Owner Didn't Waive Early Termination Provisions

Facts: A lease for storage space for casino equipment gave the tenant an early termination right, provided that it sent a letter in writing to the owner and paid a termination fee by a certain date. During a phone call shortly before the early termination deadline, the tenant told the owner that it intended to move out of the space and that it would send a formal letter and payment in compliance with the lease terms.

The tenant began demolishing its improvements at its own expense as it was required to by the lease before moving out, no matter when it chose to leave. It asked the owner to provide blueprints of the space and for other demolition assistance, and the owner complied. The tenant later missed the deadline, but continued its plans to leave.

The tenant eventually sent a letter and payment to the owner, but the owner returned the check with a letter stating that the tenant didn’t properly exercise its early termination option and that as far as the owner was concerned, the lease was still in effect and the tenant was obligated to pay rent until the end of its term as originally agreed upon.

The tenant moved out and stopped paying rent. The owner sued the tenant for back rent, which totaled over $2 million by the end of the lease term.

Decision: A Nevada trial court ruled in favor of the owner.

Reasoning: The tenant claimed that although it objectively had been late in sending its notice and payment for early termination, the owner’s assistance with the demolition and other move-out requirements, coupled with its verbal notice, meant that the owner had waived its contractual rights under the lease to collect rent until the end of the lease term.

The court said that the language of the termination option is clear and unambiguous. The tenant was entitled to terminate the lease only if it provided written notice of its election on or before May 1, 2010, and contemporaneously with the written termination notice tendered the termination fee of $370,560 to the owner. Early verbal notification of the termination was insufficient to exercise the early termination provision.

The court also found that the owners’ assistance to the tenant in removing its improvements from the space didn’t support a waiver of the owner’s rights, either express or implied. Rather, the court determined that the owner cooperated with the tenant in connection with the demolition work in order to mitigate its damages by helping to restore the facility to a condition that would maximize the marketability of the property and enhance the prospect of securing new tenants once the property was vacated by the tenant. Additionally, the lease expressly provides that nothing undertaken by the owner to mitigate damages shall waive its right to recover damages against the tenant that had breached the contract.

• ProLogis NA3 NV II, LLC v. IGT, Inc., January 2014