HOW NOT TO EXTEND A LEASE

            In November 1997 James Caswell signed a long-term lease with AHTNA. James was the Tenant; AHTNA the Landlord. The Lease contained options for the Tenant to extend the lease term. There were two conditions to each option exercise. First, James could not extend if he was in default. Second, James had to furnish AHTNA a written option exercise notice at least 90 days prior to the expiration of the then-current lease term.

            Rent payments were timely tendered to AHTNA and each was accepted and processed. James failed to furnish notice of option exercise at the end of the primary term, but instead he remained at the Premises and continued to pay rent after the expiration of the term.

            In May 2018 AHTNA filed an eviction complaint against James, stating that James was unlawfully possessing the property. AHTNA alleged that since James had failed to furnish written notice of an option exercise, James had no present right to occupy any portion of the Property.

            In response, James argued that his continued possession of the Property was lawful because he had exercised a renewal option by furnishing a check in December 2017 with the memo “2018 annual lease” included in it. And that since AHTNA accepted the payment without complaint, the notice provision of the Lease requiring written option exercise notice is waived.

            A two-day eviction hearing was held in August 2019. The court granted an eviction judgment to AHTNA, finding that the original Lease term had expired, James had not furnished the required renewal notice, and AHTNA had not waived the notice requirement.

            James appealed.

            Without much discussion other than distinguishing between situations where a Landlord cashed 36 monthly rent checks without objection after the expiration of a lease term versus the one or two checks tendered by James to AHTNA, the Supreme Court determined that the option exercise notice requirement was not waived. The mere tender of a few rental payments after the date of Lease expiration would not have the effect of renewing or extending the Lease term.

            AHTNA wins again; James loses again. See Caswell v. AHTNA; Alaska Supreme Court, Case No. S-17866, May 20, 2022: https://scholar.google.com/scholar_case?case=8554620272696289214&q=caswell+v.+ahtna&hl=en&as_sdt=6,44&as_vis=1.

            Lessons / Questions / Observations:

1.      Observations. I didn’t tell you that this case comes to us from Alaska. I also didn’t tell you that this case involves a limestone-mining operation. Does that make a difference to your non-Alaskan commercial or residential application? The Alaskan Supreme Court did not reach any conclusions based on the use of the property.

2.      Lesson For Tenants and Subtenants: Read the Lease carefully and if written notice is required, furnish it exactly as stated to preserve your valuable extension / renewal rights.

3.      Lesson For Landlords and Property Managers: If written notice is required and not furnished, then you may be able to avoid lease renewals even if you accept a few rent payments after the term has expired.

4.      Question For Landlords and Property Managers. Have you considered revising your Leases to provide that the mere delivery of rent checks after term expiration, even if deposited by Landlord, will not serve to extend the lease term?

                                                                                    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

  

Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.