dispute photo (A1302986.x7AB72)Earlier this week the Appeals Court decided that a tenant has the burden of proving that it properly exercised its option to terminate a written lease.  The commercial lease in Patriot Power, LLC v. New Rounder, LLC,  provided that it would renew automatically each  year unless one of the parties timely notified the other that it wished to exercise a termination option in the lease.  Importantly, the lease contained standard language that notices “shall be in writing and shall be sent by” specified means and “shall be effective when received, or if delivery is refused, upon first refusal.”

The tenant sent a package in the fashion required, and the landlord received that package before the notice of termination was due.  The dispute arose because, although the parties agreed on certain contents of that package, they disputed whether it also contained a termination notice from the tenant.  That dispute arose from conflicting testimony by administrative assistants–the tenant’s administrative assistant testified that she had “no doubt at all” that she included the termination notice in the package, whereas the landlord’s executive assistant was “absolutely certain” that no such notice was present.

In the face of this conflicting evidence, at trial it was important which party had the burden of proving to the jury whether or not the termination notice was in the package.  The trial judge instructed the jury that the landlord had the burden of proof, and the jury apparently concluded that the landlord failed to satisfy that burden and ruled in favor of the tenant.

The Appeals Court ruled that the trial judge got it wrong.  It reasoned that, because the tenant was required to take an affirmative action to terminate the lease, it had the burden of proving that the notice of termination was actually received.  The jury instruction was at odds with this ruling, so the Appeals Court sent the case back down for a new trial.

This ruling is consistent with the longstanding rule that someone seeking to exercise an option (typically an option to purchase or to extend a lease) is required to “turn his corners squarely” by complying with all contractual requirements.

This case is a reminder to all parties to a lease to keep strong records of key actions and notices.  Those records may be of critical importance should a dispute later arise.