Resisting Pressure to Overlook Tenant’s Mistake

Q: Although I’ve had a good relationship with a tenant at the shopping center I own, I’m reluctant to overlook its failure to exercise its option to renew in a timely manner. The tenant has been pressuring me by saying that it will be incredibly inconvenient and expensive for it to find space elsewhere. Am I required to extend its lease based on its hardship in having to move?

A: No. A New Jersey appeals court recently ruled that a tenant's inconvenience didn't override an owner's decision to terminate a lease based on the tenant’s failure to correctly exercise its option to renew. There, a tenant leased space in a shopping center for its restaurant. The tenant had an option to renew its lease, but had to exercise that option a year before the lease term was to expire. The tenant claimed that it sent a letter to the owner of its space, letting it know that it would renew its lease. The owner claimed that it hadn’t received the letter. It refused to extend the lease. The tenant sued the owner. A trial court ruled in favor of the owner, concluding that the owner wasn’t required to extend the lease. The tenant appealed.

A New Jersey appeals court affirmed. The tenant argued that because it had discovered that the owner allegedly hadn’t received its letter exercising its option only weeks after the deadline, and the owner hadn’t lined up another tenant to lease the space, nor made any effort to find a new tenant, the owner should allow the tenant to renew.

The court acknowledged that the option wasn’t exercised on time, and it said that it considered whether “equity should relieve the forfeiture”—that is, whether the situation was so unfair to the tenant that a court should order the owner to allow the renewal. The tenant asserted that closing the restaurant would be a hardship, because its entire family worked there and because it had put over $100,000 of improvements into the space. But the judge found no “fraud, accident, surprise or improper practice” that would justify “altering the very clear language of the lease agreement.” The fact that closing the restaurant at its location and moving to another one would be problematic for the tenant wasn’t enough to warrant ordering the owner to continue the lease [Pilgrim Plaza, LLC v. Xiu Fang Liu, April 2017].