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APPRAISAL DELAY EXTENDS LEASE

Leases often contain options to renew. While the terms of these provisions differ significantly, they typically provide a time period within which certain actions must be taken. Failure to timely adhere to that procedure often has adverse consequences, such as a forfeiture of the right to extend the lease term.

What if a landlord is responsible for the renewal related delay?  Are there any remedies available to the tenant?

In ADB Mgt., LLC v. Gardenberry, Inc., the parties' lease stipulated that the tenant had the option to renew for an additional 10-year term based upon a minimum guaranteed rent amount plus eight percent of the value of the underlying land at the beginning of the renewal period, as determined by an appraisal.

The tenant timely sought to exercise its renewal option and initiated the appraisal process. When the landlord failed to name an appraiser within the time fixed by the agreement, the tenant declared the landlord in default and retained its own expert. After that appraisal issued, the tenant -- without any further input or approval from the landlord -- purported to exercise its option. Of course, the landlord rejected that effort and retained its own expert to appraise the property, thus giving rise to this litigation.

Finding issues of fact, the Nassau County Supreme Court denied the parties' requests for summary judgment. On appeal, the Appellate Division, Second Department, awarded relief in the tenant's favor.

In that particular agreement, the parties provided for a bilateral appraisal process that included input from all concerned. And, in the event of a disagreement, an independent third party would resolve any dispute. The landlord's delay in naming its appraiser did not give the tenant the unilateral right to set the rent. However, because the delay was prejudicial to the tenant, the AD concluded that an extension of the option period was appropriate until such time as the appraisal process was completed.

While many may embrace that outcome, we don't believe it is consistent with established precedent.

If courts may not relieve parties of the consequences of their bargain, and if agreements are to be enforced "as written," where does a court get the power to extend an option?

And despite any purported delay on the landlord's part, isn't the tenant still obligated to pay the new rent, retroactive to the renewal's commencement, whenever that sum is finally determined? How does extending the option resolve anything, other than postpone that calculation?

It's unclear to us what happened here.

For a copy of the Appellate Division's decision, please use the following link:  ADB Mgt., LLC v. Gardenberry, Inc.

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