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.
Stuart A. Lautin , Esq.*
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: https://law.justia.com/cases/texas/thirteenth-court-of-appeals/2019/13-17-00144-cv.html.
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.
* 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
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