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Nice Try, But No Dice
by Ron Davis

Can a shopping center landlord be forced into accepting an unwanted rent reduction from a tenant? A tenant of a Tennessee shopping center obviously thought so. But Tennessee’s courts decided otherwise.

The shopping center is Winchester Court in Memphis, and the tenant leased space there for the sale of prerecorded music, videos and related items. Less than two years into the lease, however, the tenant apparently began experiencing declining sales, prompting repeated requests of the landlord for a rent reduction.

The landlord did not respond to the requests. So the tenant sent the landlord a certified letter, stating that rent payments would be unilaterally cut back to a fraction of the amount agreed to in the lease. The letter added that if the landlord agrees to the rent reduction, “do nothing.” The landlord did not reply to the letter, and the tenant began paying rent at the reduced rate.

The landlord’s property manager reacted to the reduced rent by informing the tenant of “incorrect rent payments” and urged the remittance of “catch-up payment.” The tenant rejected the request, stating that no catch-up payments would be forthcoming and that all subsequent rental payments would be at the reduced amount. Then when the landlord persisted in seeking the back rent, the tenant vacated the premises.

The landlord sued, seeking $15,788.75 for several months of rent underpayments. The tenant countered that the landlord had waived enforcement of the original lease by accepting the reduced rents.

In ruling in favor of the shopping center, a Tennessee court concluded that no modification of the lease had occurred because there was no “meeting of minds” regarding a rent reduction. The judge accordingly held that the landlord was entitled to the full amount of its rental deficiency claim, plus interest and court costs. The tenant appealed.

A Tennessee appellate court agreed that the tenant could not unilaterally reduce rental payments. Explained the judges, “The tenant structured its letter [informing the landlord of a decision to reduce rental payments] to enable it to construe inaction by the landlord as acceptance of the contract modification it proposed. However, under general contract law, a party is under no duty to respond to an unsolicited offer, and a contract cannot be formed unless and until the offeree performs some overt act to signify its unequivocal acceptance of the offer.... Similarly, the landlord’s acceptance of three months’ worth of checks from the tenant in an amount less than the contract provided for did not impair its right to the full contract amount.” (E&A Northeast Limited Partnership v. Music City Record Distributors, Inc., Slip Copy, 2007 WL 858779 [Tenn.App.])

Decision: March 2007
Published: March 2007



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