## Facts

- A landlord partnership (Leon Pizante and Adolfo Zlotolow) leased a Beverly Hills, California building to the United States Postal Service for use as a post office.
- The lease had a five-year term and a renewal option requiring 90 days’ advance written notice before expiration.
- The partnership assigned lease rights to Franklin Life Insurance Company as mortgage security.
- During the term, the government sent Franklin Life a written notice stating its intent to exercise the renewal option; the notice misstated the street number (3940 instead of 3950) but otherwise identified the lease and premises.
- The government later sent a copy of the renewal notice to Pizante, misspelling his name; a partnership employee signed the certified-mail return receipt.
- Pizante transferred his partnership interest to Zlotolow, leaving Zlotolow as the landlord.
- About one month before the lease expired, Zlotolow asserted the government had not properly renewed and demanded that it vacate at term end.
- The government responded with copies of its prior notices and the signed receipt, and it remained in possession after the original term.
- Zlotolow sought damages for lost rental value, alleging the government’s post-expiration occupancy was a holdover or unauthorized use because the option had not been effectively exercised.

## Issues

1. Whether federal law or California law governed the sufficiency of the government’s exercise of a renewal option in a lease to which the United States was a party.
2. Whether the government’s renewal notices, despite clerical errors in address and spelling, were timely and sufficiently clear to constitute an effective exercise of the renewal option.
3. If the option was not effectively exercised, whether the landlord could recover market-rate rental damages for the government’s continued occupancy after the original term.

## Decision

- The Court of Federal Claims held that federal law governed interpretation and enforcement of the United States’ contractual obligations under the lease.
- Applying federal contract principles, the court held the government timely and effectively exercised the renewal option.
- The court treated the street-number mistake and misspelling as minor clerical errors that did not mislead the landlord about the property, the lease, or the government’s intent to renew.
- Because the lease continued into the renewal term, the government’s continued possession was not a wrongful holdover, and Zlotolow’s damages theory failed.
- Judgment was entered for the United States on the renewal/notice dispute, and the claim for damages premised on nonrenewal was denied.

## Legal Principles

- In contract litigation involving the United States as a party, federal common law generally governs contract interpretation and enforcement absent a controlling directive to apply state law.
- Under federal contract law, an option is effectively exercised when notice is timely and objectively manifests a present, unconditional intent to exercise the option in a manner that reasonably identifies the contract and election.
- Minor clerical errors in an option notice do not defeat exercise when, in context, the communication would not reasonably mislead the recipient about the lease or the election to renew.
- When a renewal option is validly exercised, the tenant’s post-expiration possession continues under the renewed lease term, foreclosing holdover-based market-rent damages.

## Conclusion

The Court of Federal Claims applied federal law to a federal lease and held that the government’s timely renewal notices, though containing minor clerical errors, validly exercised the renewal option, defeating the landlord’s claim for market-rate damages based on an alleged failure to renew.


Zlotolow v. United States, 35 Fed. Cl. 133 (Fed. Cl. 1996)