Owner Must Send Statutory Notice of Automatic Renewal Provision

Facts: The initial term of a lease between an owner and its tenant, a supermarket, was for 20 years and contained an option for the tenant to renew four times for five-year extension periods. Under the initial term, the lease would automatically renew unless the tenant notified the owner that it intended not to renew within 120 days of the end of the lease term.

The lease was later modified to extend the original term for an additional period. The automatic renewal provision was also modified to require the tenant to give the owner 180 days', instead of 120 days', written notice of the tenant’s intent not to renew the lease.

At some point, the lease and all of its agreements were “abstracted,” or summarized into a database by the tenant. The abstracted lease summary incorrectly summarized the automatic renewal provision as requiring only 120 days’ notice instead of 180 days’ notice. Several years later, the tenant vacated the premises and opened a new store at a different location. It wasn’t required to operate any business in the space, but if it left the space vacant for a period of one year, then the owner had the option of recapturing or canceling the lease.

The tenant sent a termination notice to the owner 138 days before the end of the lease term. The owner rejected the lease termination letter because the tenant’s notice “was not timely exercised.” The tenant notified the owner that in any event the automatic renewal provision was void because the owner had not sent a statutory notice pursuant to state law (Section 5-905). The tenant asserted that the lease would expire by its own terms. The tenant sued the owner, asking a New York trial court for a judgment in its favor without a trial. The owner asked the trial court for a declaratory judgment that the tenant had waived its right to a Section 5-905 notice and that the lease was renewed for an additional term.

Decision: The trial court denied the tenant’s request and ordered a trial.

Reasoning: The owner contended that the tenant had exercised its right to renew the lease before it sent the purported termination notices, because the tenant personally spoke with two representatives of the owner and said that it intended to stay in the space and renew the lease. The owner claimed that by orally committing to renewing the lease, the tenant also waived its right to statutory notice. 

The trial court explained that Section 5-905 requires owners to provide written notice to tenants reminding tenants of the existence of an automatic renewal provision in their lease agreement at least 15 days, and not more than 30 days, before the tenant’s deadline for notifying the owner that the tenant doesn’t intend to renew the lease. If the owner fails to provide such notice, the automatic renewal provision will no longer be “operative,” it said. “The purpose of the statutory notice is simply to warn the tenant that if notice of intention ‘to surrender’ is not given the term will be renewed,” the trial court stated.  

The trial court noted that there was no dispute that the owner didn’t serve a Section 5-905 notice on the tenant and that the tenant belatedly, but otherwise properly, served notice of its intent not to renew. If those were the sole facts of the case, then the automatic renewal provision would be inoperative and the lease would have terminated, it stressed. However, the oral commitment to renew the lease complicated the case.

The trial court disagreed with the owner’s position that because of the tenant’s alleged waiver, Section 5-905 notice doesn’t apply to this case. It said that nothing supports the proposition that Section 5-905 no longer applies when a lease contains an automatic renewal provision, permits a tenant to give notice of its intent to renew at any time, and the tenant gives such notice. The issue here was what effect the oral conversation had on the tenant’s later, contradictory notice that it wouldn’t renew the lease.

Here, the tenant argued that it didn’t wish to remain in the space; thus, a finding that the automatic renewal provision was rendered inoperative would do precisely what the statute was designed to do—protect the tenant, the trial court emphasized. Although there was no doubt when the tenant sent its notice to the owner that the tenant didn’t want to renew the lease at the end of the term, a question has been raised as to whether it unmistakably communicated that it was renewing the lease before that date—that is, by orally agreeing to renew in a conversation with the owner, the trial court noted. Thus, the problem with the tenant’s argument was that there was a genuine issue of material fact as to whether its conversation saying that it intended to renew the lease was in a manner such that the tenant could be said to have expressly waived the right to receive a Section 5-905 notice, the court determined. The circumstances surrounding the alleged waiver by the tenant were unclear. Therefore, there were “genuine issues of material fact” as to whether the tenant renewed the lease orally.

“When a tenant requests a judgment in its favor without a trial, the court may not resolve genuine issues of material fact concerning who said what to whom and when,” said the trial court. The owner was entitled to present its proof at trial. Accordingly, the trial court denied the tenant’s request and ordered a trial.

• Stop & Shop Supermarket Co. LLC v. Goldsmith, June 2013