Many commercial leases have options to renew in which the tenant has the right to renew the lease for a specified period of time. Most leases state if there is one or several options to renew the lease. A recent California case determined that if a lease is ambiguous as to whether there is one or more options to renew, then the lease will be determine to have only one option to renew.
In the case of Esther Ginsberg v. Hanna Gamson and Harry Eden, Hanna Gamson owned a commercial property on South La Brea Avenue in Los Angeles. In 1996, she executed a five-year lease with Esther Ginsberg that expired in April 2001. The lease granted Ginsberg an option to renew the lease with the following language:
“Provided tenant is not in default under the lease, Tenant shall have the option to extend the term of the lease for additional five year periods upon the same terms and conditions contained in the lease except as hereafter stated. Tenant shall exercise this option to extend the term of the lease by serving on Landlord the Tenant’s written notice of Tenant’s exercise of the option to extend not less than ninety (90) days prior to the expiration of each term.”
The language then went on to address the rent during each option term.
In March 2001, Ginsberg exercised her option to extend the lease for an additional 5 years and there was no dispute as to that lease extension. In 2003, Gamson and Ginsberg started to have disputes about who was obligated to maintain and repair the property. In November 2004, Ginsberg sent Gamson a letter in which she purported to exercise her “second of five” options to extend the lease. Gamson did not honor this second renewal of the lease and Ginsberg sued Gamson in February 2006 for a variety of causes of action. In short, Ginsberg wanted Gamson to repair the property and to extend the lease for an additional five-year period. Ginsberg argued that the option to renew language gave her multiple options, each for a five-year period. Gamson argued that the option to renew language only established one renewal option for a five-year period and that Ginsberg had already exercised her one renewal option. The trial court ruled in favor of Ginsberg and said that she had multiple five-year options to renew the lease up to a maximum of 99 years. Gamson appealed the trial court’s ruling and the case went before the California Appellate Court.
The California Appellate Court reviewed the option to renew language and then analyzed California law on this issue. The Appellate Court stated that California law does not favor having an unlimited number of options to renew a lease because this essentially creates the perpetual ownership of the property in a lessee. The Appellate Court did acknowledge that California law does allow a perpetual option to renew a lease if the parties’ intent to create that perpetual right of renewal is explicit and clear in the lease. The Appellate Court stated that if there is any uncertainty as to whether the parties intended to create a perpetual right of renewal of the lease, then the lease must be construed as giving the lessee only one right to renew the lease. In other words, unless it is explicit and clear that the parties intend for multiple options to renew the lease, a lease will be interpreted as granting the lessee only one right of renewal.
The Appellate Court reviewed the option to renew language in the Gamson and Ginsberg lease and determined that it was unclear as to whether there should only be one or multiple options to renew the lease. The language did not clearly state if there was a single or multiple options to renew the lease. The court also analyzed other provisions of the lease and interpreted them to show that the parties did not intend for a perpetual right of renewal. For example, if there were to be multiple rights of renewal, then the lease should have minimized the landlord’s responsibility to maintain the premises, allowed the tenant a greater flexibility in modifying the property or transferring the lease, or given the landlord the ability to negotiate with the tenant to address cost increases over time. The court found that the lease did not address these issues consistent with having perpetual options to renew the lease. This combined with the fact that the party’s intent was not clear and explicit as to granting the tenant multiple options to renew the lease resulted in the Appellate Court determining that Ginsberg only had one option to renew the lease for one five-year period.
Reasonable parties can differ as to the meaning and intent of language in a lease or other legal documents. This is certainly true if a significant amount of time has elapsed since the original lease or contact was signed by the parties. If a landlord or tenant finds themselves in such a lease dispute, then they should contact a real estate professional or real estate attorney to seek advice as to how the law addresses these issues and what may be their rights and options in this situation.
This article was written by Patrick Casey and is the work product of L+G, LLP, which has offices in Hollister and Salinas. Patrick Casey is an attorney with L+G, LLP. You may contact the author at (888) 757-2444 or [email protected]
