The Lawletter Vol 40 No 11
The Supreme Court of Mississippi recently addressed the issue of the enforceability of a renewal provision in a land lease agreement that left for future negotiation matters such as the renewal period, the rental amount, and increases in rent. The court held that the provision was unenforceable. Intrepid, Inc. v. Bennett, No. 2014-CA-00999-SCT, 2015 WL 5158397 (Miss. Sept. 3, 2015) (not yet released for publication). In ruling that the renewal clause in the parties' lease was not enforceable, the Intrepid court reasoned that since "the rental amount in a lease contract is an essential and basic requirement," the parties' failure to set forth a "definite method to determine the rent upon renewal" was fatal to the enforceability of the renewal clause in their lease agreement. Id. at *3. The court noted that "[t]he [lease] option, by its very terms, required that rent 'shall be renegotiated,' and its uncertain formula for determining the amount of increase made this task impossible." Id.
The Intrepid court cited the well-settled maxim of contract law that "while courts may supply reasonable terms which the parties omitted in the contracting process, such as a time for performance, essential terms such as price cannot be left as open-ended questions in contracts which anticipate some future agreement." Id. at *2 (quoting Duke v. Whatley, 580 So. 2d 1267, 1273-74 (Miss. 1991)).
The Intrepid case is good reminder to attorneys who practice real estate law that although the parties to a lease contract that contains a renewal option do not necessarily have to specify a definite or fixed amount as the rent that must be paid upon the exercise of the option to renew the lease, the parties thereto must, at the very least, designate some formula or method by which the future rent can be computed. When drafting a renewal clause in a real estate lease (or, presumably, any other kind of lease), it is not enough to simply leave the rent terms for future negotiation of the parties. Otherwise the renewal provision in the lease agreement may be deemed unenforceable.
For an excellent discussion of the Intrepid case, the reader is advised to consult Quinlan, Lease Renewal —Renewal Provision in Lease Leaves Rent to Be Renegotiated, 36 No. 10 Landlord Tenant L. Bull. NL 2 (Oct. 2015).