and Country Center, Inc. owns property in Marion Illinois. T&C had a lease
with Rax of Marion, Inc., whereby Rax leased the property from T&C. On
December 1, 1993, Rax assigned its rights as tenant to Sher-Jo, Inc.
July 26, 1994, T&C and Sher-Jo amended the lease to extend the term for 20
more years beginning January 1, 1994. As well, the amendment allowed Sher-Jo
the right to extend the lease term for five more years, if the option was
exercised at least 180 days prior to the end of the then-current term.
math works out to July 4, 2013 – that was the last day that Sher-Jo was
afforded the right to extend the term.
September 1, 1994, Sher-Jo subleased the property to Fazoli’s Restaurants for a
10 year sublease term, with three 5-year option renewal terms. T&C approved
the sublease, but otherwise T&C was not a party to it.
May 31, 2013, Fazoli’s sent a letter to Sher-Jo stating that Fazoli’s was
exercising its first sublease renewal option. On June 4, 2013, Sher-Jo faxed to
T&C a copy of Fazoli’s letter. Sher-Jo verbally confirmed with T&C that
T&C received the fax and at that time, verbally advised T&C that
Sher-Jo also needed to exercise its five-year renewal option.
than the Fazoli fax, no other correspondence was sent to T&C prior to the
renewal deadline of July 4, 2013. Two weeks later (July 18, 2013), Sher-Jo sent
T&C a letter by email and US certified mail, formally advising of Sher-Jo’s
intent to renewal the prime lease.
believing that Sher-Jo was required to furnish notice by registered US mail
(since that is what the prime lease said) and that in any event, Sher-Jo’s
letter of July 18 was two weeks too late, ignored Sher-Jo’s letter and instead
entered into a direct lease with Fazoli’s.
response, Sher-Jo sued T&C, claiming that Sher-Jo had effectively renewed
the prime lease through Sher-Jo’s substantial compliance with the prime lease,
and T&C had no legal means to ignore Sher-Jo’s lease renewal and instead
deal directly with Fazoli’s.
trial court granted judgment to Sher-Jo, concluding that the June 4 fax from
Sher-Jo to T&C (recall that the fax was only Fazoli’s exercise of its
sublease renewal term) satisfied the notice requirements of the prime lease.
was no dispute that the phone calls and fax were sent within the time required
by the prime lease. The sole issue was: Did the tenant Sher-Jo comply with the
terms of the renewal option exercise in the prime lease?
Appellate Court reviewed the fax, which references only an extension of the
sublease between Sher-Jo and Fazoli’s. Sher-Jo argued that Fazoli’s was
authorized to send a notice on behalf of Sher-Jo to T&C. While that may or
may not have been true, the notice that was actually sent did not reference
Sher-Jo’s option exercise. Only Fazoli’s.
Appellate Court found that Sher-Jo did not sent written notice of its desire to
exercise its option to extend the prime lease within the requisite timeframe.
Oral notice does not excuse the failure of Sher-Jo to strictly comply with the
terns of the renewal option and notice provision in the prime lease.
circuit court’s decision was reversed. T&C wins; Sher-Jo loses; T&C may
directly lease the property to Fazoli’s or anyone else as Sher-Jo’s prime lease
term expired December 31, 2013.
Sher-Jo, Inc. v. Town and Country Center,
Inc.; Case No. 5-16-0095-U; 5th District Appellate Court of
Illinois; July 31, 2017: http://www.illinoiscourts.gov/R23_Orders/AppellateCourt/2017/5thDistrict/5160095_R23.pdf.
Illinois Appellate Court concluded that commercial tenants who seek to exercise
a renewal option must strictly
– not substantially
comply – with the
terms of the lease. Those terms include not only timing elements, but also the
manner in which notice must be sent.
have seen recent situations where commercial tenants engaged commercial
brokers, agents and REALTORS® to assist with lease renewal negotiations. If the
agent doesn’t understand the law and hasn’t read the lease, then malpractice
claims can be asserted against the agent if the tenant is disadvantaged when
the landlord doesn’t accept tenant’s late renewal notice. This may be so even
though the agent was working with the landlord relative to the terms of the
renewal, and inadvertently let the formal renewal date slide thinking
(knowing!) that surely better renewal terms for the tenant would be received
with just a few more days of negotiations.
you helping a landlord or tenant negotiate a new commercial lease? Don’t
overlook the notice ‘boilerplate’ provisions. No one uses faxes anymore. Change
the notice provisions to allow notices to be sent by scan and email, provided
they are also sent within the following three days by certified mail or
overnight courier service.
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
*Reprinted with the permission of North Texas Commercial
Association of REALTORS®, Inc.