Commercial Tenant Fails to Give Proper Notice of Intent to Extend Lease – IL Case Note

Although it’s an unpublished opinion, Sher-Jo, Inc. v. Town and Country Center, Inc., 2017 IL App (5th) 160095-U still serves as a cautionary tale for tenants that fail to hew to lease notice requirements.  The tenant plaintiff under the commercial lease was obligated to serve the defendant landlord with written notice by registered mail of the tenant’s exercise of its option to extend the lease for an additional five-year term.

Instead of mailing notice of its plans to extend the lease, the tenant faxed its notice and verbally told the landlord it was exercising its option to extend.  But the faxed notice didn’t specify the tenant was extending the lease.  It just said that the tenant’s sublessee – a restaurant – was going to extend its sublease for another five years.

The landlord rejected tenant’s attempt to renew the lease on the basis that it didn’t comport with the lease notice rules.  It (landlord) then entered into a lease directly with the restaurant subtenant.  The tenant filed suit for specific performance and a declaratory judgment that it properly and timely exercised the lease extension option.  After the trial court found the tenant successfully notified the landlord of its intention to extend the lease, the landlord appealed.

Held: Reversed.  Tenant’s failure to adhere to Lease notice requirement defeats its attempt to renew the lease.

Rules/Reasons:

A commercial lessee who seeks to exercise an option to extend a lease must strictly comply – not “substantially comply” – with the terms of the option.  And even though a failure to follow an option provision to the letter can have draconian results, rigid adherence to option requirements promotes commercial certainty.

Here, the tenant’s faxed notice only mentioned that it wished to extend the sublease with the restaurant.  The notice was silent about extending the master lease.

The Court rejected the tenant’s argument that a lease amendment modified the option notice provision in the main lease.  This was because while the amendment did reference the tenant’s option to extend the lease for an additional five-year term, it left untouched the master lease’s requirement that the tenant notify the landlord by certified mail of its intent to exercise the option.

Afterwords:

1/ In the commercial lease milieu, strict compliance with notice provisions is essential.  Although this case works a harsh result on the tenant/sub-lessor, the Court viewed fostering certainty in business transactions as more important than relieving a tenant who substantially, but not strictly, adhered to a lease notice requirement;

2/ Parties to a commercial lease should take pains to comply with notice provisions of a lease.  Otherwise, they run the risk of a court finding they failed to satisfy a precondition to extending a lease.

Landlord Subject to Potential Bailment and Intentional Infliction Claims for Leaving Tenant’s Property On Sidewalk – IL ND

The Internet is awash in state-by-state summaries of what a landlord can and can’t do with property left behind by a residential tenant. The various abandoned property rules range from making the landlord do nothing, to requiring it to hold the tenant’s property for a fixed number of days, to sending formal notice to the tenant before disposing of the property. For a good summary of various state’s abandoned property laws, see here.  Chicago’s (where I practice) Residential Landlord Tenant Ordinance (RLTO), widely viewed as pro-tenant in every way, requires a landlord to store the property for seven days before disposing of it. See RLTO 5-12-130(f)

Zissu v. IH2 Property Illinois, LP, 2016 WL 212937, examines what causes of action apply where a landlord puts an evicted tenant’s property on a city street and the property is destroyed or stolen as a result.

The plaintiffs, who were evicted in an earlier state court forcible detainer action, sued their ex-landlord in Federal court (the landlord was a Delaware business entity) alleging negligence, conversion, bailment, and intentional infliction of emotional distress after the former landlord placed the plaintiff’s home furnishings, jewelry and personal documents on the sidewalk and the plaintiff’s property was stolen or damaged.

Granting in part and denying in part the landlord’s motion to dismiss, the court examined the pleading elements of the bailment, trespass to chattels and intentional infliction of emotional distress torts.

The court upheld the plaintiff’s bailment count. A bailment occurs where one party delivers goods or personal property to another who has agreed to accept the property and deal with it in a particular way.

To recover under a bailment theory, a plaintiff must allege: (1) an express or implied agreement to create a bailment, (2) delivery of the property to the bailee by the bailor, (3) the bailee’s acceptance of the property, and (4) the bailee’s failure to return the property or delivery of the property to the bailor in a damaged condition.

An implied, or “constructive,” bailment occurs where a defendant voluntarily receives a plaintiff’s property for some purpose other than that of obtaining ownership of the property. The implied bailment can be found with reference to the surrounding circumstances including (i) the benefits received by the parties, (ii) the parties’ intentions, (iii) the kind of property involved, and (iv) the opportunities for each party to exert control over the property.

The court held that the complaint’s allegations that the defendant actively took possession of the plaintiff’s property and removed it from the leased premises was sufficient to state a bailment claim under Federal notice pleading standards.

The court also sustained the plaintiff’s conversion and trespass to chattels claim. The crux of both of these claims is that a defendant either seized control of a plaintiff’s property (conversion) or interfered with a plaintiff’s property (trespass to chattels). A colorable conversion claim contains the added requirement that a plaintiff make a demand for possession – unless the defendant has already disposed of a plaintiff’s property; in which case a demand would be futile.

The court here found that the plaintiffs’ allegations that their former landlord dispossessed plaintiffs of their property stated a trespass to chattels and conversion claim for purposes of a motion to dismiss. The court also agreed with the plaintiff that a formal demand for the property would have been pointless since the defendant had already placed the plaintiffs’ property on the street and sidewalk next to the plaintiffs’ home.

Lastly, the court denied the defendant’s attempt to dismiss the plaintiff’s intentional infliction claim. An intentional infliction of emotional distress plaintiff must plead (1) extreme and outrageous conduct, (2) a defendant’s intent to inflict severe emotional distress on a plaintiff, and (3) the defendant’s conduct did in fact cause the plaintiff emotional distress.

Here, the court found that the plaintiffs’ claims that the defendant put expensive jewelry, medication and sensitive financial documents on the street in view of the whole neighborhood sufficiently stated an intentional infliction claim.

Afterwords:

This case presents an interesting illustration of some lesser-used and venerable torts (bailment, trespass to chattels) adapted to a modern-day fact pattern.

The continued vitality of the bailment and trespass to chattel theories shows that personal property rights still enjoy a privileged status in this society.

The case also serves as a reminder for landlords to check applicable abandoned property laws before disposing of a decamped tenant’s belongings.  As this case amply shows, a landlord who removes tenant property without notice to the tenant, does so at its peril and opens itself up to a future damages action.

 

 

 

Exclusivity Provision in Lease Permits Landlord to Rent to ‘McD’s’ In NJ Shopping Mall (Much to ‘Sbux’s’ Chagrin)

Exclusivity provisions are staples of some commercial leases, particularly in the shopping mall setting.

The purpose of these so-called “exclusives” is to protect a tenant from a competing business renting in the same shopping center and potentially undercutting the tenant’s pricing. The larger the tenant (think “anchor” tenant) in terms of resources, the more leverage it has in insisting on an exclusivity term.

Delco, LLC v. Starbucks (see https://casetext.com/case/delco-llc-v-starbucks-corp) pits a New Jersey commercial landlord suing the coffee giant for a court declaration that the landlord’s renting to McDonald’s in the same shopping center did not violate an exclusive in Starbucks’ lease that prohibited plaintiff from leasing space to any tenant (other than Starbucks) who would sell “coffee, espresso and tea drinks.”  The one qualification to the exclusive was that the landlord could rent to “any tenant [who occupies] twenty thousand contiguous square feet or more…and operating under a single trade name.”

The appeals court affirmed the trial court’s finding that the landlord could lease 40,000 square feet to McDonald’s (which sells coffee) without violating the Starbucks lease exclusive.

Applying the plain language of the exclusivity term under basic New Jersey contract interpretation rules, the court found that McDonald’s easily qualified as a tenant who is “operating under a single trade name.”  And since the McDonald’s lease encompassed over 20,000 square feet, the McDonald’s lease qualified for the exclusivity exception.

Afterwords:

It’s not clear from the short opinion why Starbucks put up such a fight on what seems like an obvious exception to the exclusivity term. So vigorous were Starbucks litigation efforts here, that the plaintiff was awarded over $113K in lawyer fees litigating whether the McDonald’s lease ran afoul of the exclusive term in the Starbucks’ lease.

The appeals court reversed the fee award though since the trial judge didn’t delineate its specific findings that support its fee award. The case will now go back to the NJ trial court for further litigation of the plaintiff-landlord’s attorneys’ fees.