subtract the 70,000 square feet from the denominator of the tax/CAM payment fraction. Service Merchandise disagreed. This litigation followed.

The district court determined that the contract was ambiguous. The court found the language vague with respect to the nature and extent of the landlord's right to reduce leasable space. Indeed, the district judge believed the question of whether the agreement allowed the landlord to reduce the leasable space at all was a matter in dispute. Furthermore, the court found that the lease was ambiguous with respect to the tenant's right not to have its business materially affected by any diminution of leasable space by the landlord.

After a bench trial, in which a good deal of parol evidence was admitted, the district court concluded that section 7.1 of the contract does not permit the landlord to change existing physical space to non-leasable space. Indeed, the court held that the section simply did not deal with that question and noted that none of the witnesses had testified that there was any discussion about this subject with respect to section 7.1. The court noted that all of the witnesses had agreed that the parties' discussion regarding section 7.1 concerned physical alterations. Consequently, the district court concluded that section 7.1 did not create the right of the landlord to change existing leasable space to non-leasable space.

The district court acknowledged that, as a general rule, a landlord has the right to manage his property, except as limited by lease. However, relying on Metropolitan Airport Auth. v. Farliza Corp., 50 Ill.App.3d 994, 8 Ill. Dec. 950, 366 N.E.2d 112 (1977), the court held that, before a landlord may alter the property in a way that would increase the tenant's taxes, there must be a "clear and concise," LaSalle Nat'l Bank v. Service Merchandise Co., No. 80 C 6185, mem. op. at 3 (N.D.Ill. Jan. 31, 1986); R. 133 at 3-4 [hereinafter cited as Mem. op.], provision permitting such an increase:

[I]n the absence of a clear affirmative right on the part of the landlord to increase the tenant's share of the taxes by eliminating leasable space in a non-physical way, I take it that the landlord does not have that right.

R. 144 at 4.

The district court then opined that, had the Shopping Center been reduced in size by "involuntary reductions, such as by condemnation or destruction by fire,"4 id. at 6, it would have been a permissible reduction of leasable space for purposes of tax allocation:

[D]iminution and destruction of buildings I think was a risk that the defendants took. Physial [sic] diminution was a risk that they took, and had we had a physical destruction of a building, we would analyze it under 7.1.

Id. at 8.

Here, however, there was no diminution or destruction of a building but simply withdrawal from leasable space. Therefore, the court held, the denominator in the tax equation could not reflect such a withdrawal.

In short, in the district court's view, the lease does not permit the landlord voluntarily to change existing physical space to non-leasable space except as specifically provided in the lease. According to this view, if the landlord voluntarily chooses to alter the use of physical space so that it cannot be leased, the space must still be considered "leasable" within the meaning of the contract so long as the space is physically available. Moreover, in computing the tenant's percentage liability of the space and CAM assessments, space that physically exists would be considered leasable and be considered within the denominator.5

Where our jurisdiction is based on diversity of citizenship, see 28 U.S.C. Sec. 1332, the resolution of substantive issues is determined by the applicable state law. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 61 S. Ct. 1020, 85 L. Ed. 1477 (1941). See generally Erie R.R. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938). The parties are in agreement that the applicable state law is the law of Illinois. Therefore, in interpreting this contract, we must follow the applicable Illinois principles of contract construction. See Marmon Group, Inc. v. Rexnord, Inc., 822 F.2d 31, 34 n. 2 (7th Cir.1987). Recently, in Airline Stewards & Stewardesses Ass'n, Local 550 v. American Airlines, Inc., 763 F.2d 875 (7th Cir.1985), cert. denied, 474 U.S. 1059, 106 S. Ct. 802, 88 L. Ed. 2d 778 (1986), this court had occasion to set forth the basic principles of Illinois law regarding the construction of contracts. There, the court noted that "[t]he primary object in construing a contract is to give effect to the intention of the parties." Id. at 877 (citing Schek v. Chicago Transit Auth., 42 Ill. 2d 362, 247 N.E.2d 886, 888 (Ill.1969)). The starting point must be the contract itself. If the language of the contract unambiguously provides an answer to the question at hand, the inquiry is over. Id. at 878. The question of whether a contract is ambiguous is a conclusion of law and may be reviewed de novo by the court on appeal. Id. (citing National Tea Co. v. American Nat'l Bank & Trust Co., 100 Ill.App.3d 1046, 50 Ill. Dec. 474, 427 N.E.2d 806, 808 (Ill.App.Ct.1981)). If the trial court determines that the contract is unambiguous, it must then go on to declare its meaning. Such a declaration is also a conclusion of law and may be reviewed de novo. Id. On the other hand, if the court holds that the contract is ambiguous, its meaning becomes a question of fact and must be submitted to the trier of fact. Id. (citing Hagerty, Lockenvitz, Ginzkey & Assocs. v. Ginzkey, 85 Ill.App.3d 640, 40 Ill. Dec. 778, 406 N.E.2d 1145, 1146 (1980)). Under these circumstances, the trier of fact considers not only the language of the contract but also any extrinsic or parol evidence presented by the parties. Its determination is a finding of fact and this court must review that finding of fact under the clearly erroneous standard. See Anderson v. City of Bessemer City, 470 U.S. 564, 573-74, 105 S. Ct. 1504, 1511-12, 84 L. Ed. 2d 518 (1985).

We believe that the district court correctly understood the basic analytical framework for the interpretation of contracts under Illinois law. However, we also believe that its painstaking analysis of the evidentiary submissions of the parties was unnecessary because, in our view, the text of the lease agreement is not ambiguous6 and there is no need to resort to parol evidence.

In determining whether the language of a lease is unambiguous, we must remember that, while modern real estate practice has shed a good many of the cumbersome conventions of yesteryear, commercial leases rarely contain the sort of clear, concise prose which wins legal writing awards. Nor are they usually organized in a manner that makes their interpretation expeditious and convenient. This lease is no exception. However, an examination of the entire text of this agreement, as well as an examination of its overall structure, convinces us of one important factor: the drafters of this instrument--the parties in this case--made a basic determination that taxes would be allocated according to a floating formula. The lease makes it clear that the parties understood that the space in the shopping center might increase or decrease during the term of the lease, and it was also understood that the responsibility of the defendant tenant would remain that percentage of the overall leasable space allocated to it.

At the time that the lease was drawn, the parties may well have believed that there was a greater possibility that the leasable space in the shopping center would increase rather than decrease and that the major risk to the tenant in this regard was that the shopping center would contain space which, while leasable, was not leased. However, the opposite possibility also existed and the parties did not eliminate it. Indeed, in our view, the language and structure of the contract demonstrate that they affirmatively tolerated such a contingency. Therefore, the tenant took the risk that, while the total tax bill remained the same or increased, the shopping center might contain less leasable space and that, therefore, its share of the bill would increase.

The lease expressly contemplates both the expansion and diminution of the size of the shopping center in section 7.4. Indeed, the district court expressly recognized this feature but limited the possibility of reduction, on the basis of parol evidence, to those situations where space is totally removed, voluntarily or involuntarily. In our view, neither the language nor the overall structure of the lease permits such a narrow interpretation of the lease agreement. The lease, read in its entirety, contemplated both the possibility of increase and the possibility of decrease in the amount of leasable space. The tenant, in agreeing to pay the percentage of taxes and CAM charges that corresponded to its percentage of overall leasable space, assumed the risk that such changes in costs associated with such changes in space would reflect its business benefit from the lease arrangement.

The district court's construction of the contract was influenced, to a significant extent, by its reading of Metropolitan Airport Auth. v. Farliza Corp., 50 Ill.App.3d 994, 8 Ill. Dec. 950, 366 N.E.2d 112 (1977). In the district court's view, that case stands for the proposition that "in order for the tax burden on defendant to be increased ... the lease provisions permitting such increase must be clear and concise." Mem. op. at 2-3. The district court therefore concluded that, since the lease provisions "do not unambiguously indicate that alteration of physical space, short of complete demolition, renders the space 'nonleasable,' thereby possibly increasing tax liability ... the altered space is still 'leasable' within the meaning of the lease." Id. at 3.

We do not believe that the holding of Metropolitan Airport Auth. governs this case. Metropolitan Airport Auth. involved a lease between an airport authority and a hotel. The lease provided that the lessee would pay taxes upon any of the lessee's property or improvements on the premises. There was no provision for real estate taxes. The property was exempt because it was being used for airport authority purposes. However, when it was no longer used for such purposes, the county sought to tax the real estate. The court held that the airport authority could not impose this tax liability upon the lessee without a specific agreement authorizing the assumption of such a liability by the lessee. The situation before us is substantially different. The lessor is not seeking to have the tenant pay taxes not provided for in the lease despite the fact that the lease already specifically sets forth the lessee's tax liability. Here, there is simply an increase, pursuant to a specified formula, of a tax for which the lessee is already responsible.

Because we believe that the lease agreement is unambiguous,7 we reverse the judgment of the district court.

REVERSED.