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Spacing Deadline Means Losing Space by Ron Davis

“I forgot” is no excuse when a shopping center tenant fails to renew his lease within the prescribed time.

That’s what an Iowa tenant recently learned to his dismay. He has operated a Hardee’s fast-food franchise for 20 years at the same location—Southern Hills Mall in Sioux City—but now must relocate. He simply did not contact the shopping center’s owner by the due date for exercising the renewal option of his lease, and the owner refused to accept any excuses.

The shopping center owner admits that the Hardee’s property stands in the way of constructing an addition to the mall area. A major department store chain has expressed an interest in that site, and the center’s owner sees an opportunity to increase revenue if the site becomes available.

But the tenant resisted efforts of the center’s owner to evict him. He claimed that his failure to renew the lease on time was simply an oversight—a result of forgetfulness.

The shopping center owner consequently sued the tenant to force his removal.

An Iowa court ruled, however, that the tenant’s delay in attempting to renew was a “mistake” and that he should not be subject to “undue hardship” because of that mistake.

The shopping center owner appealed that decision. And the Iowa Supreme Court reversed the lower court ruling, explaining, “It is not sufficient that after realizing the time for performance [in renewing the lease] had passed, the tenant acted as quickly as possible. It is not enough that the tenant then notified the shopping center owner of its intent to exercise the option too late. Substantial performance will not excuse the nonoccurrence of an express condition precedent to a contract.”

Added the justices, “To hold otherwise would do nothing more than create instability in business transactions and disregard commercial realities…. Were we to accept the tenant’s arguments, all contracts would be called into question as meaningless and uncertain, dependent upon the whims of a panacean court or a jury, weakening the sanctity and predictability of the written word.” (SDG Macerich Properties vs. Stanek, Inc., 648 N.W.2d 581 [Iowa 2002])

Decision: August 2002



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