Daily Development for Tuesday, November 19, 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; RENEWAL; LATE EXERCISE: Landlord's failure to object to tenant's failure to exercise renewal option in timely fashion for prior renewal is not a waiver of landlord's right to refuse to renew when tenant thereafter is late seeking to renew for a subsequent period.

Taranto Amusement Co. v. Mitchell Associates, 820 So. 2d 726 (Miss. App. 2002)

The lease contained three five year renewal options, each separately described in a distinct section of the lease. The tenant was required to give ninety days written notice of exercise of each of the options. The tenant negotiated for two five year renewal periods The tenant gave the necessary notice for the first five year renewal, and again gave the proper notice for the second. Thereafter, tenant, with landlord's permission, assigned to another.

The assignee failed to give notice of exercise of the third five year renewal. But the assignee remained in possession and paid rent with the appropriate adjustments as though the lease had in fact been renewed.

Landlord accepted the rent.

At the end of the third renewal period, in the year 2000, the assignee again held over without giving any notice. After about forty days had passed from the date that the notice was to be given, the landlord sent to the assignee a notice that the lease term would end as of the end of the then current renewal period - in about a month and a half - and demanded possession as of the termination date. Tenant held over, but landlord refused to accept the tendered rent for the holdover period. This litigation followed.

Tenant cited several Mississippi cases that dealt with waiver of the landlord's right to insist upon conditions for renewal. In both cases, the condition was that the tenant not be in default in the lease, and the court held that the landlord had waived the right to claim the tenant in default by failing to object in a timely manner to defaults that had occurred long before. The tenant in each case otherwise complied with the provisions dealing with notice of renewal.

The court distinguished these cases by noting that they dealt with the existence or non-existence of a default remedy, rather than the conditions for the tenant's exercise of the option itself. The landlord, the court concluded, is entitled to insist upon punctilious performance of the process for exercising renewal, whether or not the landlord has so insisted in connection with past renewals.

The court cited authority in other jurisdictions more on point with this case. The case most directly on point was a 1981 Colorado case, in which the tenant again failed to give notice for a prior renewal, and the landlord's failure to object was held to be no waiver of the landlord's right to insist upon appropriate notice for a subsequent renewal. In a 1975 Indiana case, the court in fact stated that a landlord could claim that a lease was not validly renewed even after it had accepted rent for several years into the renewal period.

Specifically, on the question of waiver, the court had this to say:

"[A] 'waiver' presupposes a full knowledge of a right existing, and an intentional surrender or relinquishment of that right. It contemplates something done designedly or knowingly, which modifies or changes existing rights, or varies or changes the terms and conditions of a contract. It is the voluntary surrender of a right. To establish a waiver, there must be shown an act or omission on the part of the one charged with the waiver fairly evidencing an intention permanently to surrender the right alleged to have been waived."

The court also noted that the Chancellor below had relied upon the fact that the various options had been set forth in separate sections of the lease, emphasizing their distinct nature. Waiver of the right to object to late notice in one case would not necessarily be a waiver in a later case.

Comment 1: This court seems to view with approval with Indiana decision, but the editor wonders whether that decision squares with the definition of waiver that the court has posited. Where a landlord continues to accept rent for two years, wouldn't it be assumed that the landlord knew that the tenant was paying the rent in the belief that the renewal had been exercised, and doesn't landlord have some responsibility to make its position clear sooner than two years later?

The editor believes that during the prior renewal period in the instant case, where the tenant commenced paying the increased rent consistent with the terms of the renewal language, and the landlord accepted that rent, there probably was a waiver of the lack of notice as to that renewal period.

But the editor concurs with the court's conclusion that any waiver of notice with respect to that period would not indicate that the landlord had no right to insist upon appropriate notice for a subsequent period.

Comment 2: The editor sees little significance to the fact that the lease set out the options as separate items in the lease. Clearly, whether described together or separately, each option stands on its own as to the appropriateness of the notice. Waiver as to the requirements for one option period should not infect other option periods, any more than it should affect the landlord's ability to enter into new agreements with this tenant or others.

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

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