Is a Lease with an Indefinite Renewal Period Enforceable in Florida?

Unfortunately, it is all too common for rental property owners in Florida, especially elderly rental property owners, to be taken advantage of by potential tenants when negotiating leases.  This generally occurs when the prospective tenant has a prior relationship with the owner that allows the tenant to gain trust from the owner.  Once trust is established between the parties, the tenant is able to negotiate very friendly, and occasionally, unlawful lease provisions such as free rent and/or a lease term with an undefined term.  This blog will help to explain how Florida courts have interpreted such situations.

Likely Scenario

Let’s begin with a hypothetical scenario involving an unsuspecting property owner who falls victim to the above-described tactics.  In this hypothetical, a wealthy elderly man who owns multiple properties is “reacquainted” with a distant nephew after decades with no contact between the parties.  The elderly man is also a recent widower, so he is more easily prey to the nephew who has ulterior motives.  After a brief period, the nephew convinces the elderly man to enter into a lease for one of the gentleman’s properties.  The nephew produces a lease that includes provisions for free rent in consideration of “assisting with the care and well-being of the Landlord” along unlimited renewal terms.  By the time the lease is signed, the nephew believes he has a free place to stay for as long as he wants, and the elderly man is none the wiser.  However, is the elderly man or his heirs able to fight the lease in court?

Unenforceable Lease Terms

There are likely two avenues to terminate the lease in this scenario based on its terms. First, there is a strong unconscionability argument given the lease is for an indefinite term for zero dollars ($0.00). Section 83.45(1), Florida Statutes provides that if a court find as a matter of law a rental agreement or provision was unconscionable at the time it was made, the court may refuse to enforce the rental agreement, enforce the remainder without the unconscionable provision, or limit the application of the unconscionable provision to avoid an unconscionable result.  Florida law also provides that procedural unconscionability is based in the individualized circumstances surrounding each contracting party at the time the contract was entered and requires evidence relating to the bargaining power of the parties and their abilities to understand at the time of contract, given their education, intelligence, or lack thereof.

The second, and likely easier way to terminate this lease, would be the voiding of the indefinite term and renewal clauses. Florida courts strongly disfavor perpetual renewal clauses and courts have consistently held similarly drafted clauses to be invalid past the first renewal. See e.g., Ehrlich v. Barbatsis Holding Co., 63 So. 2d 911, 913 (Fla. 1953); Miren Intern Lodging Corp. v. Manley, 982 So. 2d 1203 (Fla. 5th DCA 2008); Chessmasters, Inc. v. Chamoun, 948 So. 2d 985 (Fla. 4th DCA 2007); Peavey v. Reynolds, 946 So. 2d 1125, 1127 (Fla. 5th DCA 2006); National Home Communities, L.L.C. v. Friends of Sunshine Key, Inc., 874 So. 2d 631 (Fla. 3d DCA 2004); Hutson v. Knabb, 212 So. 2d 362 (Fla. 1st DCA 1968). Florida case law has unequivocally established that a lease provision permitting automatic renewals of a lease, without more, is insufficient to establish a perpetual lease. Miren, 982 So. 2d at 1204; see also Schroeder v. Johnson, 696 So. 2d 498 (Fla. 5th DCA 1997); Chessmasters; Sheradsky v. Basadre, 452 So. 2d 599 (Fla. 3d DCA 1984); Hutson.

In Hutson, the lease at issue was for “five years, with option of renewal every five years . . .,” the court found that the provisions of the lease could prevent a prospective purchaser from ever having a right of possession or from increasing rents, and because there was no clear and as such there was no clear and unequivocal expression within the terms of the lease as to constitute a perpetual right. 212 So. 2d 362. In Peavy, the lease provided that the tenant had the right to renew indefinitely at a rate fixe by the terms of the lease and provided that subsequent landlords would be bound by the terms of the lease. 946 So. 2d at 1127. In invalidating the lease, court stated that if the lease was upheld, it would have the potential to forever prevent the landlord from being able to utilize the property for any other purpose, however, the landlord would remain obligated to pay property taxes and expenses, regardless of the cost. Id.

Specifically, in Peavey, the court held that the lease was void as an unreasonable restraint on alienation. Id. It is also important to note that the court noted that if the tenant had made improvements to the property based on its belief that it had the right to renew indefinitely, and that on remand, the trial court was authorized to compensate the tenant for these improvements. Id.

In another case factually similar, the lease stated “[l]andlord does hereby grant to Tenant the right to extend this lease for successive (5) year periods,” and the landlord had no right to terminate. Schroeder, 696 So. 2d 498, 499. In this case, the court held that the language of the lease did not grant perpetual renewals and that the language of the lease provided for two successive five-year renewals. Id.

While it is a commercial lease, the lease at issue in Chessmasters, is likely the most similar in language to ours as it provides that unless the lessee elects not to extend, the lease will automatically renew for successive five-year periods. 948 So. 2d 985. The court held that the renewal provision “does not expressly limit the number of renewals and does not expressly state that the leases are renewable in perpetuity. Therefore, since the lease does not have any language that expressly grants perpetual renewal in unequivocal terms, the lease is not in perpetuity.” Id. at 987. Therefore, the court the renewal provision was not void as an unreasonable restraint on alienation, rather, the covenant to renew entitled the tenant to a single renewal. Id. at 988

In the hypothetical above, based on the above discussed case law, it is highly likely that a Florida court would determine the purported perpetual renewal clause to be invalid. The major question would be would the court follow courts similar to Peavey and simply determine that the lease is invalid, or would the court follow decisions such as Schroeder and Sheradsky, and effectively blue line the renewal clause to be satisfied by one renewal after the expiration of the original lease. Given Shcroeder is a Fifth DCA decision, it is possible that a court would provide that the nephew is entitled to a single 12-month renewal of the lease, after which the lease will terminate.

Conclusion

Rental property owners, especially vulnerable property owners similar to the scenario described in this blog, should be on the alert for prospective tenants looking for a good deal.  It is crucial that rental property owners consult with an attorney experienced in lease preparation and negotiation before signing any lease.