Daily Development for Monday, November 26, 2001

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

LANDLORD/TENANT; EXTENSIONS AND RENEWALS: Utah court reads narrowly "equitable exception" to requirement for timely exercise of renewal option.

Utah Coal and Lumber Restaurants, Inc. v. Outdoor Endeavors Limited, 2001 Utah 100, 2001 WL 1477916 , http://courtlink.utcourts.gov/opinions/supopin/utahcoal.htm (Utah, 2001)

The original lease was for a commercial property in Park City, Utah, with an initial five year term with three five year options to extend. It contained a "window" during which tenant was required to notify the landlord of its option to renew. The annual rental was $33,000.

The property was in significant disrepair when Tenant leased it, and Tenant expended$105,000 - or over three times the annual rent - in repairs in the first few months. Tenant expended this money because it fully intended to remain on the lease for the full twenty years of the initial term and renewals, and landlord was aware of this.

In 1998, likely with everyone fevered over the liklihood of the Winter Olympics coming to Park City, Tenant was having significant internal difficulties. The business's cross-country skiing license was in jeopardy, a critical employee, and the owners were faced with non-business family problems. Tenant was supposed to give notice of intent to renew between May 13 and July 11. It failed to do so. On July 15, Landlord sent notice that the lease would expire at the end of the present term, and Tenant promptly attempted to effect a late renewal, which Landlord rejected.

The trial court found that Tenant's failure to timely renew was an "honest and justifiable mistake" and, in light of the short delay, would not injure Landlord, while the injury to Tenant would be significant in light of its investment in the property and the business. It found that the renewal was valid.

On appeal: Held: Reversed:

Although the Utah Supreme Court acknowledged that it had recognized an equitable exception to the usual rule that options to renew must be timely, it noted that the precedent had not set forth any standards as to what circumstances would justify invoking the exception.

Citing cases involving other equitable issues, not involving lease renewal, the court commented that equitable relief should not be used "to assist one in extricating himself from circumstances which he has created.." It concluded that its precedent had permitted the invocation of equity to "cases of fraud, mistrepresentation, duress, undue influence, mistake and waiver."

With that foundation laid, the present case was a no-brainer. "[E]quity should not be applied in situations in which the lessee's negligence, inadvertence, or neglect caused the failure to exercise a lease renewal option." The court noted that other jurisdictions have been more generous, weighing the degree harm to the landlord if the lease is renewed against the loss to be suffered by the negligent lessee if renewal is denied. It notes in particular a 1922 Connecticut case for this approach. But it concludes that in Utah courts should not so revise the contracted for bargain that the parties made. To follow the Connecticut rule would swallow the basic principle of strict compliance and "apply equitable excuse in almost all cases."

In the instant case, Tenant's negligence did not arise from mistake, but from simple oversight.

"[A] mistake within the meaning of equity is a non-negligent but erroneous mental condition, conception or conviction induced by ignorance, misapprehension, or misunderstanding, resulting in some act or omission done or suffered by one or both parties, without its erroneous character being intended or known at the time."

Further, even if there were a mistake, it would have had to satisfy the equitable standard for an excusable mistake, which in general does not include unilateral mistakes.

Comment 1: The fundamental difference drawn by the court here is between contract performance and the initiation of a new contract. In the court's view, a failure to exercise a renewal option in a timely fashion is not a default in an agreement and does not result in forfeiture of otherwise existing rights. It is a failure to trigger a new agreement -

more akin to a failure to accept a contractual offer within an identified acceptance period.

This is a model that the editor supports, although indeed the editor's own client was burned by the existence of this rule in Colorado.

Comment 2: Compare: Aickin v. Ocean View Inv. Co., Inc., 935 P.2d 992 (Haw. 1997) (the DIRT DD for 9/23/97); Market Development Corp. v.

Village Green, LC No. B070552 CK (Mich App. 9/12/2000) (unpublished opinion), the DIRT DD for 9/21/2000 (involving very close facts). These cases, which specifically reject the Utah court's approach and permit renewal based upon a negligent failure to exercise the option in a timely fashion where inequitable results are likely to result.

This may represent the majority view, since the Editor's vote doesn't count for much.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

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