Publications

Ignorance of the Lease Is No Excuse

Prepared by Eugene J. M. Leone, Esq. & William H. Schriver, Esq.
March 25, 2009

Early last year, the Illinois Appellate Court, First District, held that a tenant’s negligent failure to comply strictly with the terms of a notice provision under a commercial lease will not be excused even when the landlord has received actual, oral notice. Genesco, Inc. v. 33 North LaSalle Partners, L.P.

ACTUAL NOTICE IS INSUFFICIENT

Genesco was a subtenant under a sublease from Credit Suisse First Boston (“CSFB”) for certain retail space leased to CSFB by Thirty-Three Associates, LLC (“Associates”). Genesco had also entered into a prospective lease with Associates for the same space to commence upon expiration of the sublease.

The prospective lease provided that Genesco could terminate by delivering written notice of termination and a termination payment to Associates by February 28, 2007. The prospective lease further provided that time was of the essence and that notice would be “deemed given and delivered, whether or not received, … two days following the date when deposited in the United States Mail … and properly addressed.”

On February 27, 2007, an agent for Genesco orally notified an agent for 33 North LaSalle Partners (“Partners”), which had succeeded to Associates’ interest under the prospective lease, that Genesco wished to exercise the termination option and that written notice thereof would be forthcoming. That same day, Genesco mailed written notice and the termination payment to CSFB and sent a copy of the notice to Associates. The copy mailed to Associates was addressed incorrectly, specifying “Suite 200” instead of “Suite 2000.”

In short, Genesco, apparently having in mind the notice provision of the sublease rather than of the prospective lease, mailed the termination payment to CSFB, which was not even a party under the prospective lease with Associates, and mailed a copy of the notice, incorrectly addressed, to Associates. Moreover, both notices were sent too late -- under the terms of the notice provision of the prospective lease, they would not be deemed effective until March 1, 2007, one day after the expiration of the termination option.

Despite a showing of actual notice to Partners, successor to Associates, and no showing that Partners would suffer any harm if Genesco’s noncompliance were excused, the trial court awarded summary judgment to Partners. Genesco appealed.

THE STANDARD: STRICT COMPLIANCE

The general rule, as stated by the Appellate Court, is that parties must comply strictly with the terms of a commercial lease. The issue before the Court was whether Genesco’s noncompliance should be excused based on 1) Genesco’s having provided actual notice, 2) the negligent, non-intentional nature of Genesco’s noncompliance, 3) the serious harm to be suffered by Genesco if the noncompliance were not excused, and 4) the lack of harm to Partners if the noncompliance were excused.

As an initial matter, the Court declined Genesco’s “invitation to adopt a per se actual notice rule,” instead construing the actual, verbal notice provided by Genesco as “highlighting” Genesco’s failure to comply with the express terms of the notice provision.

Furthermore, the Court concluded that the nature of Genesco’s errors were not excusable because they did not result from either “minor carelessness or negligence in combination with that of another.” Indeed, the Court noted that the series of errors resulted solely from Genesco’s negligence. Likewise, the Court did not construe as “minor carelessness” Genesco’s failure to consult the prospective lease to determine the proper means of providing notice.

The Court also found that Genesco would suffer no serious harm if its noncompliance with the termination option were not excused. Under the prospective lease, Genesco had the option of subleasing the space on specified terms. Even if Genesco were unable to find a subtenant and chose to breach the prospective lease, Partners would be required to mitigate damages. According to the court, the losses that Genesco would suffer represented not special circumstances justifying excuse by the Court, but rather “nothing more than normal business costs.”

Finally, the Court stated that it was unnecessary to consider the extent of potential harm to Partners because Genesco did not meet its burden of establishing special circumstances weighing in favor of excusing Genesco’s noncompliance. The Court declined to excuse Genesco’s noncompliance on the basis of the justifications offered by Genesco.

TAKE NOTE BEFORE GIVING NOTICE

The Illinois Appellate Court reaffirmed the rule that commercial parties will be held to strict compliance with terms of their leases, including strict compliance with notice provisions in the context of termination options. When delivering any notice under a lease, the relevant lease should be reviewed carefully before notice is sent, and notice should be sent precisely in accordance with the terms of the lease.

If you have any questions concerning this Legal Update, please feel free to contact any member of our Real Estate Group in Chicago at:

Pircher, Nichols & Meeks
900 North Michigan Avenue
Suite 1050
Chicago, Illinois 60611
(Tel.) 312.915.3112
www.pircher.com

The PN&M Legal Update is published as a service to our clients and friends. It is intended to provide general information and should not be acted upon without first obtaining professional advice appropriately tailored to your individual needs.