285 A.3d 1250
D.C.2022Background
- U Street Music Hall, LLC (tenant) and JRC Standard Properties, LLC (landlord) executed a 2009 lease for premises on U Street with a one five‑year renewal option.
- The Option provided that "Annual Base Rent" for the option term would be "based on a Fair Market Value rental rate applicable at the expiration of the initial Term," and that Annual Base Rent "shall escalate on an annual basis at a rate agreed to by both the Landlord and Tenant."
- The parties never agreed on specific dollar amounts or an escalation rate; U Hall timely sent written notice exercising the Option in February 2019. JRC treated U Hall as a holdover and billed/charged higher rent and sued for declaration the Option was not exercised/enforceable.
- The trial court granted summary judgment to JRC, concluding the Option’s price terms were indefinite (mistakenly relying on an earlier draft with an unfilled rent chart).
- The D.C. Court of Appeals reversed: it held that tying initial option rent to "Fair Market Value" is legally synonymous with "reasonable rent" and enforceable, and adopted a rule that where rent is left to later agreement, courts may imply a reasonable rental term rather than void the option.
- The case was remanded for the trial court to determine the fair market value for the first option year and a reasonable escalation rate for the subsequent months at issue.
Issues
| Issue | Plaintiff's Argument (U Hall) | Defendant's Argument (JRC) | Held |
|---|---|---|---|
| Whether an option term fixing Annual Base Rent at "Fair Market Value" is sufficiently definite to be enforceable | "Fair Market Value" is legally synonymous with "reasonable rent," so the court can ascertain the price | "Fair market value" is vague and indefinite, so the Option fails for lack of a definite price term | Court: "Fair Market Value" supplies an ascertainable criterion; enforceable and remand to determine FMV |
| Whether an escalation clause requiring an annual escalation "at a rate agreed to by both" is enforceable when parties later fail to agree | If parties fail to agree later, the court can imply a reasonable escalation/pricing term; courts may enforce options by implying reasonable rent | Future-agreement language leaves price to be agreed later and thus renders the option unenforceable (courts should not remake contracts) | Court: When price is left to future agreement and parties fail to agree, a reasonable price can be implied; the entire Option is enforceable and remanded to set reasonable rates |
Key Cases Cited
- George Y. Worthington & Son Mgmt. Corp. v. Levy, 204 A.2d 334 (D.C. 1964) (option tying future rent to prevailing fair rentals upheld as a definite criterion)
- Eastbanc, Inc. v. Georgetown Park Assocs. II, L.P., 940 A.2d 996 (D.C. 2008) (contract terms must be sufficiently definite for enforcement)
- Joseph Martin, Jr., Delicatessen, Inc. v. Schumacher, 417 N.E.2d 541 (N.Y. 1981) (holding that leave‑to‑agree language can render an option unenforceable)
- Playmate Club, Inc. v. Country Clubs, Inc., 462 S.W.2d 890 (Tenn. Ct. App. 1970) (court may imply a reasonable rent where parties left renewal rent to future agreement)
- Withers v. Wilson, 989 A.2d 1117 (D.C. 2010) (court may determine fair market value/remedy on remand)