A commercial tenant, Joseph Martin, Jr., Delicatessen, Inc., leased retail premises from landlord Schumacher under a written lease that contained a renewal option. The option permitted the tenant to renew the lease for an additional term but provided that the renewal rent would be "to be agreed upon" by the parties, without specifying any formula, index, appraiser/arbitration mechanism, or other external standard for determining that rent. When the original term neared expiration, the tenant gave notice of its intent to exercise the option. Negotiations over the renewal rent broke down: the landlord demanded a substantially higher rent while the tenant insisted on a lower figure. The tenant then sued, seeking specific performance of the renewal option and asking the court to set a "reasonable rent" for the renewal period. The trial court indicated it would conduct a hearing to determine a reasonable rental; the intermediate appellate court approved that approach in substance. The Court of Appeals of New York granted review to decide whether such an open-ended renewal clause is enforceable and whether a court may supply a reasonable rent in the absence of an agreed method.
Is a lease renewal clause that provides rent shall be "to be agreed upon" enforceable, such that a court may fix a "reasonable rent" when the parties fail to agree, even though the lease supplies no objective standard or method to determine rent?
Under New York common law, a contract is not enforceable unless its material terms are reasonably certain. An agreement that leaves a material term—such as rent in a lease—open for future agreement, without providing an explicit formula, objective standard, or agreed method of determination (e.g., appraisal, arbitration, CPI, market-rate formula), is an unenforceable agreement to agree. Courts will not supply an essential term or make a new contract for the parties. The UCC's permissive gap-filling regime for open price terms in the sale of goods (e.g., UCC § 2-305) does not apply to real estate leases.
No. The renewal clause was too indefinite to enforce because it left the essential rent term for future agreement and provided no objective method to fix it. The Court of Appeals reversed and dismissed the complaint; courts may not impose a "reasonable rent" in these circumstances.
The court began with the definiteness requirement: to be enforceable, a contract must be sufficiently certain as to its material terms so that a court can ascertain what the parties actually agreed to. Rent is an essential term in a lease. Here, the renewal clause merely stated that rent would be "to be agreed upon," offering no formula, index, appraisal/arbitration process, or external benchmark. Because nothing in the instrument or surrounding circumstances supplied a method to calculate rent, the court had no principled basis to determine a figure without inventing terms. The tenant's request that the court impose a "reasonable rent" was rejected. While courts may interpret and enforce agreements, they cannot make contracts for the parties. The court distinguished situations in which agreements reference a clear standard—such as fair market rent determined by appraisers or CPI adjustments—where courts can enforce the parties' chosen mechanism. But no such mechanism existed here. The court also emphasized that the UCC's open price provisions have no application to real property leases and, even within UCC contexts, turn on demonstrated intent to be bound notwithstanding an open term. By contrast, this lease's language and structure showed no intent to be bound to any renewal absent further agreement on rent. Nor did general appeals to fairness or expectations justify judicially crafting an essential economic term the parties consciously left open. Because the renewal provision lacked definiteness and the court lacked authority to supply the missing rent, specific performance and other relief were unavailable.
The case is a cornerstone of New York's doctrine against enforcing bare agreements to agree, especially in real estate. It teaches that courts will not rescue parties from imprecise drafting by supplying essential terms or implying a duty to agree on reasonable figures. For practitioners and students, the lesson is practical and sharp: if parties want a binding renewal option, they must nail down rent or adopt an objective, external method to determine it. The opinion also provides a clear contrast with the UCC's gap-filling rules, reminding students that openness tolerated in goods contracts is not readily imported into real property or many common-law settings.
Joseph Martin, Jr., Delicatessen v. Schumacher firmly establishes that courts will not enforce an open-ended renewal clause that leaves rent to future agreement without an objective standard or mechanism. The decision draws a bright doctrinal line between enforcing a bargain the parties made and inventing one they did not.