HOW TO INVITE LITIGATION IN
EXERCISE OF AN OPTION TO RENEW YOUR LEASE!
most important asset of your coin laundry business is your lease. Washers and dryers produce little income in
storage or in a parking lot!
you probably know, coin laundry operators are repeatedly advised to enter into
long-term lease arrangements, including options, to preserve the value of the
business. It is difficult to sell a coin
laundry when there is only six months remaining under the lease and the lessor appears unwilling to negotiate a new lease.
coin laundry operators will negotiate a ten-year term with perhaps two
five-year options to renew the lease.
After ten years of doing business with one another, some landlords and
tenants become rather casual about certain of their business arrangements. A landlord is not likely to be casual about
the prompt payment of rent, but may not be concerned about whether a written
notice to renew a lease is provided by ordinary mail or certified mail, return
landlords, however, may be simply waiting for you to forget to exercise the
option, or exercise the option in a manner that does
not comport with the lease so that they can deny your right to renew and then
demand a higher rent, or evict you so that an out-of-work brother-in-law can
acquire a coin laundry business!
general rule regarding the exercise of an option to renew a lease is simply
that the tenant must do so within the time, in the manner, and on the terms stated
in the lease. If the lease calls for
written notice, a telephone call will not suffice. If a lease requires registered or certified
mail, return receipt requested, the notice must be mailed in that fashion or a
tenant risks a rejection of the notice and the possibility of litigation.
one California case, the landlord claimed
it had never received the tenant’s letter exercising the option. The tenant, on the other hand, claimed it had
properly exercised the option and refused to vacate the premises. Litigation ensued. The tenant asserted that it had exercised the
option and had improved the premises subsequent to the exercise of the option
so that the landlord knew, or should have known, that the tenant intended to
extend its tenancy.
lease only required that the option be exercised “in writing” and did not
prescribe any particular manner of communicating the written notice to the
landlord, such as certified or registered mail.
The landlord contended that since it was entitled to notice of the
exercise of the option to renew the lease, the notice was not effective unless
it was actually received by the landlord.
The court rejected the argument indicating that a California statute essentially
provides that when ordinary mail is permitted or designated, the notice is
deemed given upon posting in the mail.
tenant won this battle, but remember, only “written
notice” was required and not “written notice by registered or certified mail.”
another California action, the court was
presented with a declaratory relief action brought by the tenant to determine
whether there had been an effective renewal of the lease.
you ever wondered about what rents might have been at the intersection of Tenth
and Harrison Streets in the City of Oakland in 1925? In this 1933 California action, the court notes
that the lease was initially for a term of five years beginning on July
at the monthly rental of $416.66. In the
event the lease was renewed by the proper exercise of the option, rent was scheduled
to increase to $500 per month.
tenant was required to provide written notice of the exercise of the option 60
days prior to the expiration of the lease; however, he failed to do so. He did, however, pay to the landlord after
the initial expiration of the initial five-year term, the increased rental of
$500 per month which was required to be paid by him in the event the lease was
in fact renewed.
court noted that the landlord permitted the tenant to remain in possession and
accepted the increased rental from the tenant.
This course of business continued for a period of more than a year
without either party questioning the rights of the other.
court essentially held that the option had been exercised and that the
formalities provided in the lease for the renewal had been waived.
another California decision, a tenant made
substantial improvements of the property, believing that the lease had been
extended. The landlord, apparently
observing this activity but not objecting to the manner in which the option was
exercised, was held to have waived strict compliance with the notice provisions
of the lease.
The moral of the story?
Unless you have a taste for litigation, calendar the period within which
you are to provide notice of your exercise of the option and provide the notice
in the precise manner designated by the lease!
[This column is intended to provide general information only and
is not intended to provide specific legal advice; if you have a
specific question regarding the law, you should contact an
attorney of your choice. Suggestions for topics to be discussed
in this column are welcome.]
Reprinted from The Journal
Myles M. Mattenson © 2007