BFV Perspectives, Corporate Matters, Georgia Business Disputes, | Jan 21, 2015

I Know What it Says, But What Does it Mean?

A 10 year commercial lease gives the tenant the right to early termination “at the end of the thirty-sixth month of the term.” A week or so into the thirty-seventh month, tenant gives landlord notice of early termination. Landlord takes the position that the early termination right existed for one day, at the end of the thirty sixth month of the lease, and then expired. Tenant claims the right to terminate at any time, or at least for a reasonable time, after the end of the thirty sixth month. Which interpretation is correct?

Georgia’s courts routinely hear and resolve disputed contractual interpretations. The guiding principle is to determine the intent of the parties. What does the contract mean? The court’s first task is to decide whether the contract is ambiguous. If the contract is clear and unambiguous, the contract must generally be enforced as written, without consideration to the fairness of this result. If the contract is ambiguous, then the judge must attempt to resolve the ambiguity. An agreement is ambiguous when the language may be fairly understood in more than one way. To resolve an ambiguity, judges apply the rules of contract construction.

Among these rules are:
(1) Words and phrases are given their common meanings.
(2) Evidence other than the text of the contract (testimony, payment histories, e-mail, etc.) can be used only to interpret the text of the contract, but not to add, detract from or alter it.
(3) Where one interpretation would render a contract unenforceable and another would make it enforceable, the enforceable interpretation will carry.
(4) When part of a contract is printed or part of it handwritten, handwritten provisions will trump contradictory printed portions.
(5) The entire contract is to be interpreted as a whole and not in discrete parts. The same is true for multiple contracts signed as part of the same transaction.
(6) Where two clauses in a contract directly conflict one another, the first prevails.
(7) Ambiguous provisions are construed against the drafter. In the lease context, this typically means that ties go to the tenant.
(8) Prior interpretations of similar language by other courts are persuasive.
(9) Finally, reasonable interpretations are favored over strained ones.

If, by applying these and other rules, the ambiguity can be resolved, the judge enforces the contract as construed. If the judge cannot resolve the ambiguity in this manner, the case is presented to a jury to decide which of the parties’ competing interpretations will carry the day.

Applying these rules to the landlord tenant dispute at the beginning of this article, Georgia’s courts have interpreted a similar provision, finding the word “at” to be a “term of considerable elasticity of meaning.” As used in the lease context, “at” is more akin to “after” than “on.” One decision holds “the position that the election ought to have been made on the last moment of the last day is too absurd to seriously consider.” Given this precedent, the tenant would likely be permitted to terminate the lease any time after its thirty sixth month.

BFV Perspectives, Corporate Matters, Georgia Business Disputes, | Jan 21, 2015
William J. Piercy
William J. Piercy

Healthy business relationships are an essential component of business success.  When disputes cause business relationships to sour, declining productivity and revenues are sure to follow.  Bill works with business owners to bring successful and efficient resolution to a wide variety.