Martin v. Schumacher
70 A.D.2d 1, 1979 N.Y. App. Div. LEXIS 12296, 419 N.Y.S.2d 558 (1979)
Rule of Law:
A lease renewal clause providing for future agreement on rent is enforceable if the parties intended for the lease not to terminate upon their failure to agree, and in such circumstances, a court can fix a reasonable rent.
Facts:
- Plaintiff Martin Delicatessen, Inc. purchased a delicatessen business in 1958.
- Plaintiff entered into a 15-year lease for the delicatessen store premises with the building owner.
- Defendant Schumacher later acquired the property.
- When the original lease expired in 1973, Martin Delicatessen, Inc. and Schumacher entered into a new five-year lease.
- The new five-year lease included a provision in paragraph 30 stating, 'The Tenant may renew this lease for an additional period of five years at annual rentals to be agreed upon; Tenant shall give Landlord thirty (30) days written notice, to be mailed certified mail, return receipt requested, of the intention to exercise such right.'
- In September 1977, Schumacher wrote to Martin Delicatessen, Inc. stating he did not intend to renew the lease.
- Martin Delicatessen, Inc. promptly responded, indicating its intention to exercise the right to renew the lease.
- Schumacher replied by proposing renewal rent starting at $900 per month and increasing to $1,500 in the last year, along with additional terms placing new burdens on Martin Delicatessen, Inc.
- Martin Delicatessen, Inc. retained an appraiser to evaluate the fair market rental of the premises and informed Schumacher that the appraiser determined a fair and reasonable rental for the renewal period that was less than the current rent.
Procedural Posture:
- Plaintiff Martin Delicatessen, Inc. initiated an action in the Supreme Court to compel specific performance of the lease renewal clause and for a judicial determination of a fair and reasonable rental.
- Defendant Schumacher initiated a holdover proceeding in the District Court to regain possession of the premises.
- Special Term granted Schumacher's motion for summary judgment, dismissing Martin Delicatessen, Inc.'s complaint on the grounds that the agreement was unenforceable.
- Special Term denied Martin Delicatessen, Inc.'s motion to consolidate the District Court eviction proceeding with the Supreme Court specific performance action.
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Issue:
Does a lease renewal clause stating that future annual rentals are 'to be agreed upon' create an enforceable agreement, allowing a court to determine a reasonable rent if the parties fail to agree?
Opinions:
Majority - Lazer, J.
Yes, a lease renewal clause stating that future annual rentals are 'to be agreed upon' can create an enforceable agreement, and a court can determine a reasonable rent if the parties fail to agree, provided the parties intended for the lease not to terminate upon such a failure. The court overrules prior New York cases that deemed such 'agreement to agree' clauses unenforceable per se for uncertainty (e.g., Forma v Moran, Huber v Ruby, Sammis v Town of Huntington). This modern approach is based on evolving jurisprudence that emphasizes the intent of the parties at the time of agreement, similar to the Uniform Commercial Code (§ 2-305) which permits contracts of sale even if the price is not settled, if the parties so intend. The court further asserts that there is no practical reason to exempt lease provisions from this rule, citing May Metropolitan Corp. v May Oil Burner Corp., which held that a 'mutually agreed upon' clause required an inquiry into intent. Public policy, including the traditional bias in favor of lessees, protection against unconscionable lease provisions (Real Property Law § 235-c), and the equitable abhorrence of forfeitures (e.g., J.N.A. Realty Corp. v Cross Bay Chelsea), supports judicial intervention to prevent injustice. If the tenant can establish its entitlement to renewal and that the parties intended the lease to continue despite a failure to agree on rent, the court possesses equitable power to devise a remedy by fixing a reasonable rental based on available proof, as equity is distinguished by its flexibility and adaptability to circumstances. The court found this consistent with section 230 of the second Restatement of Contracts.
Concurring - Suozzi, J.P.
I concur with the majority's conclusion that a lease renewal clause containing an 'unadorned agreement to agree on a future rental' should not be considered unenforceable for uncertainty as a matter of law, and therefore I agree with reversing the lower court's dismissal of the complaint. However, I disagree with the majority's emphasis on requiring the tenant to first establish that the parties' intent was not to terminate in the event of a failure to agree. I believe that, similar to approaches in other jurisdictions and in the First Department's decision in Tai On Luck Corp. v Cirota, courts should directly proceed to fix a reasonable rent for the parties when they cannot agree. In Tai On Luck, the court found a landlord's demand for five times the original rent to be arbitrary and unconscionable and directed the trial court to fix an appropriate rent, effectively implying an agreement to a reasonable rental without a separate inquiry into the parties' intent not to terminate. To prevent injustice and avoid a forfeiture, and to truly implement the rationale of preventing a tenant from being at the mercy of a landlord, the trial court should be empowered to immediately fix a reasonable rent.
Analysis:
This case significantly shifted New York's stance on 'agreements to agree' in leases, moving from a strict, formalistic rule of unenforceability to a more flexible, intent-based approach. By allowing courts to determine a 'reasonable rent,' it provides a crucial safeguard against landlords using vague renewal clauses to impose unconscionable terms or force out tenants who have made significant investments. This decision harmonizes New York contract law with modern jurisprudence and principles found in the Uniform Commercial Code and equitable remedies, potentially influencing how courts interpret other indefinite contractual terms where party intent and reliance are evident. It empowers courts to prevent forfeitures and promote fairness in contractual relationships, particularly in commercial leasing contexts.
