Rework Lease Notice Provisions for the Pandemic World
By Matthew S. Raczkowski, Esq.
During lease negotiations, landlords and tenants tend to concentrate on the “big-ticket” deal items while glossing over what they view as the relatively inconsequential boilerplate provisions. Among the items that typically get overlooked are the notice provisions of the lease. It’s only after the lease takes effect that landlords come to recognize how crucial those notice provisions are. Regrettably, at that point the opportunity to craft appropriate notice provisions has passed and the landlord is forced to rely on the boilerplate it basically agreed to by default.
What’s true in normal times is even more so during times of pandemic. COVID-19 has elevated the importance of lease notice clauses by increasing the risks of individual store closures, entire building closures, and tenant defaults. As a result, landlords need to revisit the notice provisions of their leases when executing new leases and amending existing ones. Here’s a strategy for doing that.
How Notice Provisions Can Torpedo Your Deal
Notice tends to get overlooked because it’s more about procedure than substance. But lease rights often require notice to exercise. Thus, failure to deliver timely and proper notice to the tenant may cause the landlord to lose the substantive deal rights it worked so hard to negotiate; likewise, not being able to “start the clock” on cure periods, contingency periods, and other key windows and deadlines can make the lease difficult to enforce.
For these reasons, courts may provide some leeway and enforce the lease provision even if the notice doesn’t strictly comply with the contractual requirements, provided that it serves the purpose of effectively apprising the party to be notified. On the other hand, courts may insist that notices follow the exact letter of the lease, especially where important lease rights are being exercised. Thus, for example, courts in some states, including Illinois, regularly require strict compliance with the terms of a lease, including the manner, method, and timing for delivery of notices set forth in a notice provision, when a tenant exercises renewal and termination options.
Needless to say, counting on courts to bail you out is hardly a reliable strategy. Better to take risk and uncertainty—not to mention legal delays and costs incurred in responding to claims of defective notice—out of the equation by addressing notice during the deal negotiations. This is especially true of deals that are time sensitive.
3 NOTICE CLAUSE STRATEGIES TO CONSIDER
You can adapt our Model Lease Clause: Put 3 Provisions in Notice Clause to Maximize Flexibility to simplify the notice process and ensure compliance.
1. Deemed Delivery and/or Rejection = Receipt
First, you may want to include language stating that notices are “deemed given” after a certain period of time from the date they’re sent to a specific address listed in the lease using the prescribed delivery method. This provision, which may be particularly appealing to landlords that commonly have to send formal notices, shifts risk to the notice recipient, including risk associated with using a third-party delivery service and keeping a current/valid notice address on file with the other party.
For that reason, a tenant may insist on actual delivery of notices, or on making the “deemed given” concept mutual. If the landlord is hesitant to take on “deemed given” risks associated with tenant notices, it should at least require a provision indicating that rejection of a notice (or the inability to deliver a notice because of a changed address of which no notice was given) shall be “deemed receipt” of such notice when sent [Clause, par. a].
2. Allow Email Notices in Limited Circumstances
Chances are, your current lease doesn’t allow for email notice, for example, because it’s an older lease form or a party’s hesitancy to receive electronic notice due to the high volume of emails it gets. Unfortunately, traditional notice methods like certified mail or overnight air courier service to fixed addresses just aren’t suited for COVID-19 and the risk of building closures, especially when dealing with smaller tenants.
So, if full blown email notice isn’t acceptable, consider adding language that at least allows you to send email notices to the tenant to a specified email address or in another manner reasonably designed to ensure receipt in case the building designated by the tenant for receipt of notices is closed or in the event other narrowly defined emergencies occur. The tenant may ask for assurances that the landlord will make and be able to document that it made reasonable efforts to actually reach the tenant, especially if the lease includes a “deemed given” notice provision like the one described above [Clause, par. b].
3. Designate Third Parties’ Authority to Provide Notices on Landlord’s Behalf
The third kind of notice provision landlords should consider is language giving their property managers, attorney, or other designated representatives authority to send notices and demands under the lease on the landlord’s behalf. This can greatly facilitate notice giving and the execution of lease procedures, but it needs to be spelled out and clarified in the lease [Clause, par. c].
About the Author
Matthew S. Raczkowski, Esq. is a Senior Attorney in the Real Estate Practice Group of Dykema Gossett PLLC in Chicago and a member of the group’s leasing and property management team and lending team. He can be reached at (312) 627-2594 and at MRaczkowski@dykema.com.