HLM Realty Corp. v. Morreale

• Decision Date: 07 May 1985
• Citation: 394 Mass. 714,477 N.E.2d 394
• Parties: HLM REALTY CORP. v. James B. MORREALE.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 394

477 N.E.2d 394

394 Mass. 714

HLM REALTY CORP. v. James B. MORREALE.

Supreme Judicial Court of Massachusetts Middlesex.

Argued Feb. 8, 1985.

Decided May 7, 1985.

Frank R. Sherman, Waltham, for plaintiff.

Daniel Briansky, Boston, for defendant.

Before HENNESSEY, C.J., and WILKINS, NOLAN, LYNCH and O'CONNOR, JJ.

WILKINS, Justice.

The plaintiff (lessor) appeals from a decision of the Appellate Division deciding against it three questions reported by a District Court judge. The basic dispute is whether the defendant lessee is liable for rent during an additional five-year rental term for which the lessor claims the lessee agreed to pay rent by exercising an option under the lease. We agree in general with the answers given by the Appellate Division, which have the effect of denying the lessor the right to recover rent for the additional term, even though the lessee exercised the option and then vacated the premises during the original term. The lease did not provide for an automatic extension of the terms of the old lease during any additional term, but rather required specific action for determining the rent to be paid during that additional term, which action the lessor did not initiate.

In November, 1975, the parties entered into a lease of a portion of the premises at 740 Main Street in Waltham for a term of four years, commencing on December 1 1975. The lease granted the lessee an option to lease the premises for additional five-year terms in circumstances and subject to conditions subsequently set forth in this opinion. The lessee exercised his option in July, 1979, but vacated the premises in September, 1979. He paid rent through August, 1979. ¹ The lessor never took steps, pursuant to provisions in the lease concerning the lessee's option, to establish the amount of rent to be paid during the additional five-year term. No new lease or extension of the old lease was executed. It is the lessee's position that he is not liable for rent for the new term because no new lease or extension was executed setting forth the rent to be paid.

The District Court judge reported the following questions to the Appellate Division:

"1. Was the option in the lease an option to renew or an option to extend?

"2. Was the Plaintiff landlord required to execute a new lease or a formal extension of an old lease to recover any rent for any part of the period December 1, 1979--December 31, 1980?

"3. Is the Defendant tenant estopped from claiming that the Plaintiff landlord was required to execute a new lease or a formal extension of the old lease, by his act of vacating the premises before December 1, 1979?"

Our cases have traditionally made a distinction between an option to renew a lease and an option to extend a lease. An option to renew has been said to require the execution of a new lease or some other document. See Gow v. Buckminster Hotel, Inc., 336 Mass. 606, 608, 146 N.E.2d 924 (1958); O'Brien v. Hurley, 331 Mass. 172, 174, 117 N.E.2d 922 (1954), cert. denied, 350 U.S. 940, 76 S.Ct. 313 (1956); Shannon v. Jacobson, 262 Mass. 463, 465, 160 N.E. 245 (1928); Hanna v. County of Hampden, 250 Mass. 107, 109, 145 N.E. 258 (1924); Leavitt v. Maykel, 203 Mass. 506, 509, 89 N.E. 1056 (1909). On the other hand, an option to extend a lease has been said to require nothing more than action by the lessee, according to the terms of the lease, to indicate an election to extend the lease. See Straus v. Shaheen, Inc., 310 Mass. 646, 648, 39 N.E.2d 573 (1942); Shannon v. Jacobson, supra at 466, 160 N.E. 245; Ingram v. Sonitrol Sec. Sys. of Worcester, Inc., 11 Mass.App.Ct. 754, 756-757, 419 N.E.2d 1057 (1981). In recent times, we have characterized the old distinction as tenuous (Gibbs Realty & Inv. Corp. v. Carvel Stores Realty Corp., 351 Mass. 684, 685, 223 N.E.2d 534 [1967] ), and we have regarded the choice of words in the lease as only some evidence of the intention of the parties. See id. at 685-686, 223 N.E.2d 534; Manaster v. Gopin, 330 Mass. 569, 572-573, 116 N.E.2d 134 (1953). We have looked to all the circumstances within the context of a lease as the "sound and applicable" guide. Gibbs Realty & Inv. Corp. v. Carvel Stores Realty Corp., supra at 686, 223 N.E.2d 534, and cases cited. See Mutual Paper Co. v. Hoague-Sprague Corp., 297 Mass. 294, 299, 8 N.E.2d 802 (1937); Anderson v. Lissandri, 19 Mass.App. 191, 195, 472 N.E.2d 1365 (1985).

The significance of the words used in a lease--renew or extend--would not be recognized by the typical landlord or tenant, and probably would escape most members of the bar. See 1 American Law of Property § 3.85 (A.J. Casner ed. 1952); 2 M.R. Friedman, Leases § 14.301, at 736 (2d ed. 1983). We think that generally the words used are apt to have no guiding significance. The important point is whether some new agreement or some additional act is necessary in order to make the exercise of an option effective, in which event the exercise of the option, without more, does not continue the lease relationship. Where, however, in the exercise of an option the terms of the continuing relationship are established or capable of being established without further action or agreement, the parties are bound by those terms. See Manaster v. Gopin, supra at 572, 116 N.E.2d 134. In such a case, it would be fair to say that the lease relationship was continued, not because of the words used to characterize the option but because of the terms of the lease itself. Disregarding labels and relying on the expectations of the parties, as shown by the terms of the lease, is the proper approach. Where something more must be done, and especially where an addition to the earlier lease is called for, the lease relationship does not automatically continue on exercise of an option.

The lease provides that "[t]he Lessee shall have the option to renew said lease for four consecutive five year terms upon fair and reasonable rent to be agreed upon between the owners of the premises and the Lessees [sic ], said option to be exercised by written instrument to the owners ninety (90) days prior to the end of each term, the rent to be agreed upon prior to thirty (30) days before expiration of each term." On terms fully set out in the margin, ² the lease provided an arbitration mechanism for the determination of the rent if the parties could not agree and that an "addenda [addendum?] to that effect will be executed by all parties and attached to the originals of this lease."

Although in July, 1979, the lessee gave seasonable notice of the exercise of the option, neither party took any action to agree on the rent to be paid during the new rental period or to initiate the process provided for in the lease for resolution of a dispute. Certainly, the provisions of...