Stanek Corp. (“Stanek”) leased property from SDG Macerich Properties, L.P. (“Macerich”) to construct and operate a Hardee’s restaurant. The initial term of the lease was twenty years, and the lease provided an option to renew the lease at the end of the initial term for four additional five-year periods. Stanek was required to exercise the option by giving notice prior to September 30, 1999. Stanek, however, did not send notice of its intent to renew the lease until January 20, 2000. Macerich refused to renew the lease since Stanek’s notice was over three months past the deadline. Macerich subsequently filed suit against Stanek for a declaration that Stanek’s attempt to renew the lease was ineffective. Stanek responded by filing a counterclaim against Macerich, requesting a finding that it be entitled to exercise the option.
The court noted that while a court of equity can provide relief to a party who makes a mistake, the facts of the present case demonstrated that Stanek’s failure to act was not the result of a mistake. In the context of equity, a “mistake” is an erroneous mental condition which does not involve negligence. Stanek did not argue that it misunderstood the terms of the option, nor did it argue that it was unaware of the notice provision. Stanek simply forgot to timely exercise the option. Since Stanek’s failure to exercise the option was a result of its own oversight, the court held that terms of the option would be strictly construed and Stanek would not be allowed to renew the lease through the option.
The court further noted that to allow a party such as Stanek to exercise the option when it had failed to provide timely notice would create instability in business transactions and would ignore commercial realities. The court emphasized that “[i]f the terms of options involving property rights are not strictly construed, Pandora’s Box is opened for serious property title problems to develop.” Without the strict construction of the terms of contracts, the court noted “all contracts would be called into question as meaningless and uncertain, dependent upon the whims of a panacean court or a jury.”
This case demonstrates that courts will strictly construe contract terms, such as options, and will not provide equitable relief for a party unless the party can prove it made a mistake. If you have questions regarding the terms of an option or any other contractual provision, please contact a member of the firm.