An Agreement to Agree is NOT Necessarily An Agreement to Agree
Juvenal Reis (tenant) and J.B. Kaufman Realty Co, LLC (landlord) signed a lease in 2002 for real property in Long Island City. Over the years, Reis and Kaufman executed various letter agreements extending the terms of the original lease and providing for the lease of additional space within the building.
In a document dated June 27, 2012, the parties "consolidate[d] all existing letter agreements to the same expiration date" of February 28, 2015. The 2012 letter agreement also stated that the terms of the lease were "extended to now terminate on Feb. 28, 2030," with "terms to be determined at the expiration of this initial lease consolidation period." The 2012 letter agreement further stated that any annual percentage increase in rent will not be less than five percent and will not exceed eight percent.
Reis and Kaufman disagreed about whether the 2012 letter agreement constituted a binding contract under which Reis was entitled to remain in occupancy of the leased premises through February 2030. Despite the dispute regarding the 2012 letter agreement, the parties agreed that Reis could remain in possession of the premises through February 29, 2016, with a six percent increase in rent.
In July 2015, Reis filed an action for a judgment declaring that the lease expired on February 28, 2030, and that annual rent increases shall not be less than five percent and shall not exceed eight percent. Reis also filed a notice of pendency against the property. After the building was sold in July 2016, the new owner, 43-01 22nd Street Owner, LLC, was added as a defendant pursuant to a stipulation. Kaufman and Owners moved for summary judgment declaring that the lease expired on February 29, 2016, and to cancel the notice of pendency, contending that the 2012 letter agreement was an unenforceable agreement to agree. Supreme Court denied the motion. Kaufman and Owners appealed.
A "mere agreement to agree”, in which a material term is left for future negotiations, is unenforceable. This is especially true of the amount to be paid for the sale or lease of real property. An agreement is not enforceable as a lease unless all of the essential terms are agreed upon, and if any of these essential terms are missing and are not otherwise discernible by objective means, a lease has not been created.
Here, the appeals court concluded that Kaufman and Owners established their prima facie entitlement to judgment as a matter of law by submitting a copy of the 2012 letter agreement, which demonstrated that the renewal provision was an unenforceable agreement to agree. In opposition, Reis failed to raise a triable issue of fact. Supreme Court should have granted the motion and declared that the lease expired on February 29, 2016, and cancelled the notice of pendency.
The 2012 letter established a “floor” and a “ceiling” on rent going forward. But the letter failed to provide a means of fixing the rent within the stated range. For a copy of the appeals court’s decision, click here.
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