Don’t Rely on Owner’s Verbal Promises

Q: About halfway through my short-term lease for retail space, the strip mall's owner and I discussed the possibility of extending the lease by five years when the term was up so that I could continue operating there. Following the conversation, I made expensive improvements to the space to better accommodate my business. Then the owner announced that at the end of my short-term lease, it was going to rent the space to a different tenant and I would have to leave.

The owner claims that its promise to me for a long-term extension when my short term was up isn't binding because it was made orally. I've spent thousands of dollars customizing the space for my business, and I think that I should be able to hold the owner to its oral promise. Who is right?

A: The owner is right—it isn't bound to its oral agreement with you to extend your short-term lease after it expires. That's because what’s known as the “parol evidence rule” applies to leases for commercial space, such as yours. The rule prohibits oral agreements made outside of a written and executed agreement—here, your short-term lease—to be used as evidence. In other words, if the owner didn't formally—and in writing—agree to extend the short-term lease with you to a longer term, any promises it made about such an extension can't be relied on.

And the owner isn't responsible for reimbursing you for the costs of the improvements you made in reliance on the oral agreement for an extension. That's because the improvements were made while you were already operating your business in the space, so it could be argued that you made them to further your current business, not solely for a future long-term lease that didn't work out.

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