Agreeing on Specs Isn’t Condition Precedent to Tenant’s Duty to Pay Rent

January 22, 2021

“Within thirty (30) days after the Effective Date of the Lease, the parties shall agree upon a preliminary description of the Tenant's Work, which shall be attached to the Lease as Exhibit D. Within sixty (60) days following the Effective Date of the Lease, the parties shall agree upon final plans and specifications for each of Landlord's Work and Tenant's Work, provided that the parties shall use reasonable efforts to expedite such review and approval process (Plans and Specifications).”

“Within thirty (30) days after the Effective Date of the Lease, the parties shall agree upon a preliminary description of the Tenant's Work, which shall be attached to the Lease as Exhibit D. Within sixty (60) days following the Effective Date of the Lease, the parties shall agree upon final plans and specifications for each of Landlord's Work and Tenant's Work, provided that the parties shall use reasonable efforts to expedite such review and approval process (Plans and Specifications).”

What Happened: After having spent over $400,000 to improve the property, a landlord was none too happy to learn of the tenant’s decision not to move in because the project was too expensive. The tenant claimed that the shaded language above requiring the parties to reach agreement on the “Plans and Specifications” was a “condition precedent” of its duty to pay rent. And because the sides didn’t reach agreement, it was free to walk away.

Ruling: The Ohio federal court disagreed and found the tenant in breach.

Reasoning: A condition precedent is one that must be fulfilled for the lease or a lease obligation to take effect. There was nothing in the Plans and Specifications language to indicate that agreement was a condition precedent—the provision didn’t say anything about what would happen if the sides couldn’t agree on the Plans and Specifications. The landlord and tenant in this case were both sophisticated business parties who knew how to express their intent to create a condition precedent—especially since they did so in other parts of the lease. The omission, coupled with language indicating that “in all events, tenant shall commence the installation of fixtures, equipment, and any of Tenant's Work promptly following the Possession Date and shall diligently prosecute such installation to completion” doomed the tenant’s case that the clause was a condition precedent.

  • United Twenty-Fifth Bldg., LLC v. Ruoff Mortg. Co.: 2020 U.S. Dist. LEXIS 219123, 2020 WL 6873838

Topics

More like this