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What is an Evergreen Clause and Whose Burden to Prove Renewal?Blog, Business
Posted in on April 10, 2017
Evergreen provisions are used in contracts, leases or other agreements that have a fixed maturity date, but the parties anticipate renewals of the term. Such evergreen contracts or leases automatically renew unless one of the parties gives the other notice of their intention not to renew. Generally the contracts will require some period, between one month and one year, of advance written notice.
In 2017, the Massachusetts Appeals Court analyzed the burden of proof applicable to evergreen contracts and evergreen lease clauses, and the court concluded that the party seeking to prove performance of the acts required to stop the automatic renewal had the burden to prove compliance with the terms of the contract. The underlying dispute involved a commercial lease, but the holding is applicable to any contact containing an evergreen clause.
The landlord and tenant in Patriot Power, LLC v. New Rounder, LLC, Mass. App. Ct. No. 16-P-420 (March 13, 2017), had disagreed as to whether the term of their commercial lease had automatically renewed. The landlord had filed a complaint seeking a declaratory judgment that the tenant had not effectively terminated the lease. The disagreement was purely factual, and the resolution depended on whether the jury believed the tenant’s assertion that it had included a termination letter in an envelope containing other correspondence or whether the jury believed the landlord’s assertion that there was no termination letter in the envelope received from the tenant.
The landlord raised the issue of burden of proof early in the dispute, and a judge concluded that the landlord had the burden of proof because it was the moving party. Executive assistants for each party testified in direct contradiction. The jury was instructed that the landlord had the burden of proof, and the jury returned a verdict in favor of the tenant. The landlord appealed. The Appeals Court reversed the jury verdict and remanded after concluding that the tenant had the burden of proof on this essential issue.
The Appeals Court recognized that the burden of proof in a declaratory judgment action depends on the nature of the underlying dispute, not on the party that initiated the action. Citing a case known by every Massachusetts law school graduate, Gray v. Gardner, 17 Mass. 188 (1821) (burden of proof for delivery of sperm whale oil), the court concluded that the tenant had the burden to prove performance of the condition that would avoid the automatic renewal. In other words, the tenant was required to prove that the termination letter required by the lease was contained in the envelope that it sent to the landlord during the applicable notice period.
This decision reinforces the principle that parties should understand the requirements for compliance with their contract conditions, ensure full compliance with any conditions, and extensively document any notifications sent to the opposing party.
If you have any questions about evergreen clauses, please contact the business attorneys at Baker, Braverman & Barbadoro, P.C. – Kim Kroha.