Does Oral Agreement Modify the Terms of a Written Lease? (Spoiler Alert: It Might)

What Happened: An insurance company tenant that had leased office space in the same building for nearly 15 years wanted out when a new owner acquired the property. In May 2019, the parties agreed to modify the lease duration to end on June 30, 2020, one year before the lease’s written termination date. Or so the tenant claimed. Although the new owner put the space on the market in January 2020, the oral agreement, if there was one, was never put in writing. Things came to a head when the tenant failed to pay rent in July and August 2020. After losing at trial, the tenant appealed.

Ruling: The North Carolina appeals court rendered a mixed decision.

Reasoning: Even if you didn’t go to law school, you may be familiar with the so-called Statute of Frauds, which provides that a contract to sell, lease, or convey lands or interest in lands is void unless it’s put in writing and signed by each of the parties to which it applies. In this case, the original lease and two subsequent extensions were in writing, but the May 2019 oral agreement was not. Thus, the lower court was on solid grounds in finding that there was no legally valid agreement to modify the lease.

However, the appeals court continued, the lower court also failed to consider whether any exceptions to the Statute of Frauds applied, noting that the evidence suggested that the sides might have agreed to rescind the lease by their conduct, such as the landlord’s action of marketing the property as available for leasing in January 2020 even though there were still about two years left on the term. So, the court sent the case back down to the lower court for consideration of these issues.

• Bell Enters. v. SFI Group, 2023 N.C. App. LEXIS 226, 2023 WL 3190660