Specifically Provide How Rent Will Be Determined During a Lease Renewal Period

Specifically Provide How Rent Will Be DeterminedMany leases contain provisions allowing for the tenant to renew the lease. The material terms during the optional renewal period must be specified sufficiently so as not to be considered vague. Thus, if a renewal option leaves all the terms open to be agreed upon, the renewal option is too vague and thus unenforceable.

However, most lease renewal options don’t leave all terms open for agreement, but rather they leave only the amount of the rent open for agreement. The question in this situation is whether leaving the amount of rent during a renewal term open for future agreement invalidates the renewal option because it is then too vague. The answer is not a bright-line rule, but the conservative approach is to provide for a specific method (more than just agreement) for determining the rent if the parties can’t agree. For example, providing that the rent amount will be determined by arbitration in case the parties cannot agree is an adequate alternative that provides specificity because the arbitrator will determine a reasonable rent. See, e.g., Faucett v. N. Clay Co., 84 Wash. 382, 146 P. 857 (1915). While taking the conservative approach brings added security that the renewal provision will be upheld, Washington courts have favored lessees when the issue has come up by upholding renewal options that have stated that rent will be to the satisfaction of both lessor and lessee or that rent will be agreed upon by the parties. See, e.g., Young v. Nelson, 121 Wash. 285, 290, 209 P. 515, 517 (1922). Other jurisdictions have not been as lenient as Washington. See, e.g., Keating v. Michael, 242 S.W. 563, 565 (Ark. 1922) (“Here no provision was fixed in the contract, except such rental value as the parties might agree upon. They might never agree and so the case falls squarely within the general rule announced above, and the contract is too uncertain and indefinite to be enforced.”).

In sum, one may avoid the headache and expense of litigation related to the enforceability of a lease renewal option by taking the simple action of providing an alternative, certain manner for determining rent during the renewal period, such as through arbitration as one example. Please contact MPBA with any questions or assistance with your leasing needs.

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