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 firstname.lastname@example.org
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)
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