## Facts

- Commercial Resource Group, LLC (CRG) leased a commercial building to The J.M. Smucker Company (Smucker) under a written lease, as amended in 2005.
- The lease term structure included an initial term and up to four additional one-year renewal terms.
- The lease provided for automatic renewal unless Smucker gave CRG written notice of intent to terminate at least 180 days before the end of the current term.
- CRG later sent Smucker written direction that all future rent payments and lease correspondence should be sent to a new address; Smucker thereafter sent rent payments to the new address.
- Smucker decided not to renew and attempted to terminate by notice.
- On December 22, Smucker sent a termination notice via FedEx to CRG’s prior address.
- FedEx notified Smucker on December 23 and December 30 that the package was undeliverable at the old address.
- On January 4, Smucker sent a second termination notice to CRG’s new address; CRG received it on January 5.
- CRG asserted the notice did not satisfy the 180-day requirement, treated the lease as renewed, and sued to enforce the renewed term and recover rent.

## Issues

1. Whether the lease’s nonrenewal/termination notice provision operated as an option to terminate requiring strict compliance, or as a contractual covenant subject to substantial performance and flexible timing.
2. Whether substantial performance, lack of prejudice, or unconscionability could excuse Smucker’s failure to deliver timely notice in the manner required to prevent automatic renewal.

## Decision

- The Eighth Circuit reversed and remanded.
- The court held the cancellation/nonrenewal provision functioned as an option to terminate and therefore required exact compliance.
- Smucker did not strictly comply because CRG did not receive timely written notice within the 180-day period.
- The court rejected the district court’s use of substantial performance and lack of prejudice to validate a defective exercise of an option.
- The court held the record did not establish substantive unconscionability sufficient to refuse enforcement of the option’s strict notice requirements.

## Legal Principles

- A lease clause allowing termination or avoidance of automatic renewal upon timely notice is treated as an option; options are strictly construed and require exact compliance with conditions precedent.
- Substantial performance and similar equitable concepts generally do not excuse noncompliance with the requirements for exercising an option.
- Undelivered or misdirected communications do not satisfy an option’s notice condition; the operative inquiry is whether effective notice was delivered/received as required by the contract.
- Unconscionability requires a showing of serious unfairness or hardship beyond ordinary commercial consequences; economic loss from strict enforcement against a sophisticated party, without more, is insufficient.

## Conclusion

The Eighth Circuit treated the lease’s 180-day nonrenewal notice requirement as a strictly enforced option condition; because Smucker’s notice was misdirected and received after the deadline, the option was not exercised, and equitable doctrines did not justify disregarding the contract’s terms.


Commercial Resource Group, LLC v. J.M. Smucker Co., 753 F.3d 790 (8th Cir. 2014)