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When Providing Termination Notices to Commercial Tenants, Remember That Commercial Leases are Contracts and Ambiguities May Be Construed Against the Drafter
Published: March 10, 2009
Author: Edward J. Lawton
Long term commercial leases may be terminated by the procedure provided in Wis. Stat. § 704.17(3) or by the terms provided in a lease agreement. [1] Since the statute provides for a very long cure period (30 days) for defaults under long term leases, in nearly all cases, landlords include termination procedures in their leases with shorter cure periods. Failure to cure as provided in the lease triggers eviction or re-entry rights under the lease, § 704.23, and § 799.40.
It is important to remember that the termination provisions in leases are component parts of contracts, and contract law interpretation principles apply. The Supreme Court of Wisconsin applied contract interpretation principles to a lease in Walters v. National Properties, LLC, 2005 WI 84.
Walters owned a shopping center in Lake Geneva, Wisconsin. National Properties, LLC (“National”) was his tenant. National defaulted on its lease and Walters served National Properties, LLC with a termination notice. The termination notice however was inconsistent with the termination provisions contained in his lease with National. The lease provided that it terminated thirty (30) days after the date of the termination notice if the default was not cured in that time. The termination notice however stated that the thirty (30) day cure period began to run upon the service of the notice on National. [2] So while the notice was dated and mailed on September 13, it was not received until September 16. An additional element of confusion was added by a notice provision in the lease which stated that a notice is deemed given upon the date of mailing (though in this case the date of mailing and the date of the notice were the same). The question for the Court then was which cure period applied, the thirty (30) days commencing on September 13 or the thirty (30) days commencing on September 16.
The Court ruled that the use of alternative wording in the notice rendered the notice and lease provisions ambiguous. It applied the contract interpretation principle that ambiguities are construed against the drafter. [3] As the Court noted, this rule is often applied where the drafter of the contract is perceived to have had greater bargaining power, for example, where a large commercial landlord is able to dictate terms to a small business tenant on a “take it or leave it” basis.
The Court held that National, the tenant, could rely on the lengthier cure period provided by the termination notice because together with the lease it created an ambiguity construed against Walters, the drafter.
As the Court noted tenants in a similar position to National, that is, tenants who receive termination notices that are inconsistent with the termination provisions contained in the applicable lease, may be able to rely on the doctrine of equitable estoppel in addition to the contract interpretation principles discussed above. The doctrine of equitable estoppel acts to bar the assertion of certain claims by one party where the action or inaction of that party (for example a landlord providing a termination notice inconsistent with the lease provisions), induces reliance by another (such as a tenant), to his detriment (which in the landlord-tenant context would likely be a suit for eviction and money damages). [4]
For the reasons outlined here, it is important for commercial property owners to provide their tenants with consistent documentation of their landlord-tenant relationship. Inconsistent documentation creates the risk of complications when disputes between a landlord and one or more of its tenant arise.
[1] Wis. Stat. § 704.17(5) provides that lease termination provisions contained in leases are invalid and the provisions contained in § 704.17 control unless the lease is for a term greater than one (1) year.
[2] Absent express provisions in an agreement to the contrary, notices sent by mail are deemed to have been given when they are received. Boeck v. State Highway Commission, 36 Wis.2d 440, 153 N.W.2d 610 (1967).
[3] See for example, Moran v. Stern, 60 Wis. 2d 39, 49, 208 N.W.2d 348 (1973); Dieter v. Chrysler Corp., 2000 WI 45, ¶15, 234 Wis. 2d 670, 610 N.W.2d 832.
[4] Randy A.J. v. Norma I.J., 2004 WI 41, ¶26, 270 Wis. 2d 384, 677 N.W.2d 630; Gabriel v Gabriel, 57 Wis. 2d 424, 428, 204 N.W.2d 494 (1973) (holding that equitable estoppel may apply to preclude the assertion of claims under a note or contract).
Edward J. Lawton is a member of Axley Brynelson, LLP's Business Practice Group. He focuses on transactional matters including the purchase and sale of businesses, and the purchase, sale, development and leasing of real estate. For more information, contact Mr. Lawton at 608.283.6717 or elawton@axley.com.
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