Daily Development for Friday, January 30, 2004 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; TENANT'S EXERCISE: Where a tenant who benefits from an option to extend a lease initiates negotiation of new business points instead of timely exercising the option, she does so at her own peril that the negotiations will not end in agreement and she will lose both her option to extend on the same terms and her opportunity to renew on any terms. Qureshi v. Fiske Capital Management, 796 N.E. 2d 459 (Ma. App. 2003). Plaintiff Qureshi, a dentist, first occupied office space in premises owned by a predecessor of defendant's under assignment of a written lease. The five year term of that lease ended September 31, 1989, but it contained an option to extend, absent material default on the part of the tenant. Qureshi timely exercised the option to extend, and the parties signed an "Amendment to Lease" creating a new five year term ending July 31, 1994 and including an option to extend for another five years after that. Qureshi exercised her extension option by letter dated July 18, 1994 to landlord Fiske. Fiske acknowledged the extension and recited that the term ended in July, 1999. This acknowledgment also granted Qureshi the option to "renew" for the following five years under the existing lease terms. Later, the well supplying the premises ran dry, leaving Qureshi's office without water for five business days before service was restored. When it was restored, arguably the water quality did not meet the standards of the lease. Qureshi installed a bottled water system at her own expense and, after some wrangling with the landlord, began withholding rent in March, 1998, demanding compensation for her costs. In 1999, Qureshi wrote to Fiske, notifying him of her "intent to exercise the renewal" of her lease, and asking to "discuss this matter," which the court read as "suggesting that there [were] things about her tenancy that she wishe[d] to negotiate going forward." Fiske sent Qureshi a new lease around July 13, 1999, on a preprinted form published by the Greater Boston Real Estate Board. Additional terms were handwritten into the form, including a new rent schedule for the next five-year term, a further five year extension option, promises by Fiske to make certain repairs and not to rent space in the building to another dentist, and a requirement to pay the rent previously withheld. On July 31, 1999, the earlier extension term expired while the parties were negotiating. Qureshi's lawyer sent a response to the lease proffered by Fiske on September 8, 1999, proposing seventeen changes. On September 20, 1999, Fiske sent Qureshi a letter "rescinding. . . . our most recent lease agreement." Litigation ensued. Held: Querishi's lease had terminated when she failed to unconditionally exercise her option to extend. She is now a tenant at sufferance and can be terminated by appropriate action under Massachussets law. The court commented that an option to extend, such as existed here, is different from an option to renew. An option to extend entitles the optionee to extend the lease on the terms and conditions of the original lease, and its exercise automatically extends the term without the necessity of executing a new lease. An option to renew contemplates execution of a new lease, a process which may introduce new terms and conditions. If the parties do not arrive at an agreement, there is no new lease. The court nevertheless went on to say that the difference between "extend" and "renew" is a legal nicety that courts will disregard when interpreting negotiations between nonlawyers, looking instead to the circumstances of the lease and the conduct of the parties to determine which was intended. Therefore, although Qureshi's use of the word "renewal" in her January 27, 1999 notice was not fatal, her invitation of new business terms in the same letter, combined with her acquiescence in negotiation over Fiske's proffered lease after the expiration of the current extension term, was. Her lawyer's letter suggesting the seventeen changes to the proffer was a counteroffer, evidencing the parties' belief that they were negotiating a new lease. While the court here was careful to avoid deciding what Qureshi's status was after the July 31, 1999 expiration (she continued to pay rent according to the most recently agreed-on schedule through February 2001) it affirmed lower court rulings that at the end of the first full month after Fiske gave her notice to quit the premises on January 8, 2001, Qureshi became a tenant at sufferance. Comment: The distinction between extensions and renewals suggested by the Massachusetts court here is confusing for lawyers as well as layperson. Many cases analyze leases that provide for "renewal" upon notice by the tenant, and sometimes simply by holding over by the tenant, and the courts conclude that"renewal" means that the lease will run for an additional term on the same terms and conditions, without the requirement of a new contract. The Friedman on Leases treatise (Section 14.301) discusses this issue at some length and notes the exception cases. Friedman notes that Massachusetts is probably the most extreme example of a jurisdiction that draws a distinction between the two concepts. In O'Brien v. Hurley, 117 N..E. 2d 922 (Mass 1954), an eighteen year lease contained a renewal option and a purchase option. The tenant gave a timely notice of intent to renew. The landlord and tenant treated the renewal term as in effect for the next eight years, when the landlord sold its interest to another party. Although the transfer was made expressly subject to the lease and purchase option rights of the tenant, the new owner refused to honor either, taking the position that there had been no renewal because no new lease had been executed. Some subsequent authority in Massachusetts may undercut the impact of O'Brien, but it has not been repudiated by the Massachusetts courts. The instant case, in dicta, at least, suggests that the technical distinction between the concepts will not be honored when the parties are not represented by counsel. But, of course, there is a significant question whether most lawyers grasp the distinction. In most states they wouldn't have to.