Clarification of Lease Lookback Provisions and Standards of Review in State Airport Hangar Rent Appeals

Introduction

This decision arises from a consolidated appeal by five tenants of state-owned airport hangars challenging the Agency of Transportation’s (AOT) July 1, 2019 rent increase. The tenants argued (1) that AOT violated their lease “lookback” clauses by considering changes in market value and maintenance costs outside the prior lease term, and (2) that the resulting rent hikes were arbitrary and capricious, hence “unfair” under 19 V.S.A. § 5(d)(6). The Vermont Transportation Board rejected both challenges and the tenants appealed to the Supreme Court of Vermont. Justice Dooley (Ret.), specially assigned, authored the majority opinion, which affirms the lease-interpretation ruling but reverses and remands on procedural grounds relating to the fairness‐of‐rent appeal.

Summary of the Judgment

The Supreme Court affirms the Board’s construction of the lease adjustment clause: the fixed “lookback” period applies only to CPI-U increases, not to market-value or maintenance‐cost factors.
The Court reverses the Board’s fairness determination under 19 V.S.A. § 5(d)(6), finding that AOT failed to supply a complete administrative record. The case is remanded for the Board to gather the full record and to re‐adjudicate the fairness of the rent increases under a proper de novo standard of review.

Analysis

1. Precedents Cited

Downtown Barre Dev. v. C & S Wholesale Grocers, 2004 VT 47: plain‐language contract interpretation; extrinsic evidence may not vary unambiguous terms.
KPC Corp. v. Book Press, 161 Vt. 145 (1993): unambiguous lease provisions control.
Luck Bros. v. Agency of Transportation, 2014 VT 59: defined the Board’s de novo, non-deferential standard of review and its power to augment an insufficient agency record on appeals under § 5(d).
Conservation Law Foundation v. Burke, 162 Vt. 115 (1993): courts must require a full agency record or additional testimony when a record is insufficient to support informal agency decisions.
In re Pro. Nurses Serv., 2006 VT 112: agencies may set non-standard criteria if provided notice; lack of standardized procedure limits judicial review.

2. Legal Reasoning

Lease‐Clause Interpretation (19 V.S.A. § 5(d)(4)): Each hangar lease empowered AOT, at specified intervals, “to adjust the amount of rent to reflect any increase for the Consumer Price Index for All Urban Consumers (CPI-U) over the previous [two or five] years, current market value for the land, and the maintenance costs for the airport.” The Court held, as a matter of law and plain‐language contract interpretation, that the temporal “previous two [or five] years” qualification modifies only the CPI-U factor. The market-value and maintenance-cost factors are not confined to the same lookback period. Accordingly, the Board correctly upheld AOT’s authority to consider improvements and market changes outside the prior term.

Fairness of Rents and Fees (19 V.S.A. § 5(d)(6)): Tenants argued that AOT’s rate hike was arbitrary because the administrative record did not show how AOT’s market and maintenance analyses produced the figures it announced. Under Luck Bros., the Transportation Board must conduct a de novo, non-deferential review, “enhanc[ing] the record” when necessary via evidentiary hearing or subpoenas to determine whether the agency considered relevant factors and explained its decision. Here, AOT supplied only limited raw data, minutes of two Aviation Advisory Council meetings, and pre-filed staff testimony—but no internal analyses demonstrating the link between those data and the rent figures. The Board nonetheless affirmed, deferring to AOT’s general reliance on the lease factors. The Supreme Court held that such a cursory record cannot support a fairness determination and remanded for a complete record and re-adjudication consistent with Luck Bros.

3. Impact on Future Cases and Practice

Drafting of Lease Clauses – Drafters should explicitly state which factors are temporally constrained, or risk ambiguous interpretation.
Agency Record-Keeping – AOT and other agencies must maintain contemporaneous analyses, cost worksheets, and supporting memoranda when exercising adjustment clauses.
Transportation Board Procedures – Appeals under § 5(d)(4) and § 5(d)(6) require a clear de novo standard. The Board should actively seek missing internal records or hold evidentiary hearings rather than defer to sparse submissions.
Judicial Review – Courts will demand transparency in administrative decision-making; inadequate records risk remand for supplementation under the “full‐record” principles of Burke and Luck Bros.

Complex Concepts Simplified

Lookback Period: The specified past interval (two or five years) during which changes in the CPI-U are measured for lease renewal adjustments.
CPI-U: The Consumer Price Index for All Urban Consumers, a U.S. Bureau of Labor Statistics measure of inflation.
De Novo Review: A “fresh” review where the Board does not defer to the agency’s conclusions and may consider new evidence or testimony.
Arbitrary and Capricious: A standard invalidating agency actions that lack any rational connection to a stated factual basis or governing principle.
§ 5(d)(4) vs. § 5(d)(6): § 5(d)(4) governs appeals of contract disputes with AOT; § 5(d)(6) governs appeals over the fairness of rents/fees on state-owned properties.

Conclusion

The Supreme Court’s decision in In re State Airport Hangar Lease Disputes clarifies two key principles: first, that a lease’s defined “lookback” window applies only to CPI-U adjustments, not to market-value or maintenance-cost factors; and second, that Transportation Board appeals of rent‐fairness under § 5(d)(6) demand a robust, de novo review supported by a complete administrative record. Agencies must now articulate and preserve the analytical steps underpinning rent adjustments, and the Board must fill any record gaps or hold evidentiary proceedings before affirming fairness. This decision underscores the importance of clear contract drafting, thorough agency documentation, and vigilant appellate review of state rate‐making processes.