Horace Walpole Didn’t Have Landlords On His Mind

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Last week, Ruminations advocated that a lease giving the tenant a right to extend the term should include a provision wherein the landlord can/must send a “reminder” to the tenant that the extension option date was about to occur or had already occurred. [For those who haven’t yet looked at last week’s blog posting discussing some aspects of a lease extension option, it can be seen by clicking: HERE.] We also tacked on a specimen lease provision doing just that.

[Oh, Yes – we’ll explain Horace Walpole at the end of today’s posting.]

It would be fair to ask about the key features of a “reminder” provision. One very key aspect is that a landlord should be able to have the lease end at the agreed-upon time if its tenant doesn’t elect to exercise it extension option. So, a landlord should be able to send the reminder notice 30 or 60 days before last day the tenant should be sending its exercise notice. Another key aspect is that if the lease doesn’t end because neither party realized (or cared) that the date for exercise of the extension option had come and gone, the landlord should get the same period of time to find a replacement tenant as would have been the case if there were no requirement for a “reminder” notice from the landlord. To say that differently, if there was a 9 month notice requirement to extend the term, then the tenant would have to stay for 9 months after it gets the landlord’s “reminder.” If no “reminder is sent and the tenant didn’t timely notify its landlord that it was not going to exercise its extension option, it would be bound by the lease until 9 months after it then notifies the landlord that it wasn’t going to exercise the lease option. That way, a landlord would be allowing the lease term to continue running even though its tenant did not timely send an extension notice, but the landlord can cut the lease term off after 9 months just by sending a reminder notice to its tenant.

Basically, if the landlord remembers to seek a replacement tenant, it will send a reminder notice (assuming the tenant hadn’t already exercised its option or notified the landlord that it wasn’t going to do so). So, calling for a reminder notice helps both the landlord and the tenant. The landlord won’t be caught short if it forgot that the option exercise date had come and gone and would always have the full 9 months to find a tenant. The tenant’s benefit is that it won’t wake up one day to find out that it lost its option.

There’s one more point to make. If you are going to craft a reminder provision, be sure that the lease term continues until it is actually extend or ended. Don’t let the lease term end at what would have been the end of the term; it should continue until the entire 9 (or whatever) months have passed (unless the tenant elects to extend it). Yes, don’t let the lease term end on the “expiration date” and then retroactively extend the lease term. Keep the lease term running. If you don’t, lots of bad things can happen to such things as this particular tenant’s exclusive use rights and with provisions of other tenant’s leases that “carve out existing leases.” For a few thoughts about this “issue,” click: HERE.

Oh, yes, Ruminations remembers that its first choice (read that: “it advocates”) automatic lease extension provisions, and that means all of the chest beating above and the specimen lease provision given last week would be inapplicable [even though savvy readers will realize that last week’s specimen provision seems like a way to write an automatic extension provision to look like a “renewal” provision].. So, what do we think about “reminder” notices in leases with such automatic extensions? We think they are just as appropriate and, in that light, offer the following as an example of such a provision.

Tenant will have 5 successive options to extend the Term, each for 5 years (each an “Extension Term”) each to begin, respectively, upon the expiration of the Initial Term or Extended Term (as the case may be). Each such option will be automatically become exercised and effective as it accrues unless Tenant gives Landlord notice in writing of its intention not to exercise such option (“Extension Cancellation Notice”) by the later of: (a) the “Nine Month Date” (as defined below); or (b) the “Reminder Date” (as defined below), TIME BEING OF THE ESSENCE as to the date set forth in (a) or (b) above (as the case may be).

The “Nine Month Date” is the day that is 9 months before what would otherwise be the expiration of the Initial Term or the then Extended Term (as the case may be). “9 months before” means the same day of the calendar month as the last day of the Initial Term or Extended Term (as the case may be), but 9 months earlier. If the last day of the Initial Term or Extended Term (as the case may be) ends on a calendar month that has more days than the calendar month that is 9 months earlier, then “9 months earlier” with respect to the end of the Initial Term or Extended Term (as the case may be) means the last day of the calendar month that is 9 months earlier.

The “Reminder Date” is the 30th day after Tenant receives a “Renewal Reminder Notice” from Landlord. A “Renewal Reminder Notice” is a notice from Landlord to Tenant sent by Landlord not earlier than the Nine Month Date: (x) expressly referring to this Article XX; and (y) expressly stating in UPPER CASE LETTERS that “FAILURE TO NOTIFY LANDLORD THAT YOU ARE NOT AUTOMATICALLY RENEWING YOUR LEASE FOR THE NEXT EXTENSION BY SENDING YOUR EXTENSION CANCELLATION NOTICE TO US WITHIN 30 DAYS AFTER YOUR RECEIPT OF THIS NOTICE WILL RESULT IN RENEWAL OF THE LEASE FOR THE NEXT EXTENSION TERM.” If, on or before the last day Tenant may send Landlord an Extension Cancellation Notice and tenant does so, the Term will expire on the later of: (i) what would have been the last day of the then Initial Term or Extension Term (as the case may be); or (ii) the day that is 9 months after Tenant sends that Extension Cancellation Notice. Once sent, the Extension Cancellation Notice is irrevocable.

The Annual Fixed Rent and the Percentage Rent Breakpoint for each Lease Year of each Extended Terms will be the amounts set forth below, and, except as otherwise herein provided, all of provisions of this Lease will apply to the Extended Terms.

One of the other things that troubles us, but not enough to have addressed it in the specimens from last week or this week, is whether “all provision of this Lease will” apply (other than rent) means that initial rent concessions apply (again) during each Extension Term. Before any reader jumps to a conclusion based on the mistaken belief that WYSIATI (“what you see is all there is”), let’s all understand that the question can’t be answered without reading what the Lease says and HOW IT SAYS IT. Ours is a “craft.” We can’t just cut and paste “modules” into our Leases (or other agreements). There is a symbiotic relationship between and among all of the words in the document. Just don’t get Ruminations started on “the document must be read as a whole”; we’ve done that many times before and will again, just not this week.

There are many other things that can be written about lease renewal (or extension) rights, but as we approach the 300 blog posting point, the way we’ll be able to pass that threshold is by “holding back.” That way, we’ll still have grist for a later mill.

According to our source, Wikipedia, the first noted use of “serendipity” (meaning pleasant surprise) in the English language was by Horace Walpole (1717–1797). In a letter to Horace Mann (dated 28 January 1754) he said he formed it from the Persian fairy tale The Three Princes of Serendip, whose heroes “were always making discoveries, by accidents and sagacity, of things they were not in quest of.” Actually, “The word has been voted one of the ten English words hardest to translate in June 2004 by a British translation company.” Nonetheless, we don’t think the failure of a tenant to remember that the deadline for exercising a lease extension option should be the source of a serendipitous windfall to the landlord. “Surprise” is not the basis upon which commercial relationships should be based.

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Comments

  1. When a lease ends it ends. Neither party should have to send a notice. I would advise against this for my clients. This is basically an evergreening clause which no tenant should ever agree too. I’m guessing you typically work with the landlords and not the tenants as I don’t see any positive side for the tenants.

  2. Elliot L Warm says:

    The renewal on “all terms of the lease” can be tricky. As a very technical matter, one of the existing terms of the lease is the renewal clause itself, so that one can argue (and lose, presumably) that the tenant gets another renewal. That’s crazy, of course, but it’s not a bad idea not only to consider which specific clauses should not remain in effect but to have a catch-all exception along the lines of “any term of this Lease that by its very nature was only intended to apply at inception of the Term such as but not limited to provisions for Landlord work to prepare the Premises for occupancy and/or for Landlord to give Tenant a construction allowance.”

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