Walker v Keith

Dispute

Plaintiff lessee and defendant lessor had a lease which included an option for renewal, but did not sufficiently specify a monthly rental amount. When the renewal came, the parties could not agree on a rental amount, and lessee sued lessor for a declaratory judgment affirming the extension of their mutual lease. The trial court found for the lessee and fixed a “reasonable” monthly rental amount.

Rules of law

A contract to create a contract, or an agreement to agree, is not enforceable. Any covenant to affirm a future agreement must leave no element undetermined unless it clearly specifies a mechanism for resolution. Rent is an essential element of a lease agreement.

Arguments

Lessee argued that the intention of the parties had been to create an option for lease renewal, and this provision ought to be upheld. Lessee also argued that the agreement provided general guidelines by which the court could set the rental amount, and argued that the essential element of the contract was the renewal option, not necessarily any specific rental amount.

Lessor’s argument rejected the idea of an enforceable contract, as there was no agreement as to rent. There was no sufficiently-specific basis for agreeing on rent, and if the parties could not agree, there was no contract.

Conclusion

The court roundly rejected the lower court’s conclusion and attempt to enforce the lease renewal, stating that the lower court’s attempt to set a rental amount when the parties could have done so but failed was paternalistic. It also rejected any possibility that a lease could leave the rental amount unspecified, and if a primary lease without a specified rent was unenforceable, a renewal in like fashion was as well.

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