Once again the security system is giving me fits. This didn't post, so far as
I can tell, so I'm adding this line to permit me to post again.
Daily Development forTuesday, March 23, 2004
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin Kansas City, Missouri dirt@umkc.edu
LANDLORD/TENANT; EXTENSION AND RENEWAL; “REASONABLE RENT:” An option to renew
stating that the renewal rent shall be the “market rent is not, at least as a
matter of law, unenforceable for vagueness.
Miner v. Tustin Ave. Investors,10 Cal Rptr. 3d 178 (Cal. App. 2004)
The option to extend the Lease provided that rent for the option period "shall
be adjusted to the greater of market rent, or the rent adjustment of 3% over the
rent currently being paid by Lessee at the time of exercise of option." The
tenant argued that the term "market rent" is too vague to be enforceable.
Instead, he sought to exercise his option, but to limit the rent increase to 3
percent.
The court agreed that some option provisions are so uncertain as to amount to
nothing more than an agreement to agree. An example would be a lease option
providing for rent to be determined by mutual agreement of the parties at the
time of exercise of the option. The standard is whether the court the lease
agreement contains an "ascertainable standard" for the determination of rent.
But option agreements may be enforceable even where they do not specify the
exact amount of future rents, so long as there is an ascertainable standard for
the determination of rent. In such situations, courts "are not making a new
contract for the parties but merely compelling the parties to do what they
contemplated at the time they initially contracted."
In the instant case, the court held that it was premature to decide issues
regarding the "market rent" provision without the benefit of a trial court
record. The case had been resolved on a different issue which the court now was
reversing, giving rise to the question of adequacy of the renewal clause.
Also see: Lloyd Noland Foundation v. City of Fairfield, 837 So. 2d 253 (Ala.
2002) (the DIRT DD for 6/03/03) (Option to lease 120 hospital beds in which "the
location of the Premises and the amount of rent" shall be subject to
renegotiation at the option of either party" is not void as an "agreement to
agree" but rather imposes on the Landlord an obligation to negotiate in good
faith.)..
For a real “hardball” reading of a “market rent setting provision, see Wallace
v. 600 Partners Co., 634 N.Y.S.2d 669 (Ct. App. 1995) (The DIRT DD for
6/19/96)(Renewal provision in long term ground lease providing that rent is to
be fixed pursuant to an appraisal at a percentage of the "then value" of the
land, where a party desiring the appraisal is to give notice no earlier than
"twelve months prior to the "expiration of any such . . . term," requires the
determination of the rent for the term to take place a year before the
expiration of the renewal term, even if this defers determination of the rental
amount until 32 years after lease term commences.)
Comment: Note that an agreement to set the renewal rent at market rent is quite
different from an agreement to set the renewal rent at a “reasonable” rent. The
editor has taken the position in the past that such a renewal term is illusory,
but others have argued that it should be interpreted to mean “market.” For a
case apparently accepting this analysis, See e.g.Carlson v. Bold Petroleum,
Inc., 996 P.2d 751 (Colo. App. 2000), the DIRT DD for 3/12/01)
Items reported here and in the ABA publications are for general information
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Parties posting messages to DIRT are posting to a source that is readily
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