Friday, July 27, 2007

Business Law - Commercial Landlord & Tenant - Modification of Lease/Contract

In a recent case I represented a small business here in Rockville that had operated a restaurant in a local shopping center in Maryland. The restaurant had been a tenant in the shopping center pursuant to a detailed written lease for the previous ten years or more. The lease required that rent be paid by check mailed to the landlord’s office due by the 5th day of each month. The lease provided that there would be a late fee (5% of the rent payment) and interest (at 24% per year) on late payments.

During the course of the lease, however, the landlord came into my client’s restaurant and told my client that my client should no longer mail his rent checks to the landlord, and that, instead, my client should give the landlord the rent checks when the landlord came to the shopping center. From that time on, my client had followed the landlord’s instructions and paid the landlord during the landlord’s periodic (usually monthly) visits to the restaurant, which were rarely before the 5th day of any month.

After many years of this method of rent payment, my client decided to move his business from Maryland to Virginia. My client told the landlord of his intention and the landlord immediately told my client that my client owed a significant sum of money for late fees and interest under the lease because the rent payments were always late when the landlord came and picked them up. My client refused to pay interest and late fees and the parties went to court on that and many other issues.

In Court, the landlord argued entitlement to the late fees and interest denying that he requested the in-person rent payments and arguing that even if he did request that method of payment, the landlord’s alleged oral request for in-person late payments could not modify the lease’s requirement of payments by the 5th day of each month. The lease provided that it could not be modified by oral agreement, and that there would be no waiver of any of the terms of the lease unless that waiver was in writing.

In Court we argued that the landlord’s request for in-person payment and the parties’ practice of hand payment of rent was an enforceable oral modification of the lease. The Court agreed that if we could prove the oral agreement and the past practice, we could defeat the landlord’s claim for late fees and interest at trial. Our argument was based upon Hoffman v. Glock, 20 Md.App. 284, 288-289 (1974). In that case, the Court of Special Appeals held that: “Notwithstanding a written agreement that any change to a contract must be in writing, the parties by subsequent oral agreement and by their conduct may waive the requirements of a written contract.” Ultimately, the landlord could not prove the amount of late fees and interest at trial and agreed to walk-away from its claims.

Whether you are representing the landlord or the tenant it is important to know that this argument (oral modification to a written contract) can be made and that you cannot always count on the written lease, or any written contract, to preclude a party from arguing that the parties modified their contract by subsequent oral agreement.

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