New York Court of Appeals - 52 N.Y.2d 105
In Joseph Martin, Jr., Delicatessen v. Schumacher (1981), Joseph Martin Jr. ("JMJ") was a tenant in Schumacher’s building. They had earlier set an agreement in the lease agreement that JMJ could renew their lease, subject to negotiation of rent. However, during the renewal process Schumacher charged way above the market value. JMJ then sued for specific performance of the original rental agreement’s rental fee.
JMJ asked the trial court to compel Schumacher to extend the lease for the additional term at the appraiser’s figure or another sum that the court thought was reasonable. The trial court granted Schumacher’s motion for summary judgment, holding that a bald "agreement to agree" on a future rental was unenforceable for uncertainty as a matter of law. The Appellate Division overruled. JMJ appealed.
This case involves a dispute over a realty lease provision that states the rent for a renewal period is "to be agreed upon." The Supreme Court dismissed the tenant's complaint, holding that an agreement to agree on a future rental was unenforceable for uncertainty as a matter of law. The Appellate Division overturned the previous ruling and reinstated the tenant's complaint, allowing for consolidation of the case. The court held that a renewal clause in a lease that provides for future agreement on rent is enforceable if it is established that the parties did not intend to terminate the lease in the event of a failure to agree. The court further stated that if the tenant meets this burden, the trial court can proceed to set a reasonable rent. The certified question was whether the Appellate Division's order was properly made, and the court concluded that the Supreme Court's decision was correct. An agreement to agree that leaves a material term for future negotiation is unenforceable, particularly for the sale or lease of real property. The requirement for definiteness can be met through substance rather than form, such as a methodology for determining the rent within the lease or an objective extrinsic event, condition, or standard on which the amount depends.
The concurring judge agrees with the outcome of the case but disagrees with the majority's rejection of a previous case, May Metropolitan Corp. v May Oil Burner Corp., as inapplicable to lease litigation. The judge argues that the fact that the previous case was commercial and its principle is now incorporated in a statute that is not applicable to real estate is irrelevant. The judge cites Farrell Lines v City of New York to support the idea that lease agreements are not different from ordinary contracts. The judge also disagrees with the majority's opinion that no course of dealing between parties to a lease could make a clause providing for renewal at a rental "to be agreed upon" enforceable.
Judge Jasen disagrees with the majority opinion that a lease provision for renewal must be certain to be enforceable. He believes that even if the provision calls for renewal at "rentals to be agreed upon," the court should intervene to set a reasonable rent to prevent forfeiture, as long as the tenant can prove their entitlement to renewal. The Appellate Division's order is upheld based on Justice Leon D. Lazer's reasoning. The defendant's appeal is overturned and the Supreme Court's orders in Suffolk County are reinstated. The answer to the certified question is no. The plaintiff's appeal is dismissed without costs.
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