In Self-Renewing Lease, Tenant Has Burden of Proving Timely Termination

Practice area:

In a case of interest to commercial landlords and tenants, the Massachusetts Appeals Court recently ruled that where a commercial lease is self-renewing but can be terminated on six-months’ notice to the other side, the party seeking to terminate – in this case the tenant – has the burden of proving it timely exercised its right.

Patriot Power, LLC v. New Rounder, LLC is a classic “she said-she said” dispute.  The parties’ lease provided that it would automatically renew for successive terms of one year unless either party served on the other written notice of its intent not to renew at least six months before the expiration of the then-current term.  About two weeks before the six-month deadline, the tenant sent the landlord a Federal Express envelope containing documents the landlord had requested in connection with its refinancing of the property.  At trial, the tenant’s executive assistant testified that she had “no doubt at all” that, in addition to the refinancing documents, she had put in the envelope a letter (a copy of which was admitted into evidence) notifying the landlord of the tenant’s intent not to renew the lease.   The landlord’s executive assistant, who opened the envelope, testified that she was “absolutely certain” that it contained no such letter.  The trial judge instructed the jury that, as the plaintiff, the landlord had the burden of proving that its version of events was more probable than not.  As a result, if the jury found that the landlord’s version was less probable, or that both sides’ versions were equally probable, the tenant would win.  The jury returned a verdict for the tenant and the landlord appealed.

The Appeals Court observed that, in a declaratory judgment action, the burden of proof does not automatically fall on the plaintiff.  Rather, the court must consider the nature of the underlying claim.   In performing this analysis, the Appeals Court analogized to a line of cases in which “one relying on a condition to avoid a contractual obligation has the burden to prove the occurrence of the condition.”  The court added that the rationale for allocating the burden this way “is particularly strong where the condition . . . requires an affirmative act by the party seeking to end the obligation, as it does here.”  Because the case came down to a question of the credibility of the executive assistants and their competing testimony, the Appeals Court held that the erroneous instruction on burden of proof was prejudicial to the landlord and reversed the judgment in the tenant’s favor.