Plaintiff brought suit against its landlord, Defendant, for specific performance on a renewal clause in its lease, which allowed for Plaintiff to renew at a rate which was “to be agreed upon.”
The basic rule of this case is that contractual clarity is a must when including renewal clauses and encompassing future contractual relations. The parties in this case were not succinct in their contract and as such, a renewal clause that could have benefited a lessee was found to have no affect against a lessor.
The Defendant, Schumacher (Defendant), leased a retail location to the Plaintiff, Joseph Martin, Jr., Delicatessen, Inc. (Plaintiff), for a term of five-years, on a graduated rent scale. Within the lease agreement was a renewal clause, which allowed for future rent, “to be agreed upon.” The Plaintiff desired to renew its lease, but the landlord would not agree upon a reasonable rent. Plaintiff brought suit for specific performance, to compel its landlord to extend the lease at a reasonable rate. At the trial level, the Defendant prevailed with a finding that no definite agreement to renew exists, if the parties could not agree upon the terms. The Plaintiff prevailed at the appellate level and the Defendant appealed to the Court of Appeals.
Is a renewal clause enforceable when an integral term is conceived of as “to be agreed upon” at a later date?
The Court found for the Defendant, noting that there the renewal clause was too vague to have encompassed an agreement as to the amount of rents and that the Defendant need not be compelled to follow the market value if he was able to get a larger rent elsewhere.
Put another way, the Court held that when an agreement has terms that are “to be agreed upon” at a future time, the failure to agree to those terms renders the agreement invalid.
Judge Jasen ruled that a better rule would allow the Plaintiff to establish entitlement to renewal under the lease.
When renewal clauses are to be used, the parties must conceive of price mechanisms. Failure to agree to an integral term of an agreement could void an agreement entirely and allow a party to walk away, as did the landlord herein.