Daily Development for
By: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of
Of Counsel: Blackwell Sanders Peper Martin
Kansas City,
prandolph@cctr.umkc.edu
LEASES; AMENDMENTS; CONSIDERATION: A
lease amendment must be supported by consideration, but consideration is
present if it provides only minor benefit to the parties, such as clarification
of the method by which renewal rent will be determined.
Oscar v. Simeonidis, 352 N.J.
Super. 476, 800 A.2d 271 (App. Div. 2002).
As a part of a purchase agreement to buy a restaurant business, the buyer
took over its seller's lease agreement.
The lease was for a ten year term calling for a fixed monthly rent
during the first year to be increased annually according to the consumer price
index with a minimum annual increase.
The lease also required "Tenant to pay real estate taxes and any
increases therein on a monthly basis, payable to the landlord and included with
the rental payment." Another
provision of the lease agreement contained a renewal option that stated:
"At the termination of the within lease, the tenant is given the first
option to enter into a new rental agreement with the landlord. This option will be two consecutive five year
terms with an increase based on fair market rent."
Even though the lease contained a provision that it could
not be changed except in writing, the parties, from the onset, deviated from
the terms of the agreement. Over
the years, the rent paid did not always correspond to the amount stated in the
lease and often the taxes were included within the rental payment. During the final three years of the
agreement, the landlord increased the rent to $3,150 a month, inclusive of
taxes, and the tenant paid that amount without challenge.
As the ten-year term was about to expire, the landlord sent a letter
offering to continue the lease at a new rent of $5,000, inclusive of real
estate taxes. The tenant did not respond
and the landlord sent a time-of-the-essence letter requesting that its tenant
either consent to renewal of lease at the new rate or surrender the
premises. After no response was
received, the landlord sought to evict the tenant.
At trial, the parties argued about the fair market value rental of the
premises. After close of proofs, it was contemplated
that the parties would submit written submissions. However, prior to the date for such
submissions, the tenant discovered that a third party lender had a copy of a
written lease amendment in its files
which changed the renewal price for the lease from fair market rent to
"Increases based upon terms of the original lease." Neither landlord nor tenant "seriously
disputed the authenticity of the document." The tenant had been aware of the document and
the landlord testified that "he did not recall signing the document, but
he did not deny that he had signed it."
Apparently, the document was executed in connection with the original
sale of the restaurant.
According to the Court, this "amendment thus directed how the rental
would be determined almost nine years later in the event tenant
were to exercise to renew."
It was the Court's belief that the "parties intended to revert to a
simple mathematical calculation utilizing the CPI formula specified for the
rental during the original ten-year term instead of then seeking to ascertain
the fair market value."
The landlord, "[w]hen asked whether he had received anything of value
for the modification, [said]... well, ' no and that doesn't appear to be the
intent of it... .'" The lower court, sua
sponte, concluded "that the amendment purporting
to change the rent during the period of any extension ... was unenforceable
because '[the tenant] presented no evidence that would constitute legal
consideration.'" The lower court
then determined that the fair market value of the premises was the amount that
the landlord had been asking for. It
also held that, according to the lease, the taxes were to
paid in addition to the fixed monthly rent.
The Appellate Division agreed that "no contract is enforceable...
without the flow of consideration ... both sides must 'get something' out of
the exchange." On the hand, the
court noted that it has been long accepted that "[a] very slight advantage
to one party, or a trifling inconvenience to the other, is sufficient
consideration to support a contract when made by a person of good capacity, who
is not at the time under the influence of any fraud, imposition or
mistake." Even payment of an
existing rent obligation "one day in advance of the due date would suffice,
slight as that consideration would be."
Apparently, the lower court had concluded that because the tenant testified
he believed the landlord had signed the amendment "as a favor" to
help the original restaurant owner sell the business, this amendment lacked
consideration. According to the
Appellate Division, "[s]uch a view is too narrow
and overly exacting. Moreover, the
opinion of one or both of the parties as to whether anything of value had been
given or received for the modification may be informative but it is not dispositive."
The original lease preserved the right of the parties to modify the lease so
long as the terms of the modification were in writing and signed by both
landlord and tenant. The amendment
complied with those requirements.
Here, according to the Court, "the parties adopted a formula that would
permit them and any other interested person to determine the rental upon
renewal of the lease by reference to objective, readily ascertainable criteria. This is itself is valuable consideration
sufficient to sustain the modification because the mutual agreement to abide by
such a formula has the capacity to remove an element of uncertainty from the
parties' future legal relationship."
"Fair market rental" is not a self-defining term. Therefore, the parties avoided the likelihood
that they would have to resort to consultants, appraisers or other
experts. Removing or reducing future
uncertainty or doubt from the dealings of landlord and tenant was held to be
sufficient consideration for the amendment.
As to the way in which the rent was to be calculated under the amendment,
the Court pointed out that the landlord's willingness to accept rental payments
that differed from those stated in the lease constituted only a waiver as to
those payments that had already been received, "but such prior concessions
do not constitute a waiver of terms yet to be fulfilled." Consequently, the renewal rental rate was to
be based upon the formula set forth in the lease, even though most of the
rental payments throughout the initial term of the lease included real estate
taxes. Real estate taxes during the
renewal term were ordered to be paid in addition to the basic rental, and not
be included within the basic rental.
Comment 1: It is generally accepted that consideration is required to amend
a lease. See Friedman on Leases, Fourth
Ed. Sec. 10.501, n. 9. Certainly the reduction of a
vague and arguably unenforceable renewal agreement to a specific formula, that
may or may not lead to a greater rent, ought to be regarded as adequate
consideration for both parties.
Comment 2: N.Y. General Obligation Law Sec. 5-1103 provides that an agreement to modify a lease or mortgage that is in writing does not require consideration to be valid..
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