The Importance of Recordkeeping in Commercial Lease Administration
Many commercial leases provide for automatic extension of the term unless one party notifies the other in writing within a certain time frame that it desires not to extend the lease term. The Massachusetts Appeals Court recently decided a case addressing the mechanics of such a provision in Patriot Power, LLC v. New Rounder, LLC, No. 16-P-420 (March 13, 2017), in which the issue was whether tenant effectively gave notice that it desired to let a commercial lease expire.
Landlord sued, seeking a declaration that tenant had not given proper notice of its intention to let the lease expire, and for unpaid rent. As with many cases which go to trial, there was conflicting oral testimony, and the case turned on which party bore the burden of proof. The trial judge ruled that the plaintiff landlord had the burden of proof, and a jury verdict for tenant resulted. The Appeals Court reversed, holding that the burden of proof should have been placed upon the defendant tenant to show that it properly notified landlord that it desired to let the lease expire.
The lease in question provided that it “shall be automatically extended for additional successive Renewal Terms of one (1) year each unless . . . written notice [was sent not] . . . more than twelve (12) months or less than six (6) months prior to the expiration of then-current lease period. Time is of the essence.” Landlord asked tenant to sign some documents in connection with a refinancing. The signed documents were returned by tenant approximately twelve days prior to the deadline by which notice was to be sent. A dispute arose as to whether the package containing the signed refinancing documents also contained a letter notifying landlord of tenant’s desire to let the term of the lease expire.
At trial, there was conflicting testimony between the parties’ respective administrative assistants as to the contents of that package. Because tenant was attempting to end its contractual obligation and had to serve timely written notice that it was allowing the lease to expire, the Appeals Court held that burden of proving satisfaction of that condition should have been placed on the tenant, and the case was remanded for retrial.
Patriot Power illustrates the importance of keeping impeccable records of all lease-related deadlines, and confirming in each instance that notice has been timely and properly given pursuant to the explicit terms of the lease. Requiring a delivery receipt helps demonstrate compliance with lease notice requirements, but a receipt is not of much help if, as in Patriot Power, multiple different documents are placed in the same envelope, without a cover letter listing the contents.