MANSFIELD, Justice.
This case requires us to interpret a commercial lease. Our task is to determine whether the landlord is authorized to enter the leased property to show it to potential buyers. The tenant argues that access is not permitted until ninety days before the end of the lease term. The tenant relies
The landlord disagrees. The landlord relies on lease provisions that make the tenant's use of the premises "non-exclusive" and give the landlord the right to sell the property, mortgage it, or assign the lease interest at any time during the lease term. The landlord contends that the right to sell the property encompasses the right to show the property during the lease term at reasonable times to prospective buyers.
Upon our review, we agree with the landlord's interpretation of the lease. Therefore, we vacate the decision of the court of appeals, reverse the judgment of the district court, and remand with instructions to the district court to enter summary judgment in favor of the landlord.
On October 23, 2003, Mauer Vision Center, PC as tenant and I4NI, L.L.C. as landlord entered into a written lease for a building located at 124 Second Street N.E. in Waverly, together with the use of the improvements thereon. The lease had a term of fifteen and one-half years. The lease included the following provisions:
The lease also provided in paragraphs 5 and 7 respectively that the landlord had a right to regain possession on termination of the lease and, during the lease term, the tenant and not the landlord was responsible for maintenance and repair of the building. Additionally, paragraph 16 authorized the landlord to take possession of the premises in the event of certain defaults.
Dr. Richard Mauer was the president of Mauer and a member of I4NI at the time the lease was executed in 2003. He signed the lease for both entities.
On June 15, 2006, I4NI transferred its interest in the lease to Alta Vista Properties, LLC. The parties agree that Alta Vista became Mauer's landlord following the sale and assumed all the rights and responsibilities of the landlord under the lease. It is also undisputed that prior to the 2006 sale, I4NI had access to the premises to show it to prospective buyers, including Alta Vista.
In May 2012, Alta Vista became interested itself in selling the underlying real estate. Its representatives contacted representatives of Mauer, who refused to allow Alta Vista access to the building to show it to potential purchasers. On June 27, Alta Vista filed a petition for a declaratory judgment, seeking a ruling that it could have reasonable access to the property to show it to prospective buyers. Mauer answered, disputing Alta Vista's interpretation of the lease.
The parties both moved for summary judgment. Mauer relied on paragraph 12 of the lease. It said that this provision unambiguously limited the landlord's access to the premises for purposes of showing it to potential buyers to the last ninety days of the lease term. Alta Vista, by contrast, argued that the lease taken as a whole — especially paragraphs 13, 18, 19, and 27 — gave it a reasonable right of access to show the premises to prospective buyers throughout the lease term.
The district court found the contract to be unambiguous and granted summary judgment to Mauer. The court reasoned,
Alta Vista appealed the ruling. We transferred the case to the court of appeals.
The court of appeals affirmed the district court's grant of summary judgment in Mauer's favor. It agreed with the district court that the lease unambiguously limits the landlord's access to the property to show it to potential buyers to the last ninety days of the lease term.
We granted Alta Vista's application for further review.
We review grants of summary judgment for correction of errors at law. Peak v. Adams, 799 N.W.2d 535, 542 (Iowa 2011). "Interpretation of a contract is a legal issue unless the interpretation of the contract depends on extrinsic evidence." Pillsbury Co. v. Wells Dairy, Inc., 752 N.W.2d 430, 435 (Iowa 2008); see also Hartig Drug Co. v. Hartig, 602 N.W.2d 794, 797 (Iowa 1999) ("[W]hen no relevant extrinsic evidence exists, the resolution of any ambiguity in a written contract is a matter of law for the court.").
This case requires us to determine whether the lease permits the lessor to enter the property at reasonable times to show it to prospective purchasers during the lease term. Mauer argues that because paragraph 12 provides that "Tenant will permit, [during the last 90 days of the lease term], prospective tenants or buyers to enter and examine the premises," it thereby denies access at other times. Alta Vista counters that paragraph 18 provides Mauer with only "non-exclusive use" of the premises, and paragraphs 13, 19, and 27 expressly give Alta Vista the rights to sell the property, mortgage the property, or assign the lease interest at any time — thus carrying along the right to show the property to such potential buyers or financiers.
Pillsbury, 752 N.W.2d at 436 (quoting Fausel, 603 N.W.2d at 618) (internal quotation marks omitted).
In this case, there is relatively little extrinsic evidence. We agree with Mauer that a conclusory sworn statement from a principal of I4NI as to what was "understood" or "wanted" at the time the lease was signed brings little to the table. See Peak, 799 N.W.2d at 544 (declining to give weight to one party's undisclosed unilateral intent); cf. Kroblin v. RDR Motels, Inc., 347 N.W.2d 430, 432-33 (Iowa 1984) (authorizing consideration of written and oral communications between the parties as an aid to contract interpretation). However, the fact that Mauer permitted I4NI to show the property to potential buyers before the 2006 sale to Alta Vista is some evidence of a relevant course of dealing. See Restatement (Second) of Contracts § 202(5), at 86-87 (1981) (referring to the parties' course of dealing as one interpretive tool). In any event, our primary focus will be on the language of the lease.
Several principles of interpretation are pertinent here. "[A]n interpretation which gives a reasonable, lawful, and effective meaning to all terms is preferred to an interpretation which leaves a part unreasonable, unlawful, or of no effect." Fashion Fabrics, 266 N.W.2d at 26 (citing Restatement (Second) of Contracts § 229 (Tentative Draft No. 1-7)). Additionally, a lease includes not only what is expressly stated by its terms but also what is necessarily implied to give effect to its express terms. See id. at 27 ("Contractual obligations may arise from implication as well as from the express writing of the parties."). Courts imply contractual terms where the obligation "arise[s] from the language used or [is] indispensable to give effect to the intent of the parties." Id.
Applying these principles here, we respectfully disagree with the district court's and the court of appeals' interpretation of the lease. In our view, paragraph 12 does not unambiguously bar the landlord's access to the premises to show the property to potential buyers prior to the last ninety days of the lease term. True, it says the tenant must allow prospective tenants and buyers to enter and examine the premises during the last ninety days. Yet it does not say this is the only time they are permitted on the premises. Of course, we have the rule of contract interpretation that "expressio unius est exclusio alterius — `[T]he expression of one thing of a class implies the exclusion of others not expressed.'" Peak, 799 N.W.2d at 548 (quoting Maytag Co. v. Alward, 253 Iowa 455, 460, 112 N.W.2d 654, 656 (1962)).
Paragraph 12, as its heading indicates, deals primarily with the subject of "signs." Several clauses in subparagraph A of that paragraph address the tenant's right to put signs on the premises. Subparagraph B then confers on the landlord the right to put "For Rent" or "For Sale" signs on the premises during the last ninety days of the lease term, while requiring the tenant to permit prospective buyers or tenants to enter and examine the premises during that time. In context, one could conclude that subparagraph B is intended to address the landlord's need to find a new occupant for the premises, either a lessee or a buyer, as the lease nears expiration. At the same time, one could conclude that the subparagraph is not intended to restrict the landlord's ability to sell, finance, or refinance the property subject to the lease.
Moreover, paragraph 12 does not refer to the landlord's ability to enter the building (conceivably with a prospective buyer in tow), but only to prospective tenants and buyers (potentially unaccompanied by the landlord) being able to enter and examine the premises. Once signs are displayed as permitted by paragraph 12, prospective tenants and buyers might see them and want to approach the tenant to look at the property, even when the landlord or its representative is unavailable. Seemingly, paragraph 12 requires the tenant to admit them and thereby serves a significant purpose even if the landlord retains the right to show the property outside the ninety-day window.
The view that paragraph 12 is a relatively narrow provision dealing with marketing the property to new occupants during the final ninety days, as opposed to a broad ban on landlord access to show the underlying real estate to prospective buyers during the rest of the lease term, finds support in other lease provisions. Paragraph 18 states that Mauer's use of the premises during the lease term is "non-exclusive." While there are various ways of reconciling this provision with the rest of the lease, paragraph 18 undermines any presumption that Alta Vista can only enter the property when a paragraph of the lease expressly permits it to do so. Such a restriction on Alta Vista's access would result in exclusive use for Mauer rather than the non-exclusive use described in paragraph 18.
Moreover, as Alta Vista points out, paragraphs 19 and 27 give it the express right to sell and mortgage the underlying property (subject to the lease) during the lease term. Who would buy or finance something he or she could not look at? See Fashion Fabrics, 266 N.W.2d at 26 (disfavoring lease interpretations that render a provision of "no effect").
In addition, Mauer's interpretation seemingly leads to an unfair outcome. See id. at 26 (disfavoring interpretations that leave a part of the lease "unreasonable"). The inconvenience to Mauer if Alta Vista is allowed to show the property at a reasonable time to a prospective buyer is minimal. Yet the potential loss to Alta Vista if it cannot show the property is substantial: Alta Vista would likely be unable to sell the property to or finance the property with any bona fide third party. See Midwest Mgmt. Corp. v. Stephens, 291 N.W.2d 896, 913 (Iowa 1980) ("An agreement will not be given an interpretation which places
In effect, Mauer's interpretation of the lease operates as a restraint on alienation. See Restatement (Second) of Prop.: Landlord & Tenant § 15.1 & cmt. a, at 85-86 (1977) (noting "the undesirability of restraints on alienation" and indicating that a landlord's interest in the leased property is "freely transferable, unless[] (1) a tenancy at will is involved; (2) the lease requires significant personal services from either party and a transfer ... would substantially impair the other party's chances of obtaining those services; or (3) the parties... agree otherwise").
In sum, as we read the lease, the parties expressly contracted to limit the more intrusive aspects of advertising and resale to the last ninety days of the term, but the lease also allows Alta Vista to exhibit the building to prospective buyers of the underlying real estate at reasonable times outside that period. A sign advertising the property for sale could adversely affect Mauer's business. Thus, paragraph 12 confines such signs to the final ninety days. But temporary, reasonable access to show the property to a potential buyer would not affect Mauer's business and is a logical corollary to paragraphs 13, 19, and 27 of the lease.
It is true that the lease has a brief integration clause in paragraph 24. That clause states, "This Lease contains the whole agreement of the parties." Such clauses are "one factor we take into account in determining whether an agreement is fully integrated." C & J Vantage Leasing Co. v. Wolfe, 795 N.W.2d 65, 85 (Iowa 2011). However, even if we assume the lease here is fully integrated, the present dispute is one of lease interpretation. See 5 Margaret N. Kniffin, Corbin on Contracts § 24.12, at 108 (Joseph M. Perillo, ed., rev. ed.1998) ("[I]f the court seeks merely to interpret a contract term, which is to discern the meaning of a term already contained in the contract, the question of whether the parties intended their agreement to be integrated is not relevant."). The issue, in other words, is how we should reconcile and give proper effect to arguably conflicting terms that (1) provide the tenant with "non-exclusive use" of the premises for the entire lease term, (2) require the tenant to allow access to prospective tenants and buyers during the last ninety days, and (3) authorize the landlord to sell or mortgage the premises or assign its lease interest at any time during the lease term.
Reading an existing contractual provision as having an essential corollary is different from adding a new implied term to a contract. The former is an interpretive exercise and is permissible even if the agreement is integrated. "An integrated contract can contain an implicit, unstated, but necessary term...." Acoustic Processing Tech., Inc. v. KDH Elec. Sys. Inc., 697 F.Supp.2d 146, 161 (D.Me. 2010). "The salutary purpose of [an integration clause] is to preclude consideration of matters extrinsic to the agreement. It is of no relevance if the promise, albeit imperfectly expressed, is implicit in the contract as written." Havel v. Kelsey-Hayes Co., 83 A.D.2d 380, 445 N.Y.S.2d 333,
This principle is related to the implied duty of good faith and fair dealing, which inheres in all contracts and cannot be disclaimed through an integration clause or otherwise. See Fogel v. Trs. of Iowa Coll., 446 N.W.2d 451, 456 (Iowa 1989) (noting that the duty is "recognized in all contracts"); Restatement (Second) of Contracts § 205, at 99 (1981) ("Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement."); see also Nw., Inc. v. Ginsberg, 572 U.S. ___, ___ & n. 2, 134 S.Ct. 1422, 1432 & n. 2, 188 L.Ed.2d 538, 550 & n. 2 (2014) (identifying ten jurisdictions that preclude a party from waiving the obligations of good faith and fair dealing). "`The underlying principle is that there is an implied covenant that neither party will do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.'" Am. Tower, L.P. v. Local TV Iowa, L.L.C., 809 N.W.2d 546, 550 (Iowa Ct.App.2011) (quoting 13 Richard A. Lord, Williston on Contracts § 38.15, at 437 (4th ed.2000)).
The Second Restatement of Contracts provides a helpful illustration: If A, the owner of a shopping center, were to lease part of the premises to B with the exclusive right to conduct a supermarket, it
The implied covenant of good faith and fair dealing, however, "does not give rise to new substantive terms that do not otherwise exist in the contract." Bagelmann v. First Nat'l Bank, 823 N.W.2d 18, 34 (Iowa 2012) (internal quotation marks omitted). For example, in Bagelmann, we declined to find a breach of the implied good-faith-and-fair-dealing obligation when the mortgagee did not promptly provide the mortgagors with updated and more accurate flood zone information determinations. Id. at 22. The mortgage contained no promise the mortgagee would provide notification or otherwise guarantee the property's flood hazard status and so we determined "any allegation of bad faith here lacks a contract term to which it can be attached." Id. at 34.
The present case is analogous to the circumstances described above in the Second Restatement of Contracts, and is distinguishable from Bagelmann. As in the Restatement example, the implied right in the present case follows logically from certain express terms of the agreement — i.e., the landlord's right to sell or mortgage the property. And unlike in Bagelmann, the contract here contains an express term (the right to sell) to which the implied obligation (the right to show the property) can be attached. It would "destroy[] or injur[e] the right of [Alta Vista] to receive the fruits of the contract" if we were to decline to find an implied right to show the premises to prospective buyers. See Am. Tower, 809 N.W.2d at 550.
Other courts have agreed that the right to sell property implicitly includes the right to show it to prospective purchasers. See, e.g., Magliocco v. Olson, 762 P.2d 681, 685 (Colo.App.1987) (holding the landlord did not trespass when his agent entered the premises for the purpose of showing them to a potential tenant); Glenn v. Keyes, 107 Utah. 415, 154 P.2d 642, 644 (1944) (stating a landlord has the right to show the premises to prospective buyers unless the landlord and tenant specifically agree to limit that right). In a case from the District of Columbia, a law gave the landlord the express right to sell the property. Nat'l Metro. Bank of Wash. v. Judge, 37 A.2d 446, 446-47 (D.C.1944). The act did not explicitly grant a right to show the premises to prospective buyers, but the court nevertheless held the landlord should be able to do so:
Id. at 447.
More recently, a California court framed a similar issue in terms of the balancing of
Id. at 669-70 (citations omitted).
The Uniform Residential Landlord and Tenant Act (URLTA), adopted in Iowa, also acknowledges the importance of the landlord's ability to show property that he or she has the right to sell or finance. See Iowa Code § 562A.19(1) (2011). It provides, "The tenant shall not unreasonably withhold consent to the landlord to enter into the dwelling unit in order to ... exhibit the dwelling unit to prospective or actual purchasers, mortgagees, [or] tenants...." Id. Although the URLTA only governs residential leases, its underlying logic is no less applicable in a commercial context: Where a landlord has the right to sell the premises, he or she needs to be able to enter the property to show it to prospective purchasers. Without a clearer directive in the lease to the contrary, we should not read a commercial lease as denying this access to a landlord who already possesses the underlying right to sell or mortgage the property.
In addition, courts have recognized a landlord's right to show property to prospective tenants as well as prospective buyers. See, e.g., Eight W. Thirtieth St. Corp. v. Zelart Drug Co., 107 N.Y.S.2d 324, 324 (Sup.Ct.1951) (permitting a landlord to exhibit commercial property where a statute gave the landlord the right to seek a prospective tenant).
The Illinois Appellate Court held that a landlord had the reasonable right to show the premises to prospective tenants upon receiving notice that the current tenant was terminating his tenancy. Gronek v. Neuman, 52 Ill.App.2d 250, 201 N.E.2d 617, 618 (1964). Because the lease apparently did not grant the landlord the right to re-let or sell the property at any time as does the lease here, the Gronek court limited the landlord's right to show the property to the period after the tenant gave notice of his intent to vacate. See id. The court concluded the right to exhibit the property to potential tenants during this time was implicit in the right to re-let the premises. See id. As the court put it,
Id. The same principle applies in the present case.
For the foregoing reasons, we hold the lease gives Alta Vista the right to access the premises temporarily at reasonable times to show the property to prospective buyers.
For the foregoing reasons, we reverse the summary judgment entered in favor of defendant Mauer Vision Center, PC and remand for the district court to enter summary judgment in favor of plaintiff Alta Vista Properties, LLC.
All justices concur, except APPEL, J., who takes no part.
In Fashion Fabrics, the sublessee's case for an implied covenant was weaker. The lease called for the sublessor to receive the greater of a flat rent or a percentage of the sublessee's gross sales. 266 N.W.2d at 24. The sublessee sought to imply a covenant by the sublessor to continue operating its adjacent business. Id. at 26. In that situation, one could not say that the sublessor's staying in business was necessary to give meaning to a provision in the sublease. The sublessee could operate its own business and make sales regardless. Hence, although we ultimately implied the covenant requested by the sublessee, we reasoned it made a difference whether the contract was integrated or not. Id. at 28-29. Here, the implied right to show the property is necessary to give effect to an express term authorizing sale. Additionally, in Fashion Fabrics there were no seemingly inconsistent provisions to reconcile.
We agree that Alta Vista's right to show the property to prospective purchasers should be exercised reasonably and with minimal interference with Mauer's rights of possession and enjoyment of the property. In particular, because Mauer is a health care provider, the parties should work together to ensure that any showing of the property complies with the privacy provisions of the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"). Pub. L. No. 104-191, 110 Stat. 1936 (1996) (codified as amended in scattered sections of 42 U.S.C.).
