>Sorry for the repeat. Dates are clearly my worst thing. This one and Monday's were so far off that I thought I needed to correct things.
>
>Daily Development
for Friday, February 3, 2006
>by: Patrick A.
Randolph, Jr.
>Elmer F. Pierson Professor of
Law
>UMKC School of Law
>Of Counsel: Blackwell Sanders Peper Martin
>Kansas City, Missouri
>dirt@umkc.edu
>LANDLORD/TENANT; EXTENSIONS AND RENEWALS; TIMELY EXERCISE OF OPTIONS: Tenant’s 27 day delay in providing required ninety day advance notice of lease renewal means that tenant loses the right to extend the lease.
>
>Chesapeake Bank of
Maryland v. Monro Muffler/Brake, Inc., No. 2288 (1/31/06)
>
>Landlord leased
property to Kimmel for a twenty year term expiring 10/31/02. There were
three extension ptions of five years each. The option language provided
for a 90 day notce by Lessee to exercise the option:
>
>“, , , If LESSEE
shal elect to exercise one or more of such options it shall do so by giving
LESSOR written notice at least ninety days prior to the expiration of the
primary term or of the then current extension, and in which notice LESSEE shall
state the date to which it elects to extend the term.”
>
>In March, 2002,
Monro informed Landlord that it was in the process of acquiring all the shares
of Kimmel, and send Landlord a “landlord’s estoppel certificate,” which
correctly stated the lease expiration date “unless renewed or extended”
and confirmed the existence of the extension options.
>
>In May, 2002,
Monro wrote Landlord to tell it that it has finalized the purchase of Kimmel and
that concluded: “We look forward to a long and prosperous relationship with you
and we welcome any questions or comments you may have relative to this
relationship.” In August, 2002, Monro wrote Landlord to verify
Landlord’s contact information. Landlord responded.
>
>On August 29,
Monro provided written notice of lease extension for the first five year
extension period. A week later, Landlord replied that the final date
for exercise of the “right to renew” was “on or about August 2,” and, since
Monro had not timely filed notice, it would not honor the requested
extension. Apparently Monro was late because of an error by Monro’s Vice
President/Real Estate, who had entered into the computer a 60 day option notice
term, rather than 90 days. (Monro had 615 lease locations to watch
over.)
>
>Tenant remained in
possession without Landlord’s express permission following the end of the term
and commenced an appraisal process so that it might exercise a purchase option
also contained in the lease. But Monro ultimately withdrew this offer
because it would have been required to buy also adjacent property owned by
Landlord in order to satisfy zoning requirements.
>
>Thus, about a
month after the end of the lease term, Landlord sought to evict Monro from the
premises. The trial court found for the tenant, and refused to evict Monro
and found that the lease term had been validly extended.
>
>The trial court
ruled that the prior contacts from Monro had, in effect, extended the lease and
that, in any event, the untimely notice was effective to extend, based upon
equitable principles. Landlord appealed.
>
>On appeal, Held:
Reversed. The appeals court opinion, written by a rarity - an experienced
real estate lawyer sitting as an appellate court judge - found that Maryland
does not recognize equitable excuses to untimely filing of notices of extension
or renewal. Regardless of whether the Landlord suffered injury from the
late exercise, Monro had no right to extend, because it’s entire extension right
was defined and limited by the clause in the lease, including the time
deadlines.
>
>Citing Friedman on
Leases (unfortunately to the old and outdated non-Randolph Edition), the court
stated that a landlord need not renew a lease without an express covenant
providing for renewal. The timely notice was a condition precedent for the
existence of the extension option provided here. (The court uses the word
“renewal” to describe the option to “extend.” Many courts do not
differentiate these concepts. See DD for 1/30/04 for a discussion of this
distinction and a Massachusetts case that relies upon it.)
>
>Tenant first
argued that its notice was timely because, under the language pertaining to the
option to purchase, the lease was extended while the proposed option to purchase
was being worked out. Note that the lease language indicated that an
option to extend had to be noticed 90 days prior to the end of the“primary term
or the then current extension.” As its possession had been extended while
it sought to renew the lease, the landlord argued, the notice was more than 90
days prior to the end of that extension. Obviously, a court inclined to
favor tenant in this dispute might have leapt upon this technical distinction to
protect the tenant’s interest. But we had here a hardbitten veteran of the
negotiation wars writing the majority opinion, and the opinion stated
[correctly] that reading the purchase option extension as extending the time set
for notice of renewal was inconsistent with the probable intention of the
parties.
>
>Although the court
admitted that the lease did not address the precise situation of tenant’s
continued possession in connection with a purchase option, it concluded that the
parties’ intention was clear that the original term and three five year
extensions were the measuring period for the ninety day notice.
>
>The court then
turned to the argument that prior communications from Monro had effectively
exercised the option to extend. It suggested that one approach to the
problem was to reverse the situation and analyze whether the parties’ likely
would agree that, had the landlord been the one attempting to enforce the
“renewal” based upon the prior letters and contacts, whether tenant would have
been bound. The trial court had applied the test and concluded that the
tenant would have been bound.
>
>The appeals court
first indicated that it did not agree that the test applied when the lease set
out unequivocally the method of exercise of the extension option. Further,
the appeals court noted, it disagreed as to whether the tenant would have bound
to the extension under these facts. [The Editor, again, concurs on this latter
point.]
>
>Finally, the court
turned to the tenant’s argument that general principles of equity dictated
finding for tenant where, as here, the landlord suffered little detriment from
the lateness of the notice and the tenant suffered the loss of a valuable
right. First, the court distinguished a prior case in which the question
had not been exercise of the option itself, but rather the argument that the
exercise did not timely include the tenant’s “net worth” analysis as the lease
required. The court found an equitable excuse for the late submission of
the financial report.
>
>The court, as
noticed, distinguished the prior case because it did not deal with the technical
requirements for exercise the option itself. It concluded that the
requirement of that case for a net worth statement was a “covenant rather than a
condition.”
>
>On the general
case of equities, the court first held that there was no inequity arisiing from
the Bank’s failure to inform Monro, in connection with its August 8 response to
request to provide notice address, that the option had expired.
Since, at that point, the option in fact had expired, there was no
inequity. The tenant already had lost its rights.
>
>As to whether
Maryland courts should set aside the late renewal as an equitable relief from
forfeiture, the court acknowledged that there was precedent in Maryland for
setting aside a lease termination on equitable grounds, but concluded that this
analysis was a far cry from the situation where a Tenant does not timely
exercise an option to extend. In the first case, the tenant has a right
which it would lose inequitable. In the second, the tenant in fact has no
right unless it provides timely notice.
>
>Again, the court
cited Friedman for the principle that “a landlord’s lack of loss or harm by
reason of the late notice is immaterial.” ) Further, it noted that a number of
other states, (citing an ALR entrty) had also refused to let equitable
principles support setting aside a lease option termination due to untimely
notice.)
>Comment 1: Although the court is indeed correct when it states that it joining other courts on this point, it should be noted, in fairness, that many courts will provide equitable relief in these cases. The issue is discussed quite thoroughly in a 25 page entry in Friedman on Leases, Randolph Edition, beginning at page 14-43. Some jurisdictions, like Maryland, recognize no equitable excuse for late filing of a notice to extend or renew. Others will be more forgiving, either generally, or at least in the case in which the tenant, in reliance upon the apparent right to extend or renew, has extensively improved the property and would suffer an equitable detriment and the landlord an inequitable windfall if the lease were forfeited prematurely.
>
>Comment 2: The
editor likes “hardball law” of course, and is philosophically inclined to side
with the majority here. It should be noted that many jurisdictions will view the
setting of a specific time deadline, such as 90 days before lease expiration,
as, in effect, the statement that “time is of the essence.” .
>
>It would be an
interesting exercise to compare, within a single jurisdiction, the courts’
“time of essence” treatment of land contract closings and their view of lease
option enforcement. One hopes that they two areas would show parallel
treatment.
>
>Comment
3: For a case arising in a state that does permit “equitable excuse”
to an untimely lease renewal where tenant would forfeit valuable improvements,
but denying such relief because the tenant, when it discovered it had failed to
timely renew, attempted to forge such a renewal and thus had “unclean hands,”
see JGT Corp. v. Andrews, 2000 WL 546347, No.199901395COAR3CV (Tenn. Ct. App.,
May 5, 2000) (Equitable doctrine of "unclean hands" may bar resort to otherwise
available equitable rights to invoke untimely exercise of renewal
option).
>
>Items reported
here and in the ABA publications
>are for
general information purposes only and
>should not be relied upon in the course of
>representation or in the forming of decisions in
>legal matters. The same is true of
all
>commentary provided by contributors to
the DIRT
>list. Accuracy of data and
opinions expressed
>are the sole
responsibility of the DIRT editor
>and are
in no sense the publication of the ABA.
>
>
>Parties posting messages to DIRT are posting to a
>source that is readily accessible by members
of
>the general public, and should take that
fact
>into account in evaluating
confidentiality
>issues.
>
>ABOUT
DIRT:
>
>DIRT is an internet discussion group for serious
>real estate professionals. Message volume
varies,
>but commonly runs 5 15
messages per work day.
>
>Daily Developments are posted every work day.
To
>subscribe, send the message
>
>subscribe Dirt
[your name]
>
>to
>
>listserv@listserv.umkc.edu
>
>To cancel your subscription,
send the message
>signoff DIRT to the
address:
>
>listserv@listserv.umkc.edu
>
>for information on other
commands, send the message
>Help to the
listserv address.
>
>DIRT has an alternate, more extensive coverage that
includes not only
>commercial and general
real estate matters but also focuses specifically upon
>residential real estate matters. Because real estate brokers
generally find
>this service more valuable,
it is named “BrokerDIRT.” But residential
>specialist attorneys, title insurers, lenders and others interested
in the
>residential market will want to
subscribe to this alternative list. If you
>subscribe to BrokerDIRT, it is not necessary also to subscribe to
DIRT, as
>BrokerDIRT carries all DIRT
traffic in addition to the residential discussions.
>
>To subscribe to BrokerDIRT,
send the message
>
>subscribe BrokerDIRT [your name]
>
>to
>
>listserv@listserv.umkc.edu
>
>To cancel your subscription to
BrokerDIRT, send the message
>signoff
BrokerDIRT to the address:
>
>listserv@listserv.umkc.edu
>
>DIRT is a service of the
American Bar Association
>Section on Real
Property, Probate & Trust Law and
>the
University of Missouri, Kansas City, School
>of Law. Daily Developments are copyrighted by
>Patrick A. Randolph, Jr., Professor of Law,
UMKC
>School of Law, but Professor Randolph
grants
>permission for copying or
distribution of Daily
>Developments for
educational purposes, including
>professional continuing education, provided that
>no charge is imposed for such distribution
and
>that appropriate credit is given to
Professor
>Randolph, DIRT, and its
sponsors.
>
>DIRT has a WebPage at:
>https://e2k.exchange.umkc.edu/exchweb/bin/redir.asp?URL=http://cctr.umkc.edu/dept/dirt/
>
>
>
>
>
>
>
>
>
>
*************************************
Your e-mail address will only be used within the ABA and its entities. We do not sell or rent e-mail addresses to anyone outside the ABA.
To change your e-mail address or remove your name from any future general distribution e-mails you can call us at 1-800-285-2221, or write to: American Bar Association, Service Center, 321 N Clark Street, Floor 16, Chicago, IL 60610
If you are an ABA member, log in to the ABA Web site at https://e2k.exchange.umkc.edu/exchweb/bin/redir.asp?URL=http://www.abanet.org/abanet/common/MyABA/home.cfm to edit your member profile. Otherwise, complete the form located at https://e2k.exchange.umkc.edu/exchweb/bin/redir.asp?URL=https://www.abanet.org/members/join/coa2.html
To review our privacy statement, go to https://e2k.exchange.umkc.edu/exchweb/bin/redir.asp?URL=http://www.abanet.org/privacy_statement.html.
If you have any problems, please contact the list owner
at
dirt-dd-request@mail.abanet.org.