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Vague Lease Leaves No One Happy
by Ron Davis

Lease disputes between shopping center owners and tenants rarely enjoy a "win-win conclusion. Much more often, as in a recent court case in Georgia, the outcome for both parties is "lose-lose."

The shopping center involved in the Georgia case is located in Atlanta, and the tenant had leased space there under a 10-year contract with an option to renew for an additional five years. When the lease expired in 2000, however, a question arose over the renewal terms.

Both parties wanted the tenant to renew the lease. But they couldn’t agree on the exact rental rate.

The lease itself was somewhat vague regarding the rental amount during the renewal. It stated that the renewal rent "shall be the greater of (a) base rent for the last year of the original term or (b) the then existing market rental rate for comparable shopping centers."

As expected, the shopping center owner calculated the new rent based on the existing market rental rate, and it was quite a bit higher than the rate the tenant had been paying. In response, the tenant objected and proposed simply continuing to pay the base rent that he paid during the last year of the original lease term.

The shopping center owner rejected that proposal and sued the tenant, seeking to force the tenant to comply with the new rental terms. At that point, the tenant stopped paying his rent, but continued to operate his retail business at the shopping center.

A Georgia appellate court ruled that "under state law, the ‘market rental rate for comparable shopping centers’ [in the language of the lease] is unenforceably vague and indefinite, as it provides no model by which a definite price may be ascertained.... As pricing is undisputedly an essential term of a lease renewal, however, the unenforceability of the pricing provision means that the lease renewal was void, resulting in no renewal being available under the lease. Thus, the shopping center owner is entitled to possession of the property and an award of past due ‘holdover’ rent." (AMB Properties, L.P. v. MTS, Inc., 551 S.E.2d 102 [Ga.App. 2001])

Decision: August 2001
Published: October 2001



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