Renewal Clause in Commercial Lease Is Unenforceable

Renewal Clause in Commercial Lease Is Unenforceable

By Michael J. Gelfand, Esq. / Published March 2019

Photo by iStockphoto.com/Tero Vesalainen

It is not unusual for an association to enter into a contract, which contains a renewal clause. We see them in equipment agreements, purchase orders, utility contracts, and other situations. What happens if the payment for the renewal period is not spelled out? The association may not be able to renew or perhaps avoid a renewal.

     This is precisely what happened in a recent Florida appellate court decision that could easily apply to a Florida community association, where a tenant tried to exercise an agreement renewal provision. Because the renewal provision failed to state the amount of rent to be paid when the lease was to be renewed, the court ruled that the lease provision was unenforceable because it did not state an essential term. In Jahangiri v. 1830 North Bayshore, LLC, 43 Fla. L. Weekly D 1806 (Fla. 3d DCA, August 8, 2018), the tenant entered into a lease for property to be used as a market and deli for five years, ending on May 31, 2016.

     The rent for the first two years was $5,500, and $6,000 for the remaining three years. The lease provided that the tenant could renew the lease for two; five-year renewal options at the “then prevailing market rate for comparable commercial office properties.” The tenant attempted to renew the lease in November 2015, but the landlord refused to renew the lease.

     The tenant sued the landlord seeking a declaration to invoke the renewal clause. The trial court found that the renewal provision was “too indefinite” and “legally unenforceable,”  granting summary judgment for the landlord and ordering the tenant to vacate the premises.

     The Florida appellate court affirmed the decision of the trial court. The appellate court explained that the amount of rent is an essential element of a lease. If the agreement or a renewal provision fails to specify the amount of rent or a definite procedure to be followed to establish the amount of the rent, then the lease is too indefinite to be legally binding and enforceable. The court stated, “the method for determining rent has to be sufficiently definite that the amount could be fixed with certainty without resorting to further negotiations or litigation to resolve open questions in the methodology.”

     This decision emphasizes for Florida community associations the importance that contracts containing renewal clauses state a price that can be definitively determined. If you have any questions regarding contract provisions, contact your association’s attorney for further review.

Insurance Assignment of Benefits Clause in Policy is Enforceable

     Many associations and owners rely on the ability to assign insurance benefits to ensure timely repairs after a casualty such as a fire or storm, or even a bad water leak.

     Recently, a Florida appellate court ruled that a clause in an insurance contract, which required the signature of all insureds and the property’s mortgagee for an assignment of benefits was enforceable, allowing an insurer to deny benefits to the assignee. The facts in Restoration 1 of Port St. Lucie v. Ark Royal Insurance Company, 43 Fla. L. Weekly D 2056 (Fla. 4th DCA, September 5, 2018), indicate that Ark Royal issued a homeowners’ insurance policy that contained a condition that “[n]o assignment of claim benefits, regardless of whether made before a loss or after a loss, shall be valid without the written consent of all ‘insureds,’ all additional insureds, and all mortgagee(s) named in this policy.”

     After the insureds’ home suffered water damage, one spouse, without the consent of the other spouse or the mortgagee, contracted with Restoration 1 to provide cleanup services and signed an assignment of benefits agreement assigning “any and all insurance rights, benefits, proceeds and any cause of action under any applicable insurance policies” to Restoration 1. Restoration 1 completed the clean-up and submitted a claim to Ark Royal. Ark Royal refused to pay the full amount, claiming the assignment was not valid because it did not contain all the required signatures.

     Restoration 1 sued Ark Royal for breach of contract and sought a declaration determining that the clause requiring the signatures of all insureds and mortgagees for an assignment of benefits violated Florida law. The trial court granted Ark Royal’s motion to dismiss on the grounds that the assignment failed to comply with the policy’s “unambiguous” condition that claims assignments be executed by all insureds and mortgagees.

     The Florida appellate court agreed, holding that the language of the assignment of benefits provision was enforceable. The court found that Florida common law or public policy does not prohibit an assignment of benefits provision in an insurance contract that requires the consent of all insureds and the mortgagee before assignment. The court pointed out that the contract in this case did not prohibit assignments, but rather it imposed the condition of requiring the approval of all insureds and the mortgagee.

     This ruling may make it very difficult or impossible for associations to efficiently allocate repair funds. When obtaining or renewing a policy, check to determine assignment requirements. As a reminder, all associations should read their insurance policies upon receipt. Benefits may be withheld by insurers if all conditions are not carefully followed! 

Michael J. Gelfand, Esq.

Senior Partner of Gelfand & Arpe, P.A.

Michael J. Gelfand, Esq., the Senior Partner of Gelfand & Arpe, P.A., emphasizes a community association law practice, counseling associations and owners how to set legitimate goals and effectively achieve those goals. Gelfand is a dual Florida Bar Board-Certified lawyer in Condominium and Planned Development Law and in Real Estate Law, Certified Circuit and County Civil Court Mediator, Homeowners Association Mediator, an Arbitrator, and Parliamentarian. He is a past Chair of the Real Property Division of the Florida Bar’s Real Property, Probate & Trust Law Section, and a Fellow of the American College of Real Estate Lawyers. Contact him at email hidden; JavaScript is required or (561) 655-6224.