Daily Development for  Thursday, July 11, 2002

 

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; RENEWALS; LATE EXERCISE OF RENEWAL OPTION: Despite established precedent granting equitable relief where lease renewal is untimely, court will not equitably recognize a late attempt to renew when such attempt occurs after the lease has expired.

 

Duffy v. Casady, 28 P.2d 1040 (Kan. App. 2001)

 

The lease involved a 1.8 acre "tank farm" that was associated with production from separate oil and gas leases.  These oil and gas leases were valuable, and Tenant argued that if it lost the benefit of the "tank farm," it would suffer a loss in excess of $90,000.  The lease, dating originally from 1965, and renewed in 1975, provided for an annual $250 ground rent for the 1.8 acre site.  Landlord's had attempted to renegotiate the rentals several times over the years, but Tenant had refused, a fact noted with such emphasis by the court that one wonders whether the court's perception of the overall equities in fact colored its view, despite the fact that the court in fact rejects the application of equitable reasoning at all.

 

In 1998, Tenant neglected to send in his $250 check until eleven days after the anniversary date of the lease.   Tenant testified that its failure to renew in a timely manner occurred because tenant was "busy" with other aspects of the business.  Landlords notified Tenant 20 days after receiving the renewal check that they were terminating the lease.

 

The Kansas appeals court noted that the 1991 opinion in Fleming Companies v. Equitable Life Ins. Co., 818 P.2d 813 (Kan. App. 1991) had been characterized as establishing that in Kansas "[untimely] renewal [or a lease] would be effective so long as the failure to properly exercise the option was not intentional, or the product of willful or gross negligence."

 

Here, however, the court noted that Fleming had stated that its holding should be "specifically limited to the type of situation involved in the present case," and that Fleming had involved a renewal option exercise that, while late, occurred within the period of the lease.  It states, simply and absolutely, that equity cannot be invoked to salvage a late lease renewal when the lease renewal occurs after the expiration of the lease itself.

 

Comment 1: The editor is perplexed by the court's reliance upon Fleming for the assertion that it matters whether the lease renewal option is exercised after the expiration of the lease term.  After the Fleming court set forth the words above, stating that there would be no harm to vested expectations by application of the rule in the case to cases similar to those before it, it said this:

 

"[Landlord] made no significant change in reliance on the missed deadlines; it did not actively seek to lease or sell the property to a third party. [Landlord] most likely intended all along to simply allow the deadline for renewal to pass and then renegotiate with [Tenant] for a higher rental rate, armed with the club of termination of the lease and forfeiture of the very substantial improvements should [Tenant] refuse. Also, [Landlord] argues for the sanctity of contracts and the need for judicial respect of their bargained- for terms; yet it clearly wants to avoid the rental rate for the renewal period as expressed in the original contract between the parties.

[Landlord] asked the district court in its counterclaim essentially to force [Tenant] to the table to renegotiate future rental payments."

 

This paragraph, which was clearly intended to state what other cases might be "similar" to the case before the court, says not one thing about the relationship between the lease termination and the late renewal.  In fact, everything that it does say about its facts would appear to be foursquare with the facts in the instant case.

 

Comment 2: Further, the "lease" which is an agreement for possession, did not terminate until the landlord so stated.  Otherwise, the lease had become a tenancy at sufferance.  In other words, there still was a "lease" in effect.  The parties easily could have continued it.  The landlord had the option to treat the lease as automatically extended another year simply by the tenant's holdover.

 

Comment 3: The editor is particularly perplexed because he simply doesn't understand why the relationship of the termination date of the original lease and the date of the late exercise ought to make so much difference - the difference between no equity and broad equity.  If it's relevant, why isn't it just one factor equity ought to take into account? A quick look at Friedman on Leases indicates that this issue is not one commonly discussed in the cases.  The editor could find nothing in the fifteen or so pages discussing tardy renewals that said anything about the relationship to the expiration of the lease term.

 

Comment 4: Besides Fleming there is other Kansas authority permitting equity to permit late exercise of lease renewal options.  So it's unclear what the law is in Kansas just now.

 

Comment 5: None of this ought to suggest that the editor favors upholding tardy lease renewals. Generally speaking, the editor favors rigid rules here.  It's only money - let the parties live with their agreement.  But to draw the line where this court draws it only confuses things.

 

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

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