Robert and Dorothy Pitz owned a
320-acre farm. In 1988, M/M Pitz agreed to lease six acres to US Cell
Corporation for a cell tower. US Cell then constructed a 380-foot tall cell
tower on the farmland.
The lease term commenced November
Rent was $20,000 for the total
30-year lease term, payable in one sum not later than January 5, 1989. That
equates to $666.67 per year. A whopping $55.55 per month.
The Lease contained a renewal option
for 30 more years. To exercise it, US Cell was required to send notice at least
60 days before term expiration and pay $20,000 “at the exercise of the
option,” as increased by CPI.
In 2009 M/M Pitz transferred
ownership of the farm to their son, William Pitz, and his spouse Lynn. US Cell
was not advised of the conveyance, although the Deed was recorded.
US Cell sent a certified letter of
lease renewal exercise to Robert and Dorothy Pitz on September 1, 2017 – more than
one year before the September 14, 2018 deadline. US Cell’s letter contained IRS
Form W-9 and a direct deposit form.
was no rent payment accompanying the letter. Instead, the letter advised that “Once
we have these documents [W-9 and deposit form], we will be able to disburse the
option rental payment to you.”
response was made to US Cell’s letter. So on October 29, US Cell sent to Will
and Lynn a check for $41,439, less income tax withholding, intended to
represent advance rent for the 30-year option term.
and Lynn returned the payment with an explanation that the payment was not tendered
at the time of renewal exercise. As required by the Lease. And therefore the
renewal term was not properly exercised.
and Lynn filed a lawsuit for declaratory judgment on June 19, 2019, asking for
a determination that the option had not been properly exercised since payment
was not timely made. The district court concluded that US Cell had indeed
properly exercised the renewal option because rental payment was not a
and Lynn appealed. The court of appeals affirmed. So Will and Lynn further
appealed to the Court of Last Resort.
Supreme Court commenced its analysis by stating that renewal option exercise must
strictly comply with all conditions precedent. The Court dug out a case from
civil war years to support the conclusion that both notice and payment are
required to effectively renewal a lease.
Then, the Court used the phrase “On the
other hand” to signify a sea-shift change in ideology. Not finding a hard notice-and-payment
provision as found in other contracts, the Court viewed the option-to-renew
provision in isolation – not connected to the obligation-to-pay-rent sentence.
The Supreme Court, struggling with precedent to support the position it wanted
to reach, turned to cases from North Dakota and Illinois.
that there is “less absurdity than might appear at first blush,” US Cell
is evidently allowed to send notice of lease renewal without tendering the
prepaid rent, even though both are clearly required by the Lease.
Cell wins, again; Will and Lynn lose. Again.
See Pitz v. US Cellular Operating Company; Case No. 22-0038; Supreme Court of Iowa; April 21, 2023: https://cases.justia.com/iowa/supreme-court/2023-22-0038.pdf?ts=1682085886.
Questions / Issues:
- Maybe I am the one that is in isolation, but this
is not the result I had anticipated. In most States, renewal options are
strictly construed and deviation is now allowed. This option required both
notice and payment. Only one of the two conditions was satisfied.
- Note that Lease Section 3.2 contained the option renewal verbiage; Section 4.2 stated the new rent requirement. Would merely reordering the provisions have saved the intent of the parties? What if the timing for renewal (60 days), method of renewal (written notice), and rent obligation (prepaid for the term; old rent + CPI) were all combined in Section 3.2 – would that have saved it from this disastrous result? Or was this Supreme Court intent on forging new law to give other tenants and lessees some breathing room, unless or until fixed by the Iowa legislature?
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.