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.
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