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It's The Law: Lease Renewal May Not Last Forever

Q:I own a commercial building that I leased to a tenant some years back. The lease is for a 5 year term with automatic renewals for additional 5 year terms unless the tenant gives me notice of termination. The formula for increasing rent is not favorable to me and the tenant tells me he will be there forever. Is there anything I can do to terminate the lease?

A: A non-vested interest in real property must become vested or terminate no later than 21 years after the death of an individual alive at time it is created or within 90 years after its creation or it is rendered invalid by what is known as the Rule against Perpetuities. The Rule against Perpetuities existed in England common law and has been brought forward by statute into the laws of Florida.

The statute excludes a number of non-vested property interests from operation of the rule, in addition to interests that were excluded at common law. Leases are one such exclusion.

Despite being excluded from the Rule against Perpetuities, Florida disfavors unreasonable restraint on ability to transfer real property due to perceived harmful effect on commerce. That means that courts will not construe lease renewal provisions as perpetual, unless the language of the lease clearly and unambiguously leads to no other conclusion. That makes the language of your lease critical.

The good news is that courts interpret a contract as a matter of law based in large part on reading the document creating the renewal right. You indicate that your lease provides automatic renewals unless terminated by the tenant, but that is not usually enough to create a forever renewing lease.

If the lease does not have language that clearly and explicitly provides for renewals and perpetuity, Florida courts will interpret the renewal provision to provide for only one automatic renewal.

In the recent case of Chessmasters, Inc. one of Florida's appellate courts found that the following renewal provision was not sufficiently clear and unambiguous to create a perpetually renewing lease:

Unless lessee shall notify lessor in writing on or before the expiration of the original

term or any additional extended Five-Year period that lessee does not elect to extend

to this lease agreement, this lease agreement including all of its terms, provisions and covenants shall be automatically extended for an additional period of Five (5) Years.

For each extended Five-Year period Lessor is entitled to an increase in rental price of

not more than 10% current rental price.

Another appellate court found the following language was also inadequate to create a perpetually renewing lease:

This lease shall automatically renew under the same terms and conditions as listed

above, unless either party, by written notice within 60 days of the expiration date, declines to renew said lease.

According to one Florida appellate court in the case of Sheradsky v. Basadre, what happens to the lease after the first renewal period is that it becomes a tenancy at will, which means it continues for as long as both parties agree it may continue. That decision involved a washing machine equipment lease.

Generally, the tenant under such circumstances continues in possession with the permission of the landlord and that transforms the lease into a lease for the time for which periodic rental payments are made (i.e. month to month, week to week). That arrangement can be terminated by giving notice to the tenant depending upon time period for which periodic rental payments are made.

If from year to year, notice must be at least 3 months prior to end of an annual period. If from quarter to quarter, notice must be at least 45 days prior to end of a quarter. If from month to month, notice must be at least 15 days prior to end of a month. And, for week to week, 7 days notice prior to end of a weekly period is required.

If the tenant does not vacate, you can then resort to the judicial process of tenant eviction.

Because the language of your lease is critical, I suggest that you consult with an experienced attorney promptly. The attorney can advise you as to interpretation of your lease document, preparation of an appropriate notice of termination and even assist you in negotiation and drafting of a new lease. If litigation is necessary, you will certainly want an experienced attorney.

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