HOW TO INVITE LITIGATION IN THE
EXERCISE OF AN OPTION TO RENEW YOUR LEASE!

The most important asset of your coin laundry business is your lease.  Washers and dryers produce little income in storage or in a parking lot!

As 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.

Many 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 receipt requested.

Some 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!

The 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.

In 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.

The 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.

The tenant won this battle, but remember, only “written notice” was required and not “written notice by registered or certified mail.”

In 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.

Have 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 1, 1925, 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.

The 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.

The 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.

The court essentially held that the option had been exercised and that the formalities provided in the lease for the renewal had been waived.

In 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