J. W. Perry Co. v. City of Norfolk

Background

In 1792 the Norfolk borough leased several lots to Lee and others for ninety-nine years, renewable forever. The lessees agreed to pay the annual rent and “the public taxes which shall become due on said land.” At the time the borough could not tax, but later the city gained taxing power and first assessed these lots in 1906. The lessees asked a court to stop the tax collection, arguing that “public taxes” meant only state or federal taxes and that the city, as landlord, could not lawfully tax its own property and charge the tenants.

Reasoning

The Court addressed whether municipal taxes fell within the lease’s promise to pay “public taxes” and whether forcing payment would impair the parties’ contract. It noted that the lease created a perpetual, ground-rent–like estate where the lessees were treated in many respects as the effective owners. The Virginia court had held that the ordinary rule making landlords pay taxes did not apply to such perpetual leaseholders. The Supreme Court found the lease language broad enough to include municipal taxes, observed both sides knew taxing power might arise later, and said ambiguities favor the public. Because the lessees expressly agreed to pay taxes and no clear exemption appeared, enforcing the assessments honored rather than impaired the contract. The Court therefore affirmed the Virginia decision.

Real world impact

Owners of long-term, perpetual leases who use and occupy land similar to this case can be required to pay municipal taxes even when legal title rests with a city. Municipalities may list such property in their own name for assessment and collect taxes from the tenant. This ruling resolves the dispute by construing the contract to include later lawful local taxes rather than striking down the tax.