Whether you are renting or buying real estate, understanding sufficient written notice is crucial. Find out how a judge ruled in favor of a commercial tenant who terminated a lease through email.
A Massachusetts Case Study
In one recent case, a Massachusetts Superior Court judge found that a tenant’s email to the lessor provided sufficient notice under a commercial lease, even though such notice did not comply with the specified form of notice required in the lease provisions. The commercial lease in the case required the tenant to provide notice to the lessor of its intention to not renew the lease for another five-year term within six to 12 months of the current lease end date. The lease required such notice to be served by constable or delivered by registered mail, certified mail, or recognized courier service. About nine months before the lease termination date, the tenant sent an email to the lessor advising that it had been looking at other properties to buy or lease for the following year. Two days later the CFO of the tenant met with the lessor and confirmed that the tenant could not continue to operate in the leased space and that he had notified employees the company would be moving no later than the end of the current lease term.
The Judge’s Ruling on the Termination of a Commercial Lease
Following a bench trial, the judge found that the notice provided was sufficient and that the lease had not automatically renewed. The judge noted that the email gave the lessor actual notice of the tenant’s intention not to extend the lease, the lessor never notified the tenant that such notice of termination was insufficient under the lease, and the lessor subsequently acted as though proper notice had been provided thus waiving the right to insist on strict compliance with the lease’s written notice requirements.
What About Liquidated Damages?
In anticipation of an appeal, the trial court judge determined that the lessor would not be able to recover $1.7 million in future lease payments as calculated in the rent acceleration clause contained in the lease, because such liquidated damages were “unreasonably disproportionate to the actual damages it was likely to incur.” As a reasonable estimate of anticipated damages, liquidated damages are intended to resolve disputes efficiently by making it unnecessary to wait until actual damages from a breach are proved and to help to eliminate uncertainty and costly litigation. However, liquidated damages clauses are not enforceable where the amount fixed is so disproportionate to anticipated damages as to constitute a penalty.
In this case, the trial court judge found that the rent acceleration clause, in which a lessee is required to pay the lessor the entire amount of the remaining rent due under the five-year lease, was not a reasonable estimate of the actual damages the lessor was likely to incur where the lessor testified that it knew when it entered the lease that it was “highly unlikely” any vacancy would last beyond six to 12 months. The judge determined that nine months’ rent would be a more appropriate measure of damages. The lessor has already filed an appeal.
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