California Court Holds a Lessor May Waive the Agreed Upon Period Within Which a Lease Extension Option May be Exercised

Commercial real estate law can be complicated. Before making real estate transactions for your business, you should consult with a qualified attorney. However, it is important for you to understand what your attorney will be able to do for you, so you should have a basic understanding of recent developments in real estate law.

Recent Decision in California

A California Court has held that a lessor may waive the agreed upon period within which a lease extension option may be exercised by consenting to the exercise of the option after the period expires. In the case Kavin v. Frye, there were four lessees (lessees are also known as tenants, or the people who hold the lease on a property). One of these tenants, who was not involved in the lawsuit, signed and delivered a writing to the lessor (commonly known as the landlord) that exercised an option to extend the lease. The landlord accepted this, but the issue was that the time period in which the option to extend the lease was supposed to be exercised had already run.

The landlord wound up filing a lawsuit against the three other tenants seeking damages for breach of the lease. The trial court held a bench trial. A bench trial is a trial where a judge decides the facts and renders a verdict instead of a jury.

The lease contained a provision that said the tenants had no right to retain possession of the premises once the lease expired. It also contained a provision providing for a very steep increase in rent if the tenants did not vacate by the end of the lease. The lease then laid out the terms of the option for extension.

The court found that the three tenants who the landlord sued had surrendered the property, but the fourth tenant remained in possession, and that the fourth tenant’s decision to exercise her option to renew was not binding on the other three tenants. That fourth tenant continued to pay the rent as it had been set initially–not the much higher holdover rent price. The court determined that the landlord consented to that fourth tenant’s continued occupancy on the premises by accepting her late notice of intent to exercise the option and accepting her rent. Therefore, she was not in violation of any portion of the lease that would have allowed the landlord to seek redress under the holdover clause.

Landlord Flexibility

What this means is that landlords have the option to be flexible with their tenants. If a tenant does not timely exercise an option to renew a lease, but later asks to do so, the landlord can allow the extension. But, if a landlord acts in such a way that allows for such an extension, then the landlord will not later be able to collect under a holdover provision.

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