A recent Ohio Court of Appeals decision highlights the importance of clear, precise and complete language in residential as well as commercial leases (and other real estate documents).
The General Rule: Judicial Deference to Language Within the “Four Corners” of Leases and Other Legal Agreements
As a general rule, courts will uphold language in commercial real estate (and other) agreements, unless it is contrary to statutory law or public policy, even if a literal interpretation does not seem to be within the parties’ intent. What is said within the “four corners of a commercial agreement” has simply been deemed by jurists to be the best evidence of intent, and if they determine such agreement to be unambiguous, they will not consider other evidence of the parties’ intent. Because of this judicial deference to “commercial language,” which has recently been extended to residential leases in McGinnis v. Conley, parties to any legal agreement, along with their attorneys, should “say what you mean, precisely and completely, or a judge will decide what you meant. “
Background of McGinnis v. Conley, 2024-Ohio-482
McGinnis v. Conley involved a residential lease (with option to purchase) dispute regarding a house in Montgomery County, Ohio owned by defendant-landlord (Landlord) Dannie Conley. The plaintiff-tenant (Tenant) Kimberly McGinnis sued Landlord for refusing to sell the property to Tenant at the price called for in the Lease with Option Agreement (Agreement).
The Agreement at issue was a two-year Lease (with Option to Purchase) that ran from December 1, 2019, through December 31, 2021. The Agreement provided that the Option to Purchase needed to be exercised by December 1, 2021.
The Agreement also included a notice provision stating:
“To exercise the Option to Purchase, the Lessee must deliver to the Landlord written notice of Lessee’s intent to purchase; the notice to purchase needs to be initiated by June 1, 2021; and that timing is of the essence… If notice of intent to purchase is not provided by June 1, 2021, Landlord has the right to list the house for sale and make showings available to prospective buyers.”
On July 15, 2021 and July 20, 2021 Tenant sent text notices to Landlord indicating that Tenant wanted to exercise its option and purchase the property prior to the end of that year. The Landlord responded by sending the Tenant a letter advising Tenant that her option to purchase had expired on June 1, 2021, but if she still wanted to buy the property, she would have to sign a new contract at a higher price. A short time after Landlord’s letter, Tenant filed the lawsuit claiming Landlord breached the Agreement.
At the trial court proceeding, Tenant argued that she exercised the option, as required by the Agreement, prior to December 1, 2021. The Landlord argued that the Agreement clearly stated that the notice to exercise the option to purchase needed to be initiated by June 1, 2021, and since Tenant’s notices were not sent until July, the option was no longer in effect. Landlord also argued that the phrase “timing is of the essence” in their Agreement means that June 1 means June 1, not some point in July.
Court Rules in Favor of Tenant
The trial court in McGinnis v. Conley held that the Tenant’s texts in July collectively constituted written notice of the Tenant’s planned exercise of the option, and since the texts were sent prior to December 1, 2021, the exercise of the option was timely. Accordingly, the court ordered specific performance of the Agreement and ordered the Landlord to sell the property to the Tenant at the price set forth in the Agreement. On appeal, the appellate court affirmed the trial court’s judgment against Landlord.
You may ask, what about the provision in the Agreement that stated that the notice needed to be “initiated” by June 1, 2021? The Second District Court of Appeals (Court) concluded in this case that failing to meet the deadline did not terminate the option, as the Agreement did not specify that it would. Rather, the Agreement merely identified specific consequences for failing to give notice by June 1, 2021, namely that Landlord had “the right to list the house for sale and make showings available to prospective buyers.” Was that the true intention of the parties? Probably not (at least as far as the Landlord was concerned), but the Court reiterated its need to only look at what was in the Agreement, not what was possibly missing.
Simply put, the Court stated that,
“If the parties had intended for missing the June 1, 2021 deadline to result in termination of the purchase option, their agreement easily could have said so. But it did not.”
Key Takeaways
What is the moral of this story? Whether you are drafting commercial or residential agreements, Say what you mean, precisely and completely, or a judge will decide what you meant. This principle is well illustrated in case after case where language interpretation of a legal document is at issue. Had the Agreement in McGinnis v. Conley clearly provided termination language for failure to timely notify Landlord by June 1 you wouldn’t be reading about a case called “McGinnis v. Conley.”
So, do not be so fixated on the length of a legal document that you lose sight of what is (or is not) within the four corners of that document. Also, do not forget to spell out the consequences to a party for failing to comply with well written contract covenants/requirements. You may find out, perhaps the hard way, that there are no consequences or remedies for a breach. Convincing a judge that you intended something different from what your contract explicitly states (or fails to state), can be extremely challenging.
If you have questions regarding real estate leases, please contact KJK Real Estate attorneys Stephen D. Richman (216.736.7203; SDR@kjk.com) or Matt Viola (216.736.7253; MTV@kjk.com).