Lease provision that allows a lessor to unilaterally terminate the lease and recover the property upheld. Harrison v. Jordan, 194 Mass. 496 (1907); Gunsenhiser v. Binder, 206 Mass. 434 (1910); Binder v. Gunsenhiser, 217 Mass. 518 (1914).
Summary: In Harrison v. Jordan, A lease was made to run for five years. Among the provisions of the lease, the following clause was inserted in the lease:
If the lessor or his assigns shall decide at any time to remove the buildings on the leased premises, he or they may terminate this lease by paying to the lessee the sum of twenty-five hundred dollars.
Court held that such a clause was lawful.
Discussion: Normally, a successor landlord, whether he took possession by purchase or mortgage foreclosure, is in the position of an assignee and has essentially the same duties and rights respect to the lessee as did the original landlord. Therefore a conveyance of real estate subject to a lease does not terminate the lease. In order to sell a real estate free and clear of obligations such as a lease, the above clause should be inserted into the lease.
Later case law allows such a clause even when the lessor simply manifests a good faith desire to simply sell the property, rather than remove buildings from it. In Gunsenhiser v. Binder, the Court enforced the following provision contained in a lease:
If the lessor, at any time after the expiration of the first five years of this lease, desires to sell the land, this lease may be terminated on thirty days’ notice in writing of the lessor’s determination, and the payment by the said lessor to the lessee of the sum of four hundred dollars as liquidated damages for the termination of said lease, and upon such termination the lessee shall remove any building within the said thirty days, and quietly and peaceably yield up the possession of the premises upon said payment of four hundred dollars.
Court held that such a provision was not a mere covenant but a conditional limitation on the lease and therefore the four hundred dollars was not actually liquidated damages for a breach of covenant. As long as the lessor complied with the thirty-days notification and payment requirements, the lease expired upon its own terms.
Implication: The nominal sum paid out to the lessee upon exercising the conditional limitation is most likely the key to inducing a potential lessee to agree to such a provision. The difference in sum between the two cases above suggests that there’s a room for play during negotiation. However, keep in mind that these cases were decided in 1910’s and $400 back then would be equivalent to about $9,200 today.