In Jahangiri v. 1830 North Bayshore, LLC, the owners of a Miami deli tried to exercise their first renewal option under a commercial lease. The tenants were not able to exercise their first renewal option because the Court ruled that the renewal provision lacked a definite price term or definite procedure to determine the price term in the future.
La Bottega on the Bay, LLC, entered into a written lease for commercial property in Miami with landlord 1830 North Bayshore, LLC. The lease contained the following provision:
RENEWAL OPTIONS: Upon six months [sic] notice and provided [lessee] is not in default of any provision of this Lease, LESSOR agrees that [lessee] 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 tenants timely paid rent and were otherwise in compliance with the terms of the lease. Upon trying to renew the lease under the Renewal Option, the landlord refused to renew. The tenants then sued to enforce the Renewal Option.
The Court found that the terms “prevailing market rate” and “comparable” yielded too many open questions to be considered definite. The Court held the price term for the renewal options were too indefinite and, therefore, not legally enforceable.
In its holding, the Court stated the prevailing rule that where renewal rent can only be determined after future negotiations between the parties, or litigation, the procedure is not definite enough for there to have been a meeting of the minds on that essential term in the lease.
Whether you are a commercial landlord or the tenant, carefully review the lease provisions with an attorney. Make sure that all of the provisions of the lease are acceptable and enforceable. There should be no surprises when you read a lease.
Where possible, use definitive prices, dates, and defined terms. When it comes to contracts, the less that is left up for interpretation, the better.
Finally, in the rare situations where a contract term cannot be definitive, make sure there is a definitive procedure for reaching that term at a later date. Courts are reluctant to enforce an ambiguous contract where they do not believe the parties’ intentions are clear, and are more likely to render provisions unenforceable than to assign their own interpretation.
If you have any questions or concerns about commercial leasing, please feel free to contact me at email@example.com or by phone at 239-344-1164.