Wednesday, November 27, 2019


             In February 2012, Johnson Thermal Systems, a producer of industrial refrigeration equipment, entered into a Lease with Gilbert Family Trust for a one-year lease term. The Lease granted JTS an option to renew for two more one-year terms, but required JTS to give Gilbert at least 60 days prior written notice.
            In March 2013 JTS and Gilbert amended the Lease to provide that JTS was exercising its option to extend the Lease for the first of its additional one-year terms. That amendment extended the Lease until April 15, 2014.
            JTS began constructing a new facility in 2014. In the interim, agents for both JTS and Gilbert discussed plans for exercising the second (last) one-year term. During lease term extension negotiations, Gilbert presented to JTS possibilities of month-to-month, six-month, and one-year lease terms at different rates.
            On April 10, 2014, JTS told Gilbert via email that it “would like to do a 6 month lease with the option to go month-to-month for an additional 3-6 months.” So JTS and Gilbert signed an amendment extending the Lease until October 15, 2014. JTS was allowed further extensions in that document, which required appropriate advance notice.
            During the six-month extension term agents for JTS and Gilbert discussed extending the Lease past October 15. However, JTS never definitively answered whether it would extend or not. Instead, JTS consistently gave Gilbert possible vacation dates, each within the six-month extension term.
            October 15, 2014 passed without a written or oral agreement extending the Lease. JTS continued to occupy the building and pay rent. In November 2014 Gilbert entered into an agreement to sell the property to Caldwell Land and Cattle.
Gilbert sent JTS a written “Notice of Termination” which required JTS to surrender possession by January 31, 2015. In opposition to the Notice, JTS asserted that it had exercised the final six-month extension term, and was entitled to remain in occupancy through April 15, 2015.
            Gilbert and Caldwell closed the deal in December 2014. JTS refused to vacate, so Caldwell started eviction proceedings in January 2015.
            Although JTS ultimately vacated, it made no repairs to the property and left in place a leased electrical transformer which JTS had installed one year earlier.
            Since JTS had vacated, Caldwell amended its complaint by dropping the eviction claim and instead asserting damages and related matters.
            In August 2017 the district court held a trial, and ruled that JTS and Gilbert had created a month-to-month tenancy after October 15, 2014. The court concluded that JTS had breached the lease by removing the transformer without Caldwell’s permission, and failing to repair the leased premises.
            The district court held that Caldwell was entitled to recover $85,389 from JTS, plus $150,000 attorney’s fees. JTS appealed.
            Sparing you the analysis undertaken by the Supreme Court, the conclusion is that JTS did not exercise the six month extension. As a consequence, JTS was treated like a month-to-month or “at-will” tenant, subject to the holdover provisions of the Lease.
            This is not the reason why I selected this case for your reading enjoyment. There is another reason altogether.
            Caldwell knew the property was occupied before Caldwell closed the deal. And although unstated in the Appellate Opinion, it does not appear that Caldwell or Caldwell’s lender sought to confirm the position of JTS prior to closing in a Tenant Estoppel Certificate or equivalent.
            A Tenant Estoppel Certificate would have stated the position of JTS and provided that Caldwell (and perhaps, its lender) has been inducted by the Estoppel to close the purchase, and is detrimentally relying upon the factual accuracy of the statements contained within it. Typically Estoppel Certificates state the lease term, amount of rental owing, security deposit, finish-out allowances remaining unpaid, remaining renewal and extension options, that Landlord is or is not in default, and similar.
            Instead, it seems that Caldwell purchased the property subject to the superior possessory rights of JTS, without completely understanding (or at least knowing) the extent of those rights.
            Caldwell wins; JTS loses. See Caldwell Land And Cattle, LLC v. Johnson Thermal Systems, Inc.; Supreme Court of Idaho; Docket Number 46056; November 15, 2019:  
            Lessons Learned / Questions Asked:
1.      Lesson: One might only wonder if this lawsuit could have been entirely avoided if Caldwell had insisted upon a Tenant Estoppel Certificate from JTS as a condition to closing. Such a Certificate presumably could have disclosed the leasing term issues. Caldwell could then have forced Gilbert to address the problem prior to closing, at Gilbert’s expense.
2.      Lesson: In fairness to Caldwell, perhaps such a Certificate was received – but the Opinion does not describe it. Or maybe Caldwell knowingly completed this purchase without such a Certificate based on an indemnity from Gilbert or closing escrow, funded by Gilbert. Maybe.
3.      Lesson: Yes Caldwell ultimately prevailed in the lawsuit, but how difficult will it be for Caldwell to collect this Judgment?
                                                                                                               Stuart A. Lautin, Esq.*

* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law,
Texas Board of Legal Specialization 

Licensed in the States of Texas and New York 

Higier Allen & Lautin, PC
2711 N. Haskell Avenue, Suite 2400
Dallas Texas 75204
P: 972.716.1888
AV Preeminent                   


Friday, November 1, 2019


            In my Texas world, lease renewal and extension notices must strictly adhere to all requirements specified in the lease. If the tenant is late, uses an incorrect address or method for delivery, has triggered an event of default, addresses an envelope incorrectly, or otherwise stumbles, then the notice can be effectively challenged.
            Guess the rules are different in Illinois.

            In July 2006 LI. Portfolio Holdings, LLC leased Chicago retail space to Gap, Inc. Portfolio was succeeded by 900 North Rush LLC; Gap, Inc. was acquired by Intermix and Intermix Holdco, Inc. succeeded the Gap as the tenant.

            The initial lease term ended April 30, 2017, but the lease contained a renewal option that the tenant could exercise to extend the term for five more years. 120 day advance notice was required.

            On November 29, 2016, an attorney in Gap’s real estate law department sent a letter to 900 North Rush, on Gap’s letterhead. The reference line provided that the purpose of the letter was an exercise of option notice pertaining to “Intermix #2357.” The letter stated that, pursuant to Article XXI of the lease, “Tenant hereby exercises its right to extend the term of the Lease.”

            The letter was signed by Matthew Irwin, on behalf of Old Navy, LLC. The Gap is the parent company of Intermix, Old Navy, and many other retail clothing stores.

            The Manager of 900 North Rush timely received the letter and knew that Intermix was attempting to exercise the renewal option. However, because the option was purportedly exercised in the name of Old Navy, he believed that the option was improperly exercised.

            The Manager advised Intermix that the letter was deficient since the Tenant did not exercise the option – instead, a stranger to the lease (Old Navy) attempted to do so.

            Predictably, Intermix did not vacate the premises when the lease term ended. So 900 North Rush served Intermix with a demand to vacate, then filed an eviction lawsuit.

            The trial court held that Irwin’s letter was an effective exercise of Intermix’s renewal option. 900 North Rush appealed.

            The question presented to the Court of Appeals is a narrow one – did Intermix satisfy the Lease requirement to exercise a renewal option? 900 North Rush contends that a letter sent by Old Navy cannot serve to properly extend the Lease. Intermix argues that Irwin and Old Navy acted as agents for Intermix.

            Really, it’s a question of strict compliance. The tenant (Intermix) was the beneficiary of the extension option. Absent a principal-agent relationship, neither Irwin nor Old Navy had the right to exercise the option on Intermix’s behalf.

            The Illinois Appellate Court, like most other courts, first determined that a commercial tenant must strictly comply with a renewal option exercise or it is forfeited. In fact, the Court used the word “fatal” to describe the failure to properly exercise an option.

            Further, the Court opined that neither oral notice nor the landlord’s actual knowledge of the tenant’s intent to renew is sufficient, if a lease requires a writing.

            Sounds bad for Intermix, right. Clearly, this is not going well for Old Navy’s continued presence on East Delaware Place in Chicago.

            But wait, says the Appellate Court. The letter stated that it is being sent regarding the Lease at issue and for the purpose of exercising the option. The letter properly identified the location, date of Lease, parties to the Lease, and that Intermix was the Tenant.

            The fact that Irwin’s signature is below the words “Old Navy, LLC” is hardly dispositive, says this Court. Old Navy was only referenced in Irwin’s signature block. The content of the letter, says the Court, speaks from the perspective of Intermix.

            So, somehow, someway, this Court concludes that Old Navy had the lawful ability to exercise a renewal option for Intermix. And that Landlord is stuck with this Tenant for five more years.

            Intermix wins and gets to stay; 900 North Rush loses. I hope this is further appealed.

See 900 North Rush LLC v. Intermix Holdco, Inc.; Appellate Court of Illinois, First District, First Division; Numbers 1-18-1914, 1-18-2030, 1-18-2684; August 26, 2019:  
            Lessons Learned / Questions Asked:

1.      Question: Does your Lease contain renewal / extension provisions? Of course it does. This case is an aberration. Option exercise requires strict compliance.

2.      Question: Conversely, are you a tenant who failed to exactly, precisely, follow the option exercise provisions? This decision gives you some wiggle room, at least in Illinois.

3.      Lesson Reminded: Renewal / extension options benefit only the tenant. From a landlord’s perspective, avoid them if you can. For a tenant: 100% insist on them, always.

                                                                                                                          Stuart A. Lautin, Esq.*

* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law,
Texas Board of Legal Specialization 

Licensed in the States of Texas and New York 

Higier Allen & Lautin, PC
2711 N. Haskell Avenue, Suite 2400
Dallas Texas 75204
P: 972.716.1888

Monday, September 30, 2019


             The DFW International Airport Board operates the DFW International Airport. In 2012 the Board’s staff retained Vizant Technologies to analyze the airport’s payment-processing costs and provide expense reduction suggestions.
            The DFW Board and Vizant negotiated a Consulting Agreement for three years, with various incentives payable to Vizant based upon recommendations that effectively reduced payment-processing costs.

            The Contract limited Vizant’s compensation to $50,000. However, DFW agreed that the Board “will make a good faith effort to receive board authorization to increase the compensation” and if approved, the parties would amend the Contract accordingly.

            According to Vizant its services ultimately saved the airport ~ $82,000, and its fee under the agreed formula should have exceeded $300,000. Vizant submitted an invoice for $50,000 and requested that the Board approve an amendment authorizing the larger amount.

            The Board paid the $50,000 but denied the excess. So, Vizant sued the Board, alleging that the Board failed to make the promised good faith effort to authorize the increased compensation.

            And, appeals brought this case to the attention of the Texas Supreme Court, which – surprisingly – agreed to accept it.

            First, the high Court reviewed the exact language whereby the Board agreed to make a good faith effort to obtain its own authorization for the higher payments. Thinking that it might be more reasonable for the Board’s staff to make a good faith effort to obtain the Board’s approval, that promise is not enforceable against the Board and even if it were, the remedy could never be to require the Board to pay more than it authorized staff to negotiate.

            But back to the agreement. The essence is that the Board agreed to make a good faith effort to authorize a higher payment in the future. Note that the Board did not agree to make a higher payment; rather it agreed to make a good faith effort to accomplish that result.

            This, the high Court reminded us, is not the situation where parties agree to agree in the future. Rather this contract obligated the Board to make a good faith effort to agree. This may be a distinction without merit, as we get to the same place.

            The Court determined that the Board’s promise was similar to the equivalent of a promise to negotiate towards a future deal in good faith. And, an agreement regarding future negotiations is unenforceable. The addition of the good faith qualifier does not save the contract.

            The Court also felt compelled to add that Texas is in a minority position, as many more jurisdictions have recognized the enforceability of contracts obligating parties to negotiate. But even in this situation if the provision was enforceable, the proper remedy might be difficult to find. Because the Board would have breached an “efforts” agreement, as opposed to breach of an agreement obligating the Board to pay $330,000.

            Some courts, say the Supremes, have used reliance damages as a model (the amounts paid by plaintiff in reliance on its belief that the defendant was negotiating in good faith). Other have allowed expectancy damages (the amount the plaintiff expected to receive as a result of the anticipated contract).

            But no matter here. A Texas contract obligating parties to agree in the future is unenforceable, as is a Texas contract obligating a party to use its good faith efforts to agree in the future to amend an existing contract.

            Judgment is rendered dismissing all claims. DFW wins; Vizant loses.

See Dallas / Fort Worth International Airport Board v. Vizant Technologies, LLC Texas Supreme Court; No. 18-0059; May 17, 2019:  
            Lessons Learned / Questions Asked:

1.      Question: Does your Contract provide for a future agreement to agree? These provisions are ineffective in Texas.

2.      Question: Does your Contract provide for a future agreement to use good faith efforts to cause future payment or similar? Sorry, not effective in Texas.

3.      Lesson: Don’t mess with Texas.

                                                                                     Stuart A. Lautin, Esq.*

* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law,
Texas Board of Legal Specialization 

Licensed in the States of Texas and New York 

Higier Allen & Lautin, PC
2711 N. Haskell Avenue, Suite 2400
Dallas Texas 75204
P: 972.716.1888

Friday, August 30, 2019


            I wrote about this case in January and February 2018. In December 2017 the Superior Court of Kings County, Washington, entered an Order requiring a vacant tenant (Whole Foods, owned by Amazon) to reopen its closed business and continue operations. The decision was promptly appealed.
Commercial real estate attorneys across the county have been patiently watching. Waiting. Anticipating.

            Now it’s decision time.
            As background and for those of you who don’t recall . . . Bellevue Square, LLC has 1.3 million square feet of retail space. In 2013 there were three anchors: Nordstrom (266,708 SF), Macy’s (218,371 SF), and JCPenney (200,000 SF).

            Penney’s notified Bellevue that Penney’s would vacate in 2014. Whole Foods was interested in the ground floor space, approximately 34,000 SF.

In 2015 Bellevue Square LLC entered into a 20 year lease with Whole Foods Market, Inc. Whole Foods opened the store in September 2016, and closed the site in October 2017.

Bellevue filed a lawsuit based on an operating covenant requiring Whole Foods to “conduct and carry on” its business of grocery sales “without interruption.” Bellevue’s experts testified that Whole Foods’ vacancy disrupted the stability of the shopping center, affected negotiations with potential and current tenants, reduced customer traffic, prevented Bellevue from recovering percentage rents, and adversely affected Bellevue’s reputation.

Whole Foods conceded that it vacated, but asserted that Bellevue’s appropriate remedy for the breach is damages. Not an injunction or temporary restraining order.

Surprising virtually every real estate attorney in the country, Bellevue prevailed at trial and obtained a preliminary injunction requiring Whole Foods to reopen and continue operating the retail store. Whole Foods appealed, and the Court of Appeals stopped the injunction pending full review.

The Appellate Court determined that injunctions are not warranted if there is a plain, complete, speedy, and adequate remedy at law. And whether or not Bellevue is entitled to an injunction is a function of the Lease and particularly, its remedy provisions.

The Court reviewed the operating covenant in the Lease and determined that Whole Foods was required to continue business operations for the first 10 years of the lease term of between 10 and 13 hours every day. The Court then focused on Bellevue’s contractual remedies in the event of Whole Foods’ default.

The Lease provides that if Whole Foods breaches the Lease by abandoning the site, Bellevue may either terminate the Lease or recover damages for Whole Food’s default. In the latter event, Bellevue has a contractual duty to mitigate damages.

The trial court concluded that these limitations did not prevent ordering Whole Foods to reopen within 14 days and continue business operations. The Court of Appeals disagreed, finding that damages are compensatory and there is no legal justification to force Whole Foods to reopen particularly when Bellevue is required to mitigate its losses.

Those are inconsistent remedies. The Lease gives Bellevue an adequate, complete, and speedy remedy for the harm caused by Whole Foods and Bellevue may continue to recover rent, damages, and other payments from Whole Foods. This case is not appropriate for an injunction compelling Whole Foods to remain open.

Whole Foods wins; Bellevue loses.

See Bellevue Square, LLC v. Whole Foods Market, Inc., Washington Court of Appeals; Division One; Case No. 77770-0-1; December 17, 2018:  

            Lessons Learned / Questions Asked:

1.      Question: Does your Lease provide for operating covenants, enforceable by the remedy of specific performance? The provision might be ineffective, depending on how the other remedies provisions are worded.

2.      Lesson: Don’t mess with Amazon.

                                                                                                     Stuart A. Lautin, Esq.*

* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law,
Texas Board of Legal Specialization 

Licensed in the States of Texas and New York

Wednesday, July 31, 2019


             I have written about this before. It is rare that the Texas Supreme Court will review a case involving a commercial landlord – tenant dispute. Well it just happened. Again.

            Landlord Rohrmoos Venture executed a lease in 1996 with tenant UT Southwestern DVA Healthcare for a building in Dallas. I believe the building may be on Elmbrook Drive – very close to UTSW’s main campus facilities. The lease was modified and ratified in 2003. UTSW used the space for a dialysis clinic.

            At some point UTSW experienced water penetration in the building’s concrete foundation. UTSW installed ceramic floor tiles in an attempt to contain the moisture problem.

            In September 2007 Texas health inspectors evaluated the clinic and criticized UTSW because flooring had become loose and moisture could be seen under the tiles. UTSW notified Rohrmoos of the inspection results and the two parties exchanged communications over a period of several months. Neither party accepted responsibility.

            Multiple engineers and contractors were engaged, but the issue persisted to 2009 and then began to worsen as the building suffered significant water penetration.

            Because UTSW viewed the building as unsuitable for its intended commercial purpose, UTSW terminated the lease early, vacated, and relocated to Irving while still owing ~ $250k in unpaid rent. UTSW then sued Rohrmoos for breach of contract, breach of an implied warranty of suitability, and attorney’s fees.

            At trial, the case was submitted to a jury. The jury found that: (a) both UTSW and Rohrmoos had failed to comply with the lease, (b) Rohrmoos breached the lease first, and (c) Rohrmoos breached an implied warranty of suitability.

            The trial court, based on the jury’s verdict, held that UTSW properly terminated the lease and Rohrmoos owed UTSW over $1 million in attorney’s fees.

             Rohrmoos appealed to the Texas Court of Appeals.
            The Court of Appeals determined that UTSW had the right to terminate the lease based on Rohrmoos’ breach of an implied warranty of suitability. And, that UTSW was entitled to a judgment of $1+ million in attorney’s fees.

            Rohrmoos appealed to the Texas Supreme Court. And (surprise, surprise) the Supremes agreed to review the case.

            In a 56-page Opinion, the Supreme Court concluded that UTSW had the right to terminate the lease as a remedy for a material breach by the landlord. Since the jury found that Rohrmoos had materially breached the lease, then the relocation and termination actions of UTSW were justified.

            All of that was concluded in the first 15 pages. The remainder of the decision concerned procedural matters and a $1+ million attorney fee award.

            UTSW prevails on the right to terminate a lease and vacate following a landlord’s material breach of lease; Rohrmoos loses that point. However, the $1+ million attorney fee award was reversed and sent all the way back to Dallas County to present that singular issue to yet another trial jury.

See Rohrmoos Venture v. UTSW DVA Healthcare, LLP, Texas Supreme Court; Case No. 16-0006; April 26, 2019:  

            Lessons Learned / Questions Asked:
1.      Texas attorneys, landlords, tenants, lenders, and brokers all had questions about the viability of allowing tenants to terminate a commercial lease and vacate, claiming the commercial premises are unsuitable for its intended business purpose. We’ve had this theory since 1988, but precious little has been written about it. Now we know the theory is correct.

2.      To Texas landlords: beware and quickly respond to the claim of commercial tenants that the premises are not suitable for its intended business purpose. To Texas tenants: if you have not committed a significant lease breach, this Rohrmoos case confirmed what we have believed since 1988 – you may have the right to relocate and terminate.

3.      To Texas litigation attorneys: your ability to receive a fee award has been severely compromised. You don’t need to read the first 15 pages, but you might want to focus hard on the remaining 41.

                                                                                     Stuart A. Lautin, Esq.*

* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law,
Texas Board of Legal Specialization 

Licensed in the States of Texas and New York

Tuesday, July 2, 2019


            Subsea 7 Port Isabel is an engineering and construction firm that manufactures and installs undersea oil and gas pipelines. Starting in 2007 Port Isabel Logistical Offshore Terminal leased 54 acres in Port Isabel, Texas, from the Port Isabel-San Benito Navigation District. In April 2008 PILOT subleased about half of that property to Subsea, to be used as Subsea’s ‘spoolbase’ for its undersea pipe operations.
            The sublease term started on May 1, 2008, and ended May 31, 2012. If PILOT (as prime tenant) exercised its renewal options, then Subsea was also allowed to do the same relative to its sublease by issuing option exercise notice at least 60 days prior to May 31, 2012.
            Subsea claims it spent $40+ million to improve the property by building a dock, facilities for fabricating pipes and loading them unto ships, and stabilizing the ground with crushed rock. Clearly, the sublease was important to Subsea.
            In February or March 2012 the operations manager for Subsea spoke to PILOT’s president about renewing the sublease. Subsea asserts that the president told Subsea’s operations manager that Subsea did not need to send written notice to renew the sublease before March 31, 2012, as required by the Sublease.

            PILOT’s vice president also recalled that Subsea wanted to renew its sublease.
            In May 2012 PILOT replaced its president. Subsea sent an email to the new president providing that Subsea intended to renew its sublease. The following day Subsea sent a sublease renewal notice by certified mail.

            PILOT did not respond to either of the notices. PILOT did, however, continue to send sublease rental invoices to Subsea for two years after expiration of the original sublease term, and Subsea paid the invoices while Subsea remained in occupancy.

            PILOT sent an eviction notice to Subsea in April 2014. Subsea refused to vacate, claiming that the sublease had been effectively renewed due to the oral notice, email notice and Subsea’s continued occupancy of the subleased premises after May 2012.

            When PILOT refused to accept Subsea’s position regarding sublease extension, Subsea sued PILOT and asked the court for a ruling that Subsea had substantially complied with the sublease renewal notice provisions. After a two-week jury trial, the court entered judgment in 2016 that Subsea became an unlawful trespasser as of June 1, 2014 and was responsible for $635k in ‘trespass’ damages.
Both Subsea and PILOT appealed.

            Subsea argued to the Appellate Court issues of equitable estoppel, quasi-estoppel, and waiver. Each failed.

            It was then PILOT’s turn. PILOT claimed it was wrong to deny PILOT its attorney’s fees and court costs and that Subsea should not have been permitted to remove its property and improvements.

            All of PILOT’s arguments were rejected.

            The conclusion reached by the Appellate Court is that an oral understanding to exercise a sublease renewal term followed by a late email is ineffective, if the sublease requires formal, timely, written notice. Subsea failed to furnish compliant and timely written notice. Remaining at the subleased premises for two additional years does not waive PILOT’s position that Subsea is nothing more than a holdover tenant.

See Subsea 7 Port Isabel, LLC v. Port Isabel Logistical Offshore Terminal, Inc.; Texas Court of Appeals, 13th District, Cause Number 13-17-00144-CV; June 20, 2019:  

            Lessons Learned / Questions Asked:

1.      To quote from Dr. Seuss, lease renewal and extension notice provisions mean what it says and says what it means. Renewal and extension options are usually strictly interpreted. Even a minor deviation can invalidate a renewal / extension notice.

2.      To the commercial tenants – get out your Leases and Subleases. Carefully calendar each renewal and extension date. Follow exactly the notice provisions of your document. Don’t assume that anything less than full compliance will result in an effective renewal.

3.      To the commercial landlords – don’t like the renewal / extension provisions of the Lease in your building? You may be able to defeat it if the tenant or subtenant deviates, based on this appellate decision.

                                                                                                      Stuart A. Lautin, Esq.*

* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law,
Texas Board of Legal Specialization
Licensed in the States of Texas and New York
Higier Allen & Lautin, PC
2711 N. Haskell Avenue, Suite 2400
Dallas Texas 75204
P: 972.716.1888