Tenant Can Exercise Its Lease Kick-Out Rights Despite Notice Snafus

What Happened: A lease for a shopping center included the following clause:

In the event that Tenant’s Gross Sales for the period February 1, 2018 through January 31, 2019 (the “Measuring Period”) do not exceed $3,200,000, Tenant may, at its option, elect to terminate this Lease within 120 days following the end of such Measuring Period by delivering to Landlord written notice of such cancellation (“Cancellation Notice”) along with a written report of Tenant’s Gross Sales for such period prepared in accordance with Section 8 of the Lease.

When gross sales came in below the $3.2 million mark, the shopping center sent the landlord a cancellation notice of its option to exercise the kick-out rights set out in the language above. But the letter didn’t include the required “written report of Gross Sales”; and it erroneously indicated that the lease would be deemed terminated effective July 31, 2021, which ran contrary to the 120-day termination provision. And because the notice was defective, the landlord contended that the tenant didn’t validly exercise its kick-out rights and had to stay.  

Ruling: The Ohio federal court sided with the tenant.  

Reasoning: Even though the language of a lease may be clear and unambiguous, courts may provide “equitable relief,” cutting some relief to tenants who mess up while giving notice where the failure: (a) results from accident, fraud, surprise, or honest mistake; and (b) doesn’t harm the landlord. In this case, listing the wrong termination date and omitting the Gross Sales report were, in fact, just honest mistakes that the tenant corrected almost immediately. Nor did the mistakes cause any harm, said the court, noting that the landlord had already received the tenant’s gross sales report for the period a few weeks earlier (because the lease required all tenants to submit such reports) and that there was no need to include a duplicate copy just to satisfy the notice requirement.

• First Interstate Avon, Ltd. v. Cost Plus, Inc., 2020 U.S. Dist. LEXIS 189491, 2020 WL 6047360