Recently my client got trapped by the “notice” provision in an equipment lease. One of the client’s executives had been working with the lessor’s representatives on a deal to buy the equipment after the lease had expired. The employee, acting in good faith, stated repeatedly both over the telephone and via e-mail that once the lease was over, the client wanted to buy the equipment at a fair price. The executive reasonably thought that it was crystal clear to the lessor that my client was “giving notice” that the client was not renewing these leases on some pretty expensive equipment. To my client’s surprise, several weeks before my client was supposed to send back the equipment, the lessor sent it an invoice for rent of the equipment for the month following when my client thought the lease was over. How did this happen?
It turns out that my client had not followed “notice” provision to the letter. Here’s what it said: “Each [equipment] schedule may be terminated by either party hereto as the end of the Rental Period stated therein provided that written notice of the termination of the schedule is given between 180 days and 90 days prior to the end of the rental period stated therein. If proper notice of termination is not given…, the rental period of the applicable equipment schedule shall be extended on the same terms and conditions for an additional 90 days, unless earlier terminated in writing by Lessor. Thereafter, the rental period as so extended may be terminated by either party hereto at the end of any rent interval by giving the other party at least 90 days prior written notice of termination.”
What constituted “proper notice of termination”? That definition was buried several paragraphs further down in the agreement. It stated “All notices or demands required or permitted hereunder shall be given to the parties in writing and by personal delivery, certified mail, facsimile or overnight courier service at the address herein set forth or to such other address as the parties may hereafter substitute by written notice given in the manner prescribed in this section.”
Note that the notice had to be in writing, meaning that the telephone calls between the parties did not qualify as “proper notice of termination.” Additionally, the notice had to be “by personal delivery, certified mail, facsimile or overnight courier service.” Therefore, notice by e-mail was arguably deficient. Thus, the equipment lessor is arguing that my client owes at least another 90-days’ worth of rent.
My client has options, because in Georgia it’s long-standing law that the means of termination need not be perfectly executed. The Lessor certainly received notice, even if its means was not to the letter of the contract. That being said, my client now may need to fight it out in court to get a fair resolution. This fight could have been avoided had the client been on top of these contract provisions. Unfortunately, it fell into this trap for the unwary. The lesson to be learned in this case is KNOW HOW TO PROPERLY TERMINATE EXPIRING CONTRACTS. This means not only knowing the date when the contract expires, but also knowing how when the notice period begins and ends, and by what means your notice of termination must be communicated. If your business does it correctly, you’ll avoid a trap that ensnares far too many business owners.
If your business would like a review of your contracts and their critical provisions, including their “notice” provisions like the one that trapped my client, reach out to me at email@example.com. I can help you from falling into the “notice” trap.