You’ve probably seen contracts containing “renewal” options. Examples include lease agreements, software maintenance agreements, and the like. (Some examples are included at the end of this posting.)
I’ve long had a vague preference for describing such a right as an “extension” option. My concern was that a creative trial counsel might try to argue that a “renewal” option had the effect of sending the parties back to Square One in respect of some relevant right or obligation.
It seems that my concern was not unwarranted: In a case from this past week, the Eighth Circuit affirmed a declaratory judgment that a particular lease-extension option, expressly labeled as such, was really an option to renew — and thus under Minnesota law the parties would have to negotiate the terms and conditions of the renewal. See Camelot LLC v. AMC ShowPlace Theatres, Inc., No. 11-1767 (8th Cir. Jan. 18, 2012) (affirming declaratory judgment).
So one lesson is: If you don’t want to have to renegotiate the terms of a contract when you extend it, you might want to use the word “extension” and not the word “renewal.”
But even that might not save you, because of the mystifying way that the Eighth Circuit transmuted an option to extend into a negotiable option to renew.
