Oral Modification of a Written Lease

At one time or another most of us become involved in leases of real estate.  The leased property might be an apartment or house (at the shore during summer months) or an office or manufacturing facility for business purposes.  Leases can involve significant financial obligations, and too often the owner of the premises involved will present the prospective tenant with a detailed printed document which may be scanned in a cursory manner by the tenant, and signed.

Most leases will provide that they can be modified only by a written document signed by landlord and tenant.  Typically, for example, a lease will not permit physical changes to a leased building without written consent of the landlord.  Such provisions are significant and in litigation might bar introduction of evidence of a non-written change in the lease.  There can be, however, circumstances which will permit an oral modification.

Most commonly, changes made without agreement in writing will become an issue of fact since the landlord’s approval is verbal if at all, and the case may turn upon the credibility of the parties in the eyes of the jury.  A word of advice to tenants and landlords is to put modifications into writing always to avoid the controversy; however, all may not be lost if the agreed upon modification is oral only.

A typical landlord/tenant agreed upon change is one which might arise from an informal meeting on the premises where the tenant will tell the landlord that he’s contemplating an expansion of the building to enlarge his business.  The landlord may look at the plans and discuss the details and not object even after the tenant has obtained building permits, has entered into a construction contract, and has begun construction.  He may even indicate approval (verbally).

Then, after the construction is complete, the landlord may commence eviction proceedings, claiming that the tenant’s construction contravened the lease since there has been no approval in writing.  The tenant is vulnerable; however, at this point a court may apply equitable principles and under circumstances cited dismiss the landlord’s action because the tenant has made a substantial investment, with the actual knowledge of the landlord who took no action to dissuade the tenant from proceeding.

In a recent Pennsylvania action, Sabatini v. It’s Amore Corp., the tenant of a restaurant made substantial changes to the parking lot.  The tenant obtained the necessary township permits and undertook and completed the work.  The jury found the landlord was aware of the project all the while and should have taken steps to stop it before the tenant made a substantial investment in the reconstruction.  The tenant won.

What is to be learned from this?  If you are a landlord or a tenant, insist that all lease modifications be reduced to writing, signed by the parties.  Even though It’s Amore Corp. (how could anyone sue a company with such a name?) prevailed in the litigation (which seems fair under the circumstances), the matter had to be decided by a jury which might have found otherwise, in which event a thriving business might have ended.  You cannot be too careful; a little time spent preparing a document prior to any modifications might save not only the aggravation, time, and expenses of a law suit, but possibly your business.

One of the Hollywood moguls of the nineteen thirties said it best: “An oral agreement isn’t worth the paper it’s written on!”

— Ken Butera


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