Appellate Division of the Supreme Court of New York, Second Department · Contracts
Contractsleasesrenewal optionsagreements to agreeagreement to agreelease renewaloption to renewintent of the parties
Facts
The tenant operated a delicatessen under a five-year lease that included an option to renew for an additional five years at annual rentals "to be agreed upon," exercisable by written notice. After the landlord stated he did not intend to renew, the tenant timely responded that it intended to exercise the renewal right. The landlord then proposed substantially higher rent and additional burdensome terms, while the tenant obtained an appraisal and asked the court to enforce the option and determine a fair and reasonable rent. The tenant also claimed it had relied on the renewal right and would suffer serious loss if forced to vacate.
Issue
Is a lease renewal option stating that the renewal will be at rentals "to be agreed upon" enforceable in New York? If so, may a court determine a reasonable rent when the parties fail to agree and the lease provides no other standard?
Rule
A renewal clause in a lease providing for future agreement on rent during the renewal term is enforceable if it is established that the parties intended not to terminate the lease upon failure to agree. When that intent is shown and the agreement provides no other standard for fixing rent, the court may determine a reasonable rent.
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One of 10 multiple-choice questions for this case. Pick an answer to see why.
In Buffalo, Nora Kim leased storefront space from Lakeview Row Properties for four years to run a bakery. The lease gave Nora an option to renew for another four years at a rent "to be agreed upon," required timely written notice, and said nothing about what would happen if the parties could not agree. Nora timely exercised the option, but the landlord refused to renew and claimed the clause was too indefinite to enforce.
If Nora sues for specific performance of the renewal option, what is the best result?
Explanation. The majority held that a lease renewal clause calling for future agreement on rent is not unenforceable per se. The key question is whether the parties intended the lease to terminate if they failed to agree. If no such intent to terminate is established, and no other standard is supplied, the court may fix a reasonable rent. (Derived from Martin v. Schumacher (n.d.).)