Joseph Martin, Jr., Delicatessen, Inc. v. Schumacher

• Decision Date: 06 August 1979
• Parties: JOSEPH MARTIN, JR., DELICATESSEN, INC., Appellant, v. Henry D. SCHUMACHER, Respondent.
• Court: New York Supreme Court — Appellate Division

Page 558

419 N.Y.S.2d 558

70 A.D.2d 1

JOSEPH MARTIN, JR., DELICATESSEN, INC., Appellant, v. Henry D. SCHUMACHER, Respondent.

Supreme Court, Appellate Division, Second Department.

Aug. 6, 1979.

Flower & Plotka, Bay Shore (Edward Flower, Bay Shore, of counsel), for appellant.

George W. Lipp, Jr. and David S. J. Rubin, Babylon, N. Y., for respondent.

Before SUOZZI, J. P., and O'CONNOR, LAZER and GULOTTA, JJ.

LAZER, Justice.

The issue on this appeal is whether an option to renew a lease at "rentals to be agreed upon" classical language of an "agreement to agree" is enforceable in this State. Frustrated in its effort to effect a renewal under the mentioned clause, the tenant instituted an action to compel is performance and the landlord reacted with a holdover proceeding in the District Court to regain possession of the premises. The appeals are from Special Term's order granting the landlord's motion for summary judgment dismissing the complaint on the ground that the agreement was unenforceable, and from a further order of the same court denying the tenant's motion to consolidate the eviction proceeding with the specific performance action.

The option clause in issue is contained in paragraph 30 of the lease and reads:

"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."

The premises involved is a delicatessen store located in a building owned by the defendant in Sayville, Long Island. When plaintiff purchased the delicatessen business in 1958 it entered into a 15-year lease with the owner of the building. The defendant subsequently acquired the property and when the original lease expired in 1973 he and the plaintiff entered into a five-year lease which provided for monthly payments that increased from $500 to $650 over the term and contained the provision now in dispute. In September, 1977 defendant wrote to plaintiff that he did not intend to renew the lease and plaintiff promptly responded that it intended to exercise the right to renew. The defendant's reply was that under the renewed lease the rent would commence at $900 per month for the first two years, increase to $1,200 monthly for the next two, and rise ultimately to $1,500 in the last year. He also specified additional terms to be inserted in the renewal lease which placed significant new burdens upon the tenant. Following further correspondence between the parties, plaintiff retained an appraiser to evaluate the "fair market rental of the premises and notified the owner that the appraiser's determination was that the fair reasonable rental for the premises was a lesser sum than was currently being paid. In the present action to enforce the option plaintiff also seeks a determination that the fair and reasonable rental for the five-year renewal period is the amount proposed in its appraisal or such other sum as the court might set.

Plaintiff contends that it paid consideration for the right to renew, that it made significant expenditures in reliance upon that right, that over the years it built up a local business, that the majority of its customers live within walking distance of the store, and that it will suffer "a great, incalculable financial loss" if forced to vacate. It also argues that if the renewal clause is not enforceable under traditional strictures in New York this court ought to bring the law of New York into conformity with the more liberal approach evolved in other jurisdictions.

I

Although the traditional rule is that a provision for renewal or extension of a lease must be "certain" in order to render it binding and enforceable, the modern trend is toward greater recognition of the enforceability of provisions which provide for renewal rentals to be agreed upon (see Ann. 58 A.L.R.3d 500). In some jurisdictions, such renewal clauses are enforceable if the lease clearly establishes a "mode for ascertaining the future rental rate" (see Slayter v. Pasley, 199 Or. 616, 620, 264 P.2d 444, 446; see, also, Pingree v. Continental Group of Utah, Inc., 558 P.2d 1317, 1321 (Utah)) or expressly provides for a "reasonable rental" during the extension period (State Road Dep't v. Tampa Bay Theatres, Inc., 208 So.2d 485, 487 (Fla.App.)). In George Y. Worthington & Son Mgt. Corp. v. Levy, 204 A.2d 334, D.C.App.) the District of Columbia Court of Appeals held that an option to renew at a rent based upon "prevailing fair rentals" for similar property at that time contained a "definite criterion" for the ultimate determination of the rent and was enforceable (see, also, Aycock v. Vantage Mgt. Co., 554 S.W.2d 235 (Tex.Civ.App.); Bechmann v. Taylor, 80 Colo. 68, 249 P. 262) and in Greene v. Leeper, 193 Tenn. 153, 245 S.W.2d 181, 1951, a renewal clause providing for a rental to be agreed upon according to "business conditions" was deemed enforceable. Fuller v. Michigan Nat. Bank, 342 Mich. 92, 68 N.W.2d 771, upheld a clause which provided for a rental to be agreed upon dependent on then "existing conditions."

In other jurisdictions renewal provisions calling for future agreement are enforceable if the court finds that the parties have agreed to confer at some future date for the purpose of agreeing on the specific terms of the rental, in which case a mutual agreement between the parties for a reasonable rental will be implied.

The "implied agreement" approach is exemplified in Hammond v. Ringstad, 10 Alaska 543; Hall v. Weatherford, 32 Ariz. 370, 259 P. 282; Cassinari v. Mapes, 91 Nev. 778, 542 P.2d 1069; Drees Farming Assn. v. Thompson, 246 N.W.2d 883 (N.D.); Moss v. Olson, 148 Ohio St. 625, 76 N.E.2d 875; Rainwater v. Hobeika, 208 S.C. 433, 38 S.E.2d 495; Playmate Club v. Country Clubs, 62 Tenn.App. 383, 462 S.W.2d 890; Young v. Nelson, 121 Wash. 285, 209 p. 515; and Moolenaar v. Co-Build Cos., 354 F.Supp. 980 cases where the word "reasonable" was read into renewal clauses which provided that rents were to be agreed upon and contained no mode for ascertaining the rent. In Moolenaar (Supra, pp. 982-983) the court rationalized its action as follows:

"First, it will probably effectuate the intent of the parties better than would striking out the clause altogether. A document should be construed where possible to give effect to every term, on the theory that the signatories inserted each for a reason and if one party had agreed to the clause only in the secret belief that it would prove unenforceable, he should be discouraged from such paths.

Secondly, a renewal option has a more sympathetic claim to enforcement than do most vague contractual terms, since valuable consideration will often have already been paid for it. The option of renewal is one factor inducing the tenant to enter into the lease, or to pay as high a rent as he did during the initial period. To this extent the landlord benefited from the tenant's reliance on the clause, and so the tenant has a stronger claim to receive the reciprocal benefit of the option. See Young v. Nelson, 121 Wash. 285, 209 P. 515, 30 A.L.R. 568 (1922). Finally, I might take note of the policy of construing ambiguities in lease agreements against the landlord, or, with more theoretical justification but little difference in practical result, against the party responsible for drafting the document."

II

In this State cases construing renewal clauses which provide for future agreement on all the terms of a lease (See, e. g., Willmott v. Giarraputo, 5 N.Y.2d 250, 184 N.Y.S.2d 97, 157 N.E.2d 282; Tracy v. Albany Exchange Co., 7 N.Y. 472; Ancorp Nat. Serv. v. Port Auth. of N.Y. N.J., 50 A.D.2d 790, 377 N.Y.S.2d 505; Moran v. Wellington, 101 Misc. 594, 167 N.Y.S. 465) or which interpret renewal clauses providing for future agreement as to rent alone are not abundant. Renewal clauses involving rent to be agreed upon later have been ruled enforceable where the method for ascertaining the rent was specified, e. g., by arbitration (see Van Beuren v. Wotherspoon, 12 App.Div. 421, 42 N.Y.S. 404) or appraisal (see Doyle v. Hamilton Fish Corporation, 144 App.Div. 131, 128 N.Y.S. 898) or where the element of uncertainty was otherwise removed (see Huber v. Ruby, 187 Misc. 967, 65 N.Y.S.2d 462, app. dsmd. 271 App.Div. 927, 67 N.Y.S.2d 710). Essentially, the criteria utilized do not differ from those traditionally applicable to agreements to agree in other types of contracts (See, e. g., Metro-Goldwyn-Mayer v. Scheider, 40 N.Y.2d 1069, 392 N.Y.S.2d 252, 360 N.E.2d 930; Boret v. Vogelstein & Co. Inc., 188 App.Div. 605, 177 N.Y.S. 402, aff'd 230 N.Y. 573, 130 N.E. 898; cf. Uniform Commercial Code, § 2-305, subd. (1), which codifies the above-criteria). Doubtless, New York could be classified among the states which will enforce an agreement to agree on a future rental where "a mode for ascertaining the future rental" exists, but in this department of the Appellate Division renewal clauses containing an unadorned agreement to agree on a future rental have been deemed unenforceable for uncertainty (see Forma v. Moran, 273 App.Div. 818, 76 N.Y.S.2d 232; Huber v. Ruby, 188 Misc. 1001, 69 N.Y.S.2d 760, aff'd 272 App.Div. 779, 70 N.Y.S.2d 579; Sammis v. Town of Huntington, 104 Misc. 7, 171 N.Y.S. 965, aff'd 186 App.Div. 463, 174 N.Y.S. 610).

Forma, Huber and Sammis appear to be the only published cases directly on point and were decided in this court more than 30 years ago. None of those cases imports the slightest suggestion either that the renewal clause in issue would have been enforceable had it contained the word "reasonable" or that the word could be read into the clause. In Sammis, a covenant in a lease containing an agreement to agree on rent for a renewal term was held unenforceable and was described by the court as "practically nugatory." The Forma court held unenforceable for indefiniteness a lease which...