Daily Development for Thursday, November 2, 2000

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
randolphp@umkc.edu

LANDLORD/TENANT; DEFAULT; NOTICE: Absent a statutory mandate or a controlling provision in the commercial lease, landlord's decision to enforce a default cure period was effective only upon actual receipt of a written notice by tenant, and unclaimed certified mail letter was insufficient.

Grenfell v. Anderson, 989 P.2d 818 (Mont. 1999).

Anderson agreed to lease some space in a commercial property owned by Grenfell in 1989. Anderson was to pay rent and utilities to Grenfell. The lease stated that if Anderson failed to perform any obligation and to remedy the same within 10 days after receiving notice thereof, Grenfell was entitled to repossess the premises and enjoy the same as if the lease had not been made. The lease also provided that there could be no assignment or change of use without landlord's prior consent.

The method for providing notice and notice addresses were not specified in the lease. Grenfell, however, had in the past made a practice of delivering utility bills and other correspondence to the premises or to one of Anderson's other business locations.

Anderson subleased a portion of the leased premises to Bice. Grenfell knew of and did not object to this sublet, although it was done without Grenfell's consent (arguably required in the lease, since it was a different use than Anderson's). In 1991, Anderson had vacated the premises, told Bice to leave the other portion, and sought to lease the entire premises to a third party. Although the sublet to Bice had been for a retail purpose, the lease to the third party did not appear even to be for a retail purpose, and consequently almost certainly invoked a duty to obtain Grenfell's consent, which Anderson did not do.

After learning of the intended sublet, Grenfell sent a default notice on October 17, 1991, via certified mail, to an address listed in the lease but not specified as a notice address, stating that rent and utilities were past due, and that Anderson had until October 28, 1991, to bring the balance current or Grenfell would retake possession of the premises. The certified letter was never claimed at the post office. Having no response from Anderson, Grenfell changed the locks. Grenfell sued for breach of the lease. The trial court concluded that Anderson had refused the certified letter giving notice of his default and that he was therefore in default under the lease. Anderson appealed.

The Supreme Court of Montana reversed the trial court, holding that the trial court had erred in equating an unclaimed letter sent to an address that was not a notice address with a refused letter. Because an unclaimed letter typically means that the postal service left a notice at the address and that the mail could be retrieved at the post office, together with the fact that Grenfell had usually delivered correspondence to the premises or Anderson's other business addresses, the Court reasoned that the certified letter was sent to an uncertain address and did not result in constructive notice to Anderson. In the course of an earlier dispute between the parties (since resolved), a certified letter sent to the same address had also been returned undelivered.

The court noted that there was a difference between "notice of default" and "knowledge of default." Obviously Anderson know of some of the defaults, at least, but he was not aware that Anderson intended to resort to formal lease remedies unless and until he received the required ten day notice.

The trial court had held that, in the absence of a lease provision defining notice, "common law notice requirements" apply, and appeared to conclude that common law notice requirements meant notice intended to reach the recipient. The Supreme Court disputed that the notice in this case met that standard, but in any event held that under common law the notice is effective only upon actual receipt. In a prior case, even where the lease provided that "the notice be sent by registered mail, addressed to lessees at the said premises," notice sent in compliance with the requirement was ineffective when it could be shown that the intended parties did not receive the notice. Further, the effective date of the notice is the date that it is received.

The lessor also had convinced the trial court that the Anderson was on constructive notice of the contents of the notice because he had refused deliberately to receive the letter. The supreme court responded that the mere fact that the letter was returned unopened did not indicate this to be the case, and that the parties had not stipulated clearly or through their conduct that the sending of a letter to that address would accomplish notice. Prior contacts between the parties generally had been by delivery to Anderson at one of his business addresses. Hence, even if he did refuse the letter, Anderson could not have known that it contained an official notice. Comment: Certainly a good lesson to drafters with regard to specificity of notice provisions. Note that the typical "mailbox rule," that notice is effective when mailed, is reversed when the parties indicate in their lease some method by which notice will be effected. Note also that the lack of specificity here as to when and how actual notice would be effective caused a whole lot of grief for the drafter's client.

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