Daily Development for
Tuesday, July 9, 1996

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

LANDLORD/TENANT; OPTION TO RENEW OR EXTEND; STATUTE OF FRAUDS: The exercise of an option to renew a lease and the authority of an agent to exercise it are not required to be in writing, and an oral extension is valid even if tenant exercises it after the termination of the option notice period. Signal Management Corp. v. Lamb, 541 N.W.2d 449 (N.D. 1995).

Landlord and tenant had a written lease with an option to renew on 60 days written notice to the landlord sixty days prior to the expiration of the original lease terms. Having failed to receive such a writing, Landlord contacted the Tenant's office manager less than sixty days prior to expiration to determine if an extension was desired. The parties reached a verbal agreement on a three year renewal. This agreement was followed by a handwritten verification.

Shortly thereafter the Tenant business was sold and the new owner contested the validity of the agreed extension. The North Dakota Statute of Frauds provides that an agreement for a lease term of longer than one year must be in writing, and if any such lease is entered into by an agent of a party, then the agency must be established by a writing. The Tenant argued that the office manager had no written agency.

Held: Renewal was valid. Written agency authorization was not required.

The court first pointed out that an oral exercise of option is not void under the statute of frauds since the terms and conditions of the contract are embodied in the written lease and the only effect of notice is to make the original lease operative for the renewal period. It went on to hold that the logical extension of the rule is that no written agency appointment is required to make such an option binding. It states this to be the majority rule, and comments that cases from New York, Michigan and Georgia holding otherwise are simply wrong.

Tenant further argued that there was in fact no renewal because the time during which the tenant could exercise the renewal option had run. Consequently, the landlord's inquiry constituted an offer for a new lease, to which the Statute of Frauds requirements would apply. But the court distinguished cases in which optionors made such an argument successfully. Where a tenant exercises renewal option late, the landlord may waive the requirements regarding form and timing of notice. That is what happened here.

Comment 1: The most interesting part of the case for the editor is the point that all restrictions on exercise of options by tenants disappear when the landlord elects to waive them. It's obviously in the landlord's best interest to continue negotiations with tenants even after the renewal option conditions have ended.

Comment 2: Wouldn't an office manager have implied authority to act on behalf of the business on a matter such as this? Why would the Statute of Frauds matter at all? Perhaps the court simply concluded that its holding, based on supervening legal principles, was somehow "cleaner" than one narrowly focussed on the special facts of this case.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last five years, these Reports annually have been collated, updated, indexed and bound into the Annual Survey of Developments in Real Estate Law, volumes 1-5, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Laprica Mims at the ABA. (312) 988 6233.

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. Accuracy of data and opinions expressed are the sole responsibility of the DIRT editor and are in no sense the publication of the ABA.