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Saturday, December 16, 2006

WHEN IS A LEASE NOT A LEASE? [FLORIDA]

More particularly, when is a lease unenforceable? There are a number of ways that can arise, but one way is if the lease provides for automatic renewals at the option of the tenant forever, according to a Florida appellate court decision.

Daily Business Forms & Supplies, Inc. rented a building and land. Under the lease, it could renew it every two years (with a slight increase in rent), with no ending time period. Any future landlord would be bound by the lease. More particularly, the lease provided:
Lease to be for a period of two years beginning October 24, 2001. Tenant has option to renew for additional subsequent two year periods upon notification to landlord of tenant's desire to continue lease within 90 days of lease anniversary. If for any reason tenant terminates lease prior to anniversary date, tenant agrees to continue making monthly rental payments to landlord until such a time that the landlord rents the property, or the anniversary of the lease, whichever comes first. Tenant has the first option to purchase property if landlord determines that property is to be sold. If property is sold to any one other than tenant, lease is binding and transferable to new landlord. If tenant determines not to renew lease, tenant will notify landlord 90 days prior to lease renewal. The monthly rental amount for the first two-year period will be $650.00 per month. Upon lease extension being executed by tenant for an additional two-year period, rent will increase to $700.00 per month. Upon completion of first two year extension, and upon notification by tenant to landlord, lease agreement will automatically renew for subsequent two-year periods there after, with rental amount increasing by $50.00 per month, per anniversary, for as long as tenant desires."
The landlord brought suit to have the lease declared invalid as an unreasonable restraint on alienation. The rule against unreasonable restraints on alienation is founded entirely upon considerations of public policy, specifically, the idea that the free alienability of property fosters economic and commercial development. The test to be utilized with respect to restraints on alienation is the test of reasonableness. The validity or invalidity of a restraint depends upon its long-term effect on the improvement and marketability of the property.

In analyzing the issue, the appellate court noted that the lease would have the potential to forever prevent the landlord (and her successors) from being able to utilize the property for any purpose other than renting the property to the corporate tenant at a predetermined rate. The landlord would, however, remain obligated to pay the property taxes and the expense of properly maintaining the exterior of the property's structure -- regardless of the cost. Based on this, the court found an unreasonable restraint on alienation, and the lease was declared void.

LAVERNE PEAVEY, Appellant, v. RODNEY REYNOLDS AND DAILY BUSINESS FORMS, ETC, Appellees. 5th District. Case No. 5D05-3640. Opinion filed December 15, 2006.
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