Automatic renewal

"The lease provided that it would renew automatically for an additional five years, provided that landlord was obligated to give a thirty day notice to the tenant of the pendency of the renewal and that tenant thereafter had the right to refuse to renew, all more than six months prior to the end of the term.


The landlord sent timely notice. The tenant responded with a notice that stated that


it would be my intent to renew the lease


but asking for a rent reduction because tenant improvements were complete. After the time for rejection of the automatic renewal had passed, the landlord responded with a letter stating that there had been an automatic renewal and stated the rent at an increased amount, apparently according to the cost of living adjustment.


The tenant paid the rent and remained in occupancy for over three years.
Then, when it terminated occupancy, it took the position that there had been no automatic five year renewal because it had implicitly rejected such renewal when it proposed to renew only at a reduced rent.


The trial court granted summary judgment to tenant, but the appeals court reversed, finding that the lease was in effect for the full five year renewal term.


For purposes of reviewing the summary judgment motion, the court assumed that ambiguous notice sent by the tenant gave the tenant no more than an option to renew, and did not bind her to an automatic renewal. And tenant's letter certainly did not constitute the need for a definite and unqualified determination to exercise the option.


The court ruled that when there is a requirement for notice of exercise of an option to renew, and the tenant holds over, the landlord may waive the requirement for notice and deem the lease renewed.


Comments on DIRT:


Note that this case depends on the existence of the renewal clause in the lease. Otherwise, if a tenant holds over, the landlord can send notice proposing a new lease, and hold the tenant to that lease if tenant continues to hold over, but such new lease cannot exceed the period defined by the Statute of Frauds, since the new lease is implied, and not written.


Here, the tenant had signed a lease with a renewal clause. Arguably, it was an automatic renewal, but the court assumed that the tenant had validly rejected the automatic renewal, and that this flipped the renewal clause into an optional renewal
for five years, which the tenant accepted by holding over.


The court admits, however, that if the tenant had unequivocally indicated that her holding over was not an acceptance of the proferred renewal, there would have been no such renewal.


Friedman on Leases, Randolph Edition, at Section 14.2, text accompanying note 172 et seq, states that a tenant's notice claiming to invoke the automatic renewal in a lease, but proposing alternative terms, constitutes a rejection of an offer. But there is authority that the offer remains effective and can be accepted by later action of the tenant, absent estoppel (such as the landlord reletting in reliance upon an apparent rejection). That is apparently the approach taken by the court here. This strikes the editor as a common sense resolution of a tricky technical problem.


Nevertheless, it should be noted that notion that a holdover automatically can bind the tenant to an extended renewal term exposes the tenant to a gotcha."

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