Meeting of the Minds and Contract Provisions

Meeting of the Minds and Contract Provisions

Florida’s Third District Court of Appeals recently ruled on the issue of whether a lease renewal provision was enforceable in Jahangiri v. 1830 North Bayshore, LLC, 253 So.3d 699 (2018).

FACTS OF CASE

Jahangiri entered into a written lease for commercial property in Miami, Florida. The lease was for five years ending on May 31, 2016. Rent for the initial term was $5,500 for the first two years, and $6,000 for the remaining three years. Section 27 of the lease stated:

RENEWAL OPTIONS: Upon six months 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 lessee timely paid its rent and was otherwise in compliance with the terms of the lease. Beginning in November of 2015, via letters and electronic mail, the lessee notified the landlord of its intent to exercise the first of the two-renewal terms. The landlord refused to renew the lease. The lessee filed a lawsuit seeking a declaration it properly invoked the renewal clause in the lease, and an injunction prohibiting the landlord from evicting the lessee from the property.

During litigation, the landlord moved for summary judgment contending the renewal provision was unenforceable because it failed to state an essential term, i.e., the amount of rent to be paid upon renewal. The lessee opposed the motion arguing that the renewal provision was enforceable because it provided a method for arriving at the renewal rental amount.

The trial court found the renewal provision to be “too indefinite” and “legally unenforceable.” It ordered appellants to vacate the premises, but stayed the order pending appeal on the condition that appellants pay double the rent in the interim.

APPELLATE RULING

The Third District Court of Appeals identified the issue as follows:

“'[T]he amount of rental is an essential element of a lease, if not the basis for a lease, and an agreement to make a lease, or to renew or extend a lease, that fails to specify either the amount of the rental or a definite procedure to be followed to establish the amount of the rental, is too indefinite to be legally binding and enforceable.' (citation omitted)

"The issue here is whether 'renewal at the then prevailing market rate for comparable commercial office properties,' as provided in this lease, is a definite procedure to be followed to establish the amount of rent.

"If it is, as the lessee contends, then it is an enforceable renewal provision (and we must reverse the trial court’s judgment). If it is not a definite procedure, as the landlord contends, then it is too indefinite to be legally binding (and we must affirm).”

After a thorough review of Florida jurisprudence on the issue, the Court ruled that the lease provision was too indefinite, and as such, there was no “meeting of the minds” to create a binding renewal provision. It said,

“There are too many open questions about the method for determining rent that are subject to future negotiations by the parties or have to be decided by the courts. 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.”

The court concluded by stating the rule of law as follows:

“the method for determining rent has to be sufficiently definite that the amount could be fixed with certainty without resorting to further negotiations or litigation to resolve open questions in the methodology. This one was not, and we have ‘no right to write a contract for parties where none exists.’”

Therefore, the appellate court upheld the trial court’s ruling.

APPLICATION

It is likely that your residential lease agreement does not give the tenant the right to renew. If it does, I recommend you changing that provision not to allow the tenant to renew. If you want to make an offer to renew, you can deliver to the tenant the terms of your renewal offer.

The legal principle regarding “meeting of the minds” applies to all contracts. For the parties to be bound by a term in the contract, the terms must be definite enough for determination; otherwise the provision may be unenforceable. And if the material terms of a contract are too indefinite, the entire contract may be unenforceable.

If you have a landlord-tenant matter or are property management company, contact landlord-tenant specialist attorney, Tim Baldwin at The Virga Law Firm, P.A. to get a consultion. Call (850) 972-8610.