Get it in Writing: Landlord Takes Action Based on Negotiations with Tenant and Loses

Given the effects of Covid-19, the commercial real estate market has been interesting for commercial landlords and tenants alike. Landlords and tenants are both trying to evaluate the immediate and long-term future of their leased premises. Many landlords and tenants are taking advantage of the current market in an effort to better their long-term positions with an eye towards successfully operating in the post Covid-19 commercial market. The current market has generated an assortment of lease negotiations and amendments.

In one such scenario, a tenant who leases space (the “Existing Premises”) in a metropolitan Boston, MA area engaged in discussions and the exchange of terms with its landlord regarding the lease of space adjacent to the Existing Premises (the “Adjacent Premises”). The landlord and the tenant engaged in a detailed negotiation over the course of a lengthy period of time, but never came to an agreement in a writing signed by the parties. Regardless of the lack of any agreement in writing, at some point in the negotiation, the landlord acquired the Adjacent Premises presumably for the purposes of leasing the same to the tenant at what the landlord thought was a negotiated rate. Ultimately however, after the landlord acquired the Adjacent Premises, the negotiations between the landlord and tenant broke down, including with respect to material terms such as rental amounts, and no lease or lease amendment was entered into by them.

Among other causes of action, the landlord argued that the landlord was entitled to damages given the doctrine of “promissory estoppel.” To support a claim of “promissory estoppel” in Massachusetts, a claiming party must allege sufficient facts to show that a counter party made an unambiguous offer or promise upon which the claiming party relied to its detriment. This doctrine provides relief to the claiming party, even when a contract may have not been executed between the parties in writing. In our case example, the landlord argues that the tenant made an unambiguous offer or promise to lease the Adjacent Premises and that the landlord at its costs acquired the Adjacent Premises for this purpose in reliance on the tenant’s unambiguous offer or promise.

The court noted that the landlord failed to clearly identify any one statement by the tenant definite enough to constitute a promise, that it is undisputed between the parties that no agreement was reached, and that discussions ultimately fell apart over a material term. The court also noted that more importantly, given the context in which the tenant’s statements occurred, namely a lengthy negotiation that appears to have fluctuated over time between two sophisticated parties and the lack of any resulting lease or lease amendment which was clearly intended, the landlord’s reliance on the tenant’s statements were not reasonable as a matter of law.

Although a court may decide differently where more consensus is shown, or if the party relying on the statement is not as commercially sophisticated as the party making the statement that was relied on, enforcing a promissory estoppel claim is a challenge. This is especially true in the commercial leasing context and even more so when a lease is being negotiated by sophisticated commercial counterparties.