Request to Extend Lease Must Comply with Lease's Renewal Provisions

Facts: An owner and insurance agency signed a 10-year lease for office space. The lease provided for two renewal terms of five years each if the tenant notified the owner 12 months prior to the end of the lease of its intention to renew. The lease also required the tenant to meet with the owner 14 months ahead of the lease termination to discuss fixed rent, if the tenant wanted to renew. Under the lease, if the owner and tenant hadn't met to agree on the fixed rate for the renewal term during the time specified in the lease, an independent appraiser would determine the fair market rental value of the leased space for the renewal term.

At the end of the initial lease term, there was a dispute between the owner and the insurance agency about whether the insurance agency had exercised its option to renew the lease. The insurance agency asserted that it hadn't expressed an interest in renewing the space, but rather had inquired about renting a larger space in an adjacent building owned by the same owner. The owner asserted that, through a series of letters about its current space, the insurance agency had effectively renewed its lease. The insurance agency stated that it didn't believe that the letters renewed the lease because it and the owner hadn't discussed any specific terms for a renewed lease—namely, the fixed rent.

The insurance agency moved out of the space at the end of the initial lease term and stopped paying rent. The owner sued the insurance agency for allegedly breaching its supposed renewed lease. The insurance agency in turn sued the owner, claiming that the lease hadn't been renewed, and it was not liable for any lease obligations

The trial court ruled that the lease hadn't been renewed, and accordingly, the insurance agency did not owe any rent to the owner and hadn't breached any lease by moving out of the space. The owner appealed.

Decision: The appeals court upheld the decision in favor of the insurance agency.

Reasoning: A New Jersey appeals court determined that the insurance agency hadn't renewed its existing lease. On appeal, the owner contended that the judge erred in ruling that the lease was not renewed by the series of letters the parties exchanged. The appeals court disagreed. That was because the letters did not comply with the renewal provisions in the original lease. That is, the insurance agency did not deliver a letter to the owner 14 months prior to the expiration of the lease. Additionally, the owner and the insurance agency didn't meet to discuss the rental price, nor were appraisers involved. And the letters contained no specific terms for renewal.

• ADP Statewide Insurance Agencies, Inc. v. Blachard Securities Co., LLC, September 2009