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Uh Oh! Inadvertent Amendments to “Executory” Contracts

A commercial landlord gets a call from his tenant, requesting a sit-down meeting. The tenant brings a written “wish list” of desired changes to the leased space, none of which are presently required by the lease: power wash the building, paint and re-carpet the foyer, restripe the parking lot, etc. The landlord, willing to address some but not all of the changes, scribbles notations on the wish list indicating the things he will fix, and agrees to look into the other requests. Later, the landlord decides that he’d rather not do any of the “wish list” items unless the tenant first agrees to extend the lease term. But uh oh! The landlord may have already unwittingly entered into a binding lease amendment that does not require any quid pro quo from the tenant.

Many of you are doing business under what are called “executory” contracts: those in which the parties have promised to engage in some future action. (Contrast these to “executed” contracts which, once signed, have been fully performed with no promise of future performance.) Executory contracts, such as leases and offers to purchase, are common in real estate law.

To be initially enforceable, all contracts require “consideration”—a quid pro quo—usually an exchange of promises. In a lease, for example, the tenant’s promise to pay rent is consideration for the landlord’s promise to deliver occupancy. However, in Wisconsin, no new consideration is necessary to support an amendment to an existing executory contract. Recall that, in the example above, the existing lease imposed no obligation on the landlord to address the “wish list.” But the landlord’s agreement during the meeting to address some of the wish-list issues could be considered a lease amendment, despite that the tenant didn’t bring anything new to the table.

This is an over-simplified analysis to make an important point: it’s possible to amend contracts inadvertently, even when the other side hasn’t given any new value. It can be done by an exchange of emails. Sometimes it can be done orally, even if the contract has a specific clause stating that it cannot be amended orally.

When negotiating with a party to an existing contract, the best way to protect against inadvertent amendments is with three key phrases: “I reserve my rights,” “I’d be willing to consider,” and “any agreement must be in writing.” So the next time a tenant presents a “wish list,” the landlord should respond, preferably in writing, along these lines:

“Thank you for your continued interest in the building. Let me start by stating that I reserve all of my rights under the lease as it exists today. I would be willing to consider your requests and to negotiate with you about them. But if we come to an agreement, it will need to be documented by a formal lease amendment.”

DISCLAIMER: The information provided is for general informational purposes only. This post is not updated to account for changes in the law and should not be considered tax or legal advice. This article is not intended to create an attorney-client relationship. You should consult with legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.

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