Lease Modification Must Be in Writing

Facts: A women’s clothing manufacturing company rented space in an office building. The chief executive officer of the company signed the lease on behalf of the company, gave a security deposit, and executed a “good-guy” guaranty, personally guaranteeing that the company would perform all lease obligations while in actual possession of the premises. The tenant operated in the space for several years, but then asked the owner about the possibility of moving to a smaller space in the building, due to financial difficulties.

The owner gave the tenant a tour of a smaller space, but didn’t sign a written agreement for the tenant to move out of its current space and into that space. The tenant didn’t pay rent for two months and then moved out. The owner sued the tenant for unpaid rent and fees through the end of the lease. The tenant in turn sued the owner, claiming that the owner had agreed to a move, so it didn’t need to pay rent on its current space because it believed that the alleged agreement meant that the original lease requiring that rent had been modified.

The owner denied that an agreement had been reached and asserted that the original, current lease—and the tenant’s obligation to pay rent under the terms of that lease—were still in effect. The owner and tenant each asked the court for a judgment in its favor without a trial.

Decision: A New York trial court ruled in favor of the owner.

Reasoning: The trial court found that the owner had established that there was a binding lease agreement between it and the tenant, that the tenant breached the lease by vacating the premises prior to the end of the lease without paying the outstanding unpaid rent, and that there had been no modification of the lease that would excuse the tenant’s obligation to pay rent and move into a smaller space.

The tenant had argued that it and the owner had an oral agreement permitting the tenant to move within the building, and that the alleged agreement precluded the owner from being able to enforce the terms of the original lease. But the trial court pointed out that, under its “clear and unambiguous” terms, the lease couldn’t be modified without a subsequent written agreement. The lease stated that it “may not be extended, renewed, terminated, or otherwise modified” and no provision, specifically payment of rent, is waived, “except as expressly provided for herein or by an instrument in writing signed by the party against whom enforcement of any such extension, renewal, termination, modification, waiver is sought,”—that is, the owner.

The trial court also said that, moreover, the lease was a “complete contract,” meaning that it contained the entire agreement between the owner and tenant and any agreements made after, such as oral agreements, were ineffective to change, modify, or discharge the lease unless such an agreement is in writing and signed by the owner.

The trial court noted that, generally when a lease contains a clause requiring modification of its terms to be in a writing signed by the owner, oral modification isn’t effective. Here, the lease agreement explicitly requires any modifications of the lease to be in writing, it stressed. While the tenant claimed that it reached an oral agreement with the owner to allow it to move to a smaller space within the building, these discussions were never memorialized in writing in the form of a lease modification. Without a written memorialization of the alleged oral modification, the discussions between the tenant and owner are “nothing more than negotiations, or an ‘agreement toagree,’” emphasized the court.

• 1407 Broadway Real Estate LLC v. Tsui and J.W. Treci, Inc., July 2012