Commercial Landlord and Tenant Exchanged Drafts of Amended Lease

Was Landlord Estopped from Asserting That No Binding Agreement Was Made?

In March 2021, Odonata Ltd., the tenant/operator of a hair salon, notified its landlord, Baja 137 LLC, that it would be surrendering the leased premises effective July 7, 2021, a month before the lease was due to expire, because it could no longer afford the rent. In response, Baja offered to forgive certain rent and late fees. And Baja advised Odonata that it would consider a third modification to the lease, at a lesser rent and on more favorable terms, stating that Odonata had been a “great” tenant. Odonata replied that it had already found new spaces at lower base rents and that it was prepared to move. And Odonata then presented Baja with a counteroffer of an even lower base rent and other more favorable terms, stating that it was more in line with “generous” offers it had received from other property owners. Baja acknowledged receipt of the counteroffer and advised Odonata that it would provide a “formal reply” to its counteroffer and that it was subject to a lease amendment signed by both parties.

The parties entered into negotiations, aided by an advisor affiliated with Baja. Over the course of several weeks, the parties exchanged redlined versions of a proposed third lease amendment. After several drafts were exchanged, Odonata sent Baja the latest copy of its proposal and Baja’s advisor asked for a “clean” copy. Odonata forwarded a clean copy of the document, bearing its signature. The document included a signature block for Baja.

Two weeks later, Odonata inquired about the status of the proposed lease amendment and asked for an “update.” And Odonata then sent another email, asking whether there were “any issues?” A few days later, Baja emailed Odonata that it had rejected the proposed amended lease. Notwithstanding that unequivocal rejection, Odonata sent Baja a check purporting to be a payment of rent under the third amended lease. Baja promptly rejected the check and sent it back to Odonata, stating there was no agreement because both sides had not signed the third amendment to lease and Baja had not agreed to its terms.

Odonata sued. Baja moved to dismiss the complaint. The Court granted the motion. And Odonata appealed.

The commercial lease and the second amendment to the lease expressly provided that any changes to the agreement could only be made in writing and signed by the party against whom enforcement of any modification was sought. The purported third amendment not only modified Odonata’s rent obligations, Baja would have also forgiven some unpaid rent and late fees. The email exchanged unequivocally demonstrated that Ononata was informed and was aware by Baja that the signature of both parties was required to amend the lease a third time.

Contrary to Odonata’s contention, there was no meeting of the minds. Baja rejected the proposed amendment and immediately sent back the check that Odonata tendered as “rent payment” under the purportedly new amendment.

Although the amended lease allowed for its execution in counterparts, it did not eliminate the need for both parties’ signatures on the amended lease in order for it to be a binding agreement. Furthermore, a lease is the conveyance of real property by the landlord to the tenant–and in order for it to be effective it must be in writing subscribed by the party to be charged. Because the third amendment was intended to be for a time period longer than one year, a signed agreement was required to satisfy the statute of frauds.

But Odonata nonetheless urged the Court to apply the equitable principle of promissory estoppel, which was not dependent on whether the writing satisfied the statute of frauds requirements. Odonata described various financial losses and missed opportunities it suffered as a result of its reliance on the third amendment to the lease that Baja did not sign and then rejected.

The elements of promissory estoppel are a clear and unambiguous promise, reasonable and foreseeable reliance by the party to whom the promise was made, and an injury sustained in reliance on that promise. Odonata did not show that its reliance on the document bearing only its signature was “reasonable.” The amendment had to be approved by Baja and then signed by both parties. Even if Odonata agreed to each of the terms Baja requested during their negotiations, the lease was still subject to Baja’s final approval and it required both parties’ signatures. Those requirements were a constant thread throughout the parties’ emails and negotiations. The Court found that it was unreasonable for Odonata to have relied on the document it sent to Baja as being a binding, enforceable and acceptable lease agreement.

Viewing the facts in the light most favorable to Odonata, which was that it lost a seemingly favorable lease, passed up on other opportunities and incurred financial losses, the result did not shock the conscious and confound the judgment of any person of common sense. Baja offered Odonata a lease modification. Odonata counteroffered. And ultimately their negotiations did not result in a mutually signed agreement. Odonata had no reasonable basis to believe it had a binding agreement with Baja.  It was unclear what distinguished this case from ordinary negotiations to modify a lease to warrant equitable relief. Promissory estoppel was reserved for that limited class of cases where the circumstances were such as to render it unconscionable to deny the promise upon which Odonata allegedly relied.

The appellate court affirmed dismissal of Odonata’s complaint.

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