Citation. 22 Ill.382 S.W.2d 198 (Ky. 1964)
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Plaintiff lessee, entered into a 10 year lease agreement with the Defendant lessor. The lease agreement included an option to renew the lease for an additional ten years, but did not set the rent amount for the additional ten years.
Synopsis of Rule of Law.
Under the traditional approach, there must be substantial certainty as to the material terms for an agreement to be enforceable. Courts using the traditional approach will not enforce an agreement if a material term is indefinite or ambiguous.
Facts.
Plaintiff leased a small lot from Defendant for a ten year term. The lease agreement between the parties provided an option to renew for an additional ten years. The option included the same terms as the original lease, but did not set an amount for rent. The lease option provided that the rent would be set “in such amount as shall actually be agreed upon by the lessors and the lessee with the monthly rental fixed on the comparative basis of rental values as of the date of renewal with rental values at this time reflected by the comparative business conditions of the two periods.”
Plaintiff gave proper notice of renewal, but the parties were unable to reach an agreement as to the amount of rent. The trial court enforced the option and set rent at $125 per month.
Issue.
Can Plaintiff enforce the option to renew the lease?
Held.
No. The option is unenforceable because the provision for setting the rent is indefinite and ambiguous.
In the present case, the Court applies the traditional approach. Under the traditional approach, courts are reluctant to complete an incomplete agreement made by the parties. This is based on the concept that substantial certainty with regard to the material terms is required for a meeting of the parties’ minds to occur. The traditional approach requires that an option to renew a lease set the amount of rent or provide a clear method for determining the rent. The Court determines that the provision in the lease renewal option does not clearly establish a method for determining the amount of rent; therefore, the provision is too vague to enforce.
The Court does not hold that an option to renew must provide a dollar amount for rent to be enforceable. A definite objective standard would be sufficient for the court. For example, if the parties had agreed on a specific method, computation, formula, or even arbitration to determine the rent, the court would have enforced the option.
The Court characterizes the provision as an unenforceable agreement to agree. Because the parties have failed to agree as to a rent amount for the renewal, the court is unwilling to enforce a “nonagreement.” The Court goes on to criticize courts that are willing to insert such terms as “paternalistic.”
Discussion.
Under the traditional approach, courts will not complete an incomplete agreement or agreement to agree. For an option to renew a lease to be enforceable under the traditional approach, the parties must agree to the amount of rent or clearly establish a method for determining the rent.
