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: https://law.justia.com/cases/illinois/court-of-appeals-first-appellate-district/2019/1-18-19141.html.
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.
* 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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