Our firm often receives inquires regarding renewals of residential leases. As prior blog posts have discussed, in general, a tenant in New York has no legal right to an automatic renewal lease, unless the rental unit is subject to some type of rent regulation. Another exception may be where the lease itself contains a clause that allows either party to renew the lease upon proper notice to the other party. The notice period may be 30 or 60 days (or even a longer time length) prior to the current lease expiration, so it is important for experienced counsel to review residential leases to ensure that, if a party wishes to renew, proper notice is timely sent to the other party under the lease terms.
However, it is also possible that the renewal clause itself may contain language which makes it unenforceable under New York law. The main example of this situation is where the “renewal” language is insufficiently specific as to the terms of a possible renewal. In general, a renewal clause must contain fairly exact terms as to the renewal lease term, as well as the amount of monthly rent to be paid under a renewal.
For example, if the renewal clause states that the tenant may renew this lease for an additional one year term at the same rent as the current lease, this would be enforceable, assuming that the tenant gives the proper notice as delineated in the lease for a renewal. Another enforceable example would be if the clause states that the lease can be renewed for an additional one year term at a 5% rent increase.
Legal problems arise when the renewal clause contains non-specific terms, or no terms for a renewal. An example would be a clause that states that the lease may be renewed “upon terms on which the parties agree,” or a clause which simply states that the lease may be renewed, but contains no specific terms, such as length of renewal or amount of rent to be paid under a renewal.
New York Courts have held that such clauses would be interpreted as simply “an agreement to agree,” and, as such would be unenforceable because they are too vague as to the exact terms. If the parties cannot agree on new lease terms, such as rent to be paid, then no renewal would be possible, even if there is a “renewal” clause in the lease.
One exception to this situation is if the lease allows for a specific mechanism to provide for the terms of a renewal. An example would be a clause that states that “if the parties cannot agree on new lease terms, the parties agree to submit to binding arbitration to determine such terms.” Another method would be to tie the amount of rent to be paid to an exact financial benchmark, such as the consumer price index. Such a clause might state that the renewal rent would be increased to match such a neutral index.
We would urge all parties who enter into a lease containing a potential renewal clause to have experienced counsel review such clause to ensure that it may be enforced, should the party (landlord or tenant) decide to exercise their right to renew.