Joseph Martin, Jr., Delicatessen, Inc. v. Schumacher
52 N.Y.2d 105 (1981)
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Rule of Law:
A lease provision for renewal at a rental rate 'to be agreed upon' in the future is an unenforceable agreement to agree. For such a clause to be enforceable, it must contain a methodology, formula, or objective standard for determining the future rent.
Facts:
- In 1973, a landlord leased a retail store to a tenant for a five-year term with rent graduating from $500 to $650 per month.
- The lease contained a renewal clause for an additional five-year period at 'annual rentals to be agreed upon'.
- The tenant was required to give 30 days' written notice to exercise the renewal option.
- The tenant provided timely written notice of their intent to renew the lease.
- The landlord stated he would only agree to a renewal at a starting rent of $900 per month.
- The tenant hired an appraiser who determined a fair market rental value for the property was $545.41 per month.
- The landlord and tenant failed to reach an agreement on the rental amount for the renewal period.
Procedural Posture:
- The tenant commenced an action for specific performance against the landlord in Supreme Court, Suffolk County (trial court).
- The landlord brought a separate holdover proceeding to evict the tenant in the local District Court.
- The landlord moved for summary judgment in the tenant's Supreme Court action.
- The Supreme Court granted the landlord's motion for summary judgment, dismissing the tenant's complaint and finding the renewal clause unenforceable.
- The tenant (as appellant) appealed the Supreme Court's order to the Appellate Division (intermediate appellate court).
- The Appellate Division reversed the Supreme Court's order, reinstated the tenant's complaint, and held that the renewal clause could be enforceable.
- The landlord (as appellant) and the tenant (as appellant seeking modification) appealed to the Court of Appeals (the state's highest court).
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Issue:
Does a lease renewal provision that leaves the rent for the renewal period 'to be agreed upon,' without providing any method for determining the amount, create a definite and enforceable contract?
Opinions:
Majority - Fuchsberg, J.
No. A mere agreement to agree on a material term, such as rent, is unenforceable for indefiniteness as a matter of law. Before a court can enforce a promise, the promise must be sufficiently certain and specific so that what was promised can be ascertained. A clause stating rent is 'to be agreed upon' contains no formula, methodology, or recourse to an objective extrinsic standard, leaving the court with no basis to enforce the parties' bargain. Unlike contracts for the sale of goods governed by the Uniform Commercial Code, real estate contracts require a higher degree of stability and definiteness. To be enforceable, the clause would have needed to include a mechanism for determining the rent, such as providing a formula, referencing a price index, or specifying an appraisal process.
Dissenting - Jasen, J.
Yes. The better rule would be to permit judicial intervention to fix a reasonable rent when parties fail to agree under a renewal clause, in order to avoid the forfeiture of the tenant's rights. If the tenant can establish their entitlement to renewal under the lease, the court should be able to determine a reasonable rent rather than invalidating the entire renewal option. The dissent would affirm the Appellate Division's decision to allow the trial court to set a reasonable rent.
Concurring - Meyer, J.
No. While concurring in the result that this specific clause is unenforceable, the majority's reasoning is overly broad in rejecting the potential applicability of principles from commercial law to real estate leases. The author argues that a course of dealing between parties to a lease could, in some circumstances, give meaning to an otherwise uncertain renewal clause. However, the facts of this particular case do not demonstrate such a course of dealing, so the clause fails for indefiniteness.
Analysis:
This decision reaffirms the traditional common law principle that material terms in a contract, especially in real estate, must be definite to be enforceable. It firmly rejects the more modern, flexible approach favored by the lower court, which would have allowed courts to imply a 'reasonable' rent to save a defective renewal clause. The case solidifies a clear distinction between the treatment of real estate contracts, which demand stability and certainty, and contracts for the sale of goods under the UCC, which allows for greater flexibility with open terms. Consequently, this precedent places the burden squarely on contract drafters to include specific, objective mechanisms for determining future rent in lease renewal options.
