Landlord's Promise to "Work on" Renewal Wasn’t Fraudulent Inducement

Facts: A tenant rented space to operate its nail salon under a lease that was assigned to it by the original tenant. The lease provided for two additional five-year terms. In order to exercise a renewal option, the tenant had to give written notice 120 days prior to the end of the term stating that it wanted to continue leasing the space.

When the tenant decided to renew its lease for the first five-year term, it called the landlord, rather than providing notice in writing. The landlord’s leasing agent said she would “work on it.” A few weeks later the landlord let the tenant know that it would allow the tenant to renew the term, despite the lack of proper notice.

When the tenant tried to exercise its second renewal option by phone, the landlord’s leasing agent said, as she did for the first phone request for a renewal, that she would “work on it.” However, the tenant was notified a few weeks later that the landlord would not renew the lease. The tenant was asked to vacate the space.

The tenant claimed that the leasing agent’s statement “we’ll work on it” was tantamount to an approval of the renewal option given that the lease was renewed for the first five-year term after the leasing agent said that. The tenant said it relied to its detriment on that alleged representation.

The tenant sued the landlord on claims for “fraudulent inducement” and “negligent misrepresentation.” A trial court ruled in favor of the tenant, and the landlord appealed.

Decision: A Texas appeals court reversed.

Reasoning: The appeals court determined that there wasn’t evidence establishing either fraudulent inducement or negligent misrepresentation. That was because the tenant was aware that the parties’ contract required written notification within 120 days of the expiration of the lease to exercise the option to renew and that the lease contained language expressly precluding reliance on any representations by the landlord other than those set forth in the lease—that is, the 120-day notification. The tenant couldn’t rely on a phone call.

The appeals court noted that, to establish a claim for fraudulent inducement: (1) the landlord must make a material misrepresentation that was false; (2) the landlord must know the misrepresentation was false when made or made the misrepresentation recklessly as a positive assertion without knowledge of its truth; (3) the landlord must intend that the tenant would act upon this; and (4) the tenant must actually and justifiably rely on the misrepresentation and suffer damage from doing so.

Here, the tenant couldn’t show that the leasing agent or landlord knew a misrepresentation was false when made or made the misrepresentation recklessly as a positive assertion without knowledge of its truth.

The appeals court also noted that “a mere failure to perform a promise is not evidence of fraud.” Thus, the mere fact that the leasing agent said she would “work on” the lease renewal, but failed to do so in the sense that the landlord ultimately decided to not allow the tenant to exercise its option, was not evidence of intent or recklessness.

The appeals court also reviewed the elements of negligent misrepresentation, which occurs when: (1) a party makes a representation in the course of his business or in a transaction in which he has a pecuniary interest; (2) the representation supplies false information for the guidance of others in their business; and (3) the party making the representation did not exercise reasonable care or competence in obtaining or communicating the information.

The leasing agent’s statement that she would work on the deal didn’t supply false information. The landlord simply decided to not accept the phone call as a means of notification and chose to not renew the lease.

• Inland Western Dallas Lincoln Park L.P. v. Nguyen, August 2018