Iowa Court Says Cell Company Properly Renewed Tower Lease
The Iowa Supreme Court affirmed that a lessee could exercise their renewal option under the rental contract by only giving written notice even though a later paragraph stated that the rental payment would be due when the renewal option was exercised. The court found that the structure of the agreement and renewal option paragraph made the rental payment a term of performance, not a condition precedent to exercising the renewal option.
Plaintiffs’ predecessors and the defendant cellular company entered into a 30-year lease for a cellphone tower to be placed on plaintiffs’ land in 1988. The lease stated that the defendant could exercise an option to renew the lease for an additional 30 years. The option to renew paragraph required the defendant to give written notice to the plaintiffs at least 60 days prior to the expiration of the initial term. A later paragraph specified that the renewal rental payment associated with the option was to be made “in advance at the exercise of the option[.]” The deadline to exercise the option was September 14, 2018.
Plaintiffs became owners of land in 2009. On September 1, 2017, defendant sent a certified letter to the previous owners stating that they were exercising the renewal option. Defendant also provided a W-9 form and a direct deposit form and asked plaintiffs to complete and return them. Plaintiffs received this letter, but took no action on the W-9 or direct deposit requests. On September 11, 2018, defendant sent a letter directly to plaintiffs stating that defendant had already renewed the lease and citing a recent conversation between plaintiffs and defendant where plaintiffs informed the defendant they were now the owners of the land. This letter was sent with duplicates of the Form W-9 and direct deposit form that were sent in 2017. The letter stated, “Once we have these documents, we will be able to disburse the option rental payment to you.” Plaintiffs again took no action.
On October 29, 2018, defendants sent plaintiffs a check for $31,494.02 which was the advanced rent minus required income tax withholding. Plaintiffs responded by sending back the check, stating that defendant did not properly exercise the renewal option since they had not paid rent when it attempted to exercise the option. The letter also stated that plaintiffs were willing to enter a new lease with defendant at a fair market value rental rate.
In June 2019 plaintiffs sued defendant. Plaintiffs wanted the removal of defendant’s cellphone tower, a declaration that the lease expired November 18, 2018, and fair market value rent from the expiration of the lease until the removal of the tower.
The district court ruled in favor of defendant, finding that defendant had renewed the rental option and was entitled to the terms found within the initial lease. Specifically, the 30-year rental payment required by the contract was $41,439.50. Plaintiffs had presented evidence that a fair market rental for 30 years was now more than $200,000. The district court ruled that the renewal rental payment was not a condition precedent to exercising the option. Instead, the timing of the rental payment “was a term and condition under the renewed lease.” The plaintiffs appealed. The Court of Appeals affirmed the district court finding that the rental payment was not a condition precedent to exercising the option. The plaintiffs continued their appeal to the Iowa Supreme Court.
On appeal, the Iowa Supreme Court found that the renewal rental payment was not a condition precedent to the exercise of the option. The court noted that there is a difference between acceptance of a contract and performance of the contract. Acceptance must conform strictly to any requirements, but courts have a “more holistic view” of performance. Since one must strictly conform to acceptance terms, they should be easily identified, and one should not need to scan the agreement “for other implied terms of acceptance.” Therefore, defendant only had to comply with the renewal option paragraph’s written notice requirement to accept the renewal option since there was no disclosure within that paragraph that anything else needed to be done.
Further, the court noted that sometimes there is good reason to allow someone to accept a contract and immediately breach the same contract. The Court also noted that payment sometimes requires cooperation from the party receiving it, as it did here. Tax law required defendant to ensure that the plaintiffs were not subject to federal backup withholding. This is done using a W-9 form. Plaintiffs were uncooperative with supplying a completed W-9. The Court found this demonstrated a legitimate reason for why the contract was structured to have the renewal payment as a performance term and not an acceptance condition.
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