Method for Determining Renewal Rent Must Be Sufficiently Definite

Facts: A tenant that operated a market and deli entered into a lease for retail space. The lease was for five years ending in May 2016. The rental rate for the initial term was $5,500 for the first two years, and $6,000 for the remaining three years of the lease. The lease contained a renewal option giving the tenant the option of staying in its space for two additional five-year terms. The renewal option section of the lease read: “Upon six months notice and provided Tenant is not in default of any provision of this Lease, Landlord agrees that Tenant may renew this Lease for two five-year renewal options, each renewal at the then-prevailing market rate for comparable commercial office properties.”

Throughout the initial five-year term, the tenant paid its rent on time and was otherwise in compliance with the terms of the lease. Beginning in November of 2015, by letters and emails, the tenant notified the landlord of its intent to exercise the first of the two-renewal terms. The landlord refused to renew the lease. The tenant sued, seeking a declaration that it properly invoked the renewal clause in the lease, and an injunction—that is, an order compelling one party to take or not take a certain action—prohibiting the landlord from evicting it from the property.

The landlord asked a trial court for a judgment in its favor. The landlord contended that the renewal provision was unenforceable because it failed to state an essential term—that is, the amount of rent to be paid upon renewal. The tenant opposed the motion, arguing that the renewal provision was enforceable because it provided a method for arriving at the renewal rental amount. The trial court found the renewal provision to be “too indefinite” and “legally unenforceable.” It ordered the tenant to vacate the premises or, in the alternative, stay in the space while its appeal was pending—on the condition that it pay double the rent in the meantime.

Decision: A Florida appeals court affirmed the decision of the lower court.

Reasoning: The appeals court found that the trial court properly decided that the renewal section of the lease “was not a valid and enforceable renewal provision because the method provided by the parties for renewal was not a sufficiently definite procedure for calculating the rent, since there were too many open questions about the method for determining rent that were subject to future negotiations by the parties or had to be decided by the courts.” One of the troublesome open questions, said the appeals court, concerned how “prevailing market rates” and “comparable” properties would be determined.

The appeals court noted that, “the amount of rent to be paid is an essential element of a lease, if not the basis for a lease, and an agreement to make a lease, or to renew or extend a lease, that fails to specify either the amount of the rental or a definite procedure to be followed to establish the amount of the rental, is too indefinite to be legally binding and enforceable.” The issue here, said the appeals court, is whether “renewal at the then-prevailing market rate for comparable commercial properties, as provided in the lease, is a definite procedure to be followed to establish the amount of rent.” The appeals court pointed out that the court could reverse the judgment if, as the tenant contended, the language in the lease constituted a definite procedure, which would make the renewal provision enforceable.

But it stressed that the method for determining rent had to be sufficiently definite that the amount could be fixed with certainty—without resorting to further negotiations or litigation to resolve open questions in the methodology. Because the appeals court ultimately decided that the language didn’t provide a definite procedure, it was too indefinite to be legally binding, so the landlord wasn’t bound by the renewal provision and could choose not to renew the lease.

• Jahangiri v. 1830 North Bayshore, LLC, August 2018