Daily Development for
Tuesday, December 15, 1998

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

LANDLORD/TENANT; HOLDOVER; OPTIONS TO PURCHASE: Where lease provides tenant with a right of first refusal to purchase the property, and provides that landlord may elect to treat a holdover as a month to month tenancy, court may view right as continuing during holdover tenancy.

PeterMichael, Inc. v. Sea Shell Associates, 709 A.2d 558 (Conn. 1998).

The lease provided that if the tenant held over following the lease term, such holdover would not be regarded as an extension or renewal of the original five year term, but the landlord could treat the tenant holding over as a month to month tenant "subject to all the terms and conditions of this lease, except as to duration thereof." The lease contained a right of first refusal.

The tenant held over following the expiration of a renewed term, and the landlord specifically elected to treat the holdover as a month to month tenancy. This arrangement continued for five years. Then the landlord sold the property without notifying the tenant, and this action based upon the right of first refusal ensued.

The trial court granted summary judgment for the landlord, based upon its interpretation of the language of the lease. The lease stated that the right of first refusal could be exercised if the landlord received an offer to purchase during the "lease term," and the trial court concluded that the month to month tenancy following the expiration of the original lease was not the "lease term."

On appeal, held: Reversed. Although the Supreme Court of Connecticut did not conclude that the lease definitively granted the right of first refusal to tenant, it found the question of the parties' intent to be one of fact that could not be resolved on summary judgment.

The court determined that no language in the lease definitively excluded the right of first refusal during a holdover tenancy. The reference to the "lease term" can be and has been variously interpreted.

Comment 1: One is tempted to say that the party who stands to benefit from the right in question ought to be charged with the responsibility for making clear its scope. This was poor drafting from the standpoint of both sides, but especially from the standpoint of the tenant's lawyer if, indeed, the tenant expected that it would have the right of first refusal during a holdover period. Most likely, no one anticipated that the tenant's holdover would devolve into a month to month tenancy for five years.

On the other hand, the court is correct in concluding that sufficient ambiguity exists in the written documents to permit the parties to bring forward evidence to demonstrate what they really intended the language to mean. If there is no other evidence adduced, then the editor would be inclined to rule for the landlord, and indeed the trial court might do this by granting summary judgment upon conclusion of the evidence. But, in light of the unfortunate ambiguity here, the tenant is entitled to a "day in court."

Comment 2: The lease was well drafted from the landlord's point of view because it did preclude the landlord from accidentally permitting renewal of the lease for a longer period when it accepted rent following a holdover. But lawyers who draft these clauses generally are drafting them to protect the landlord, and they may want to insert boiler plate automatically eliminating rights of first refusal or purchase options, leaving it to the tenant's side to argue that the intent of the deal is that such rights should continue during holdover.

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