Just An Agreement to Agree
by Ron Davis
The vague wording of a key provision in a lease has allowed a tenant of an Alabama shopping center to vacate the premises mostly on his own terms.
The shopping center, located in the Mobile area, had leased space to the tenant, an optometrist, since 1994. And the key provision in dispute involved renewal of the lease at the expiration of the five-year term.
That provision states: “With the mutual consent of the parties this lease may be renewed for an additional five-year period.” The lease adds that if the tenant failed to request an extension after the five-year period but continued to occupy the premises, he would become a “holdover.”
The tenant operated his optometric business for the initial term of the lease, but when time came to renew, he never notified the center’s owners of his intentions. Instead, he simply continued to occupy the premises. In response, the center’s owners, apparently assuming the tenant wanted to renew the lease for another five-year period, informed him that his rent would increase by $440 a month.
The tenant began paying an increased amount of rent (though somewhat less than the center’s owners had requested), then vacated the premises a year later.
The shopping center’s owners sued the tenant, arguing that he had automatically renewed the lease for five years by failing to given notice of nonrenewal. And an Alabama court agreed with that argument of the center’s owners.
The tenant appealed.
The Alabama Supreme Court reversed the lower-court decision, explaining, “The renewal provision did not operate to automatically renew the lease. That provision clearly states that the lease ‘may’ be renewed with the mutual consent of the parties. Although it does state that the lessee shall give written notice if he does not intend to renew the lease, it does not say that if no such notice is given the renewal is automatic. Therefore, the renewal provision was merely an agreement to agree to a renewal of the lease, which is not enforced in Alabama.” (Mobile Eye Center v. Van Buren Partnership, 826 So.2d 135 [Ala. 2002])
Decision: July 2002
Published: December 2002