Our world is increasingly ruled by electronic communications. Text messages, Slack channels, and e-mails are all tools of business today. But what happens when a contract requires written notice by a more formal method?
Do these easier and faster modes of communication accomplish the same goals? And can notice by these newer methods properly satisfy the requirements to exercise an option when not included in the language of the contract?
The Massachusetts Appeals Court recently answered this question in Sourcing Unlimited, Inc. v. Cummings Properties, LLC, 102 Mass. App. Ct. 653 (2023). The issue before the court was whether an e-mail from a tenant to its landlord constituted effective notice in a commercial lease the required written notice of non-renewal. Id. at 653. In this case, the tenant and landlord entered into a commercial lease for office space in Beverly, Massachusetts. Id. at 654. The lease provided for automatic, successive, five-year extensions “unless LESSOR or LESSEE serves written notice … of [their] option not to extend this lease.” Notice had to be served between twelve and six months prior to the expiration of the current lease term to be effective. Id. The lease also contained a provision specifying that “no oral, facsimile or electronic notice shall have any force and effect.” Id.
Eleven months prior to the expiration of the lease, the tenant sent an e-mail to the landlord stating that they were exercising the option to not extend the lease. Id. at 655. The landlord acknowledged the email and referred the tenant to the lease for more information on termination and cancellation. Id. This message did not reference any deficiency in how notice was delivered. Id.
Seven months from the end of the lease, the landlord sent notice that the tenant did not have adequate insurance on file and was in default under the lease. Id. The tenant responded by reminding the Landlord that it did not intend to renew the lease at the end of the term. Id. The landlord responded that, “[i]n accordance with the notice provisions of your lease, we are unable to accept non-renewal notices that are transmitted by e-mail.” Id. at 655-56. The tenant did not respond to this statement. Id.
With only three months left in the lease term, the Tenant sent yet another email to stating “[a]s you know we aren’t renewing our lease and the final date is November 30.” Id. at 656. In response, the landlord reiterated that the terms of the lease required written notice in one of the ways specified in the lease. Id. Because the landlord did not receive such written notice within the required period, they considered the lease automatically extended. Id. The tenant vacated the premises at the end of the lease term and thereafter commenced an action against the landlord for declaratory relief. Id. The Superior Court ruled that the notice was effective and found in favor of the tenant. Id. at 657.
The Massachusetts Appeals Court found that the e-mail constituted effective notice where (1) it was undisputed that the landlord received timely and unequivocal written notice of the decision not to renew; (2) the nonconformity in the method of delivery was not consequential and did not undercut the purpose of the option provision; and (3) the option provision was a mutual option that could be exercised by either party. Id. at 653.
The court acknowledged there was a long line of cases holding that parties looking to exercise an option must strictly adhere to the language of the contract. Id. at 659 (citing, e.g., Westinghouse Broadcasting Co. v. New England Patriots Football Club, Inc., 10 Mass. App. Ct. 70, 73 (1980)). “It may not be too much to ask that a person seeking to … exercise option rights turn his corners squarely.” Trinity Realty I, LLC v. Chazumba, LLC, 77 Mass. App. Ct. 911, 912 (2010). However, the court also cited to precedent holding that where the method of delivery accomplishes the desired goal of providing grantor of the option with timely, actual notice, it does not make sense to hold the notice ineffectual because it was delivered in a different manner. Id. at 661 (citing, e.g., Gerson Realty Inc. v. Casaly, 2 Mass. App. 875 (1974)).
The court also explained that the rationale for requiring strict compliance with option language is because most options are drafted as unilateral options. Id. By requiring strict compliance, the law can protect the party without option rights and ensure that they are adequately notified of the other party’s decision in a timely manner. Here, the option for non-renewal was a mutual option that could be exercised by either party upon notice. Id. at 662. In this situation, there is not as much concern about protecting one party from having the rug pulled out unfairly and being forced into the transaction required by the option. Id. Thus, the language need not be so strictly construed.
So, what are the implications of this decision for other landlords and tenants? The Appeals Court emphasized that its decision was very fact-dependent and based upon the undisputed record. Id. at 663. Accordingly, landlords and tenants in similar situations would be well-advised to follow strictly the notice provisions of a lease, unless compliance would be extremely difficult or impossible, out of a concern that any variation would not fall within the parameters outlined by the Appeals Court.
Real estate litigators who might be retained after a non-compliant notice has already been given, should carefully consider not only the language of the contract but also the purpose or effect of the notice provision–and any acknowledgment by the grantor of the option that notice was duly received. As the Superior Court concluded, the landlord could not simply avoid notice by “cover[ing] its ears like a child unwilling to listen to a piece of unwelcome information.” Id. at n. 10.
Finally, the ultimate lesson to be learned from this case is the importance of acting reasonably in a commercial transaction. The Appeals Court agreed with the Superior Court that the parties could have avoided costly litigation by acting reasonably toward each other. Id. at n. 10. The landlord could have accepted the email notice and considered the lease terminated; the tenant could have issued a certified letter at the first sign that the landlord was unwilling to accept e-mail service. Instead, both parties stubbornly dug in, prolonging the dispute and incurring substantial litigation costs. Landlords and tenants in similar situations should consider whether hard line stances ultimately will work to their benefit.
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