A recent Florida appellate decision concluded that a landlord was within its rights to refuse to renew a lease for an additional five years, regardless of the reasons why the property owner refused. The Third Circuit Court of Appeal sided with the landlord because the parties’ modified lease agreement gave the landlord sole discretion regarding whether it extended the lease and, because the choice subject to the landlord’s discretion was of the “yes-or-no” variety, Florida law does not impose any duty of good faith and fair dealing on the landlord.
Biscayne Enterprises Inc. owned a gas station in South Florida that it leased to BP Products of North America Inc. The lease contained a provision for extending the lease by terms of five years each. Shortly after signing the lease, Biscayne and BP agreed to a modification of the agreement regarding lease extensions. The new terms stated that an extension required the landlord’s approval and that Biscayne could withhold this approval at its “sole discretion.”
BP eventually assigned its interests in the lease to Sunshine Gasoline Distributors, Inc. Shortly before the lease term expired, Sunshine approached Biscayne about extending the lease. The landlord refused and later filed an eviction action against Sunshine. Sunshine also sued, claiming that it had an absolute right to extend the lease and was entitled to a declaratory judgment permitting it to stay for another five years.
The trial court sided with the landlord, concluding that the modified lease agreement clearly gave the landlord the right to refuse an extension for any reason.
The appeals court agreed. In addition to the language modifying the rules for extending the lease, another paragraph in the agreement indicated that the lease would only extend “if desired by both Lessor and Lessee,” the court noted. These terms made the parties’ contractual intent abundantly clear, and plainly gave the landlord the right to refuse an extension.
The court also clarified the obligations the landlord had, even with the term “sole discretion” written into the modified lease. The court explained that, although the term “sole discretion” contains, in many contexts, an implied duty of good faith and fair dealing, this duty did not exist in Biscayne’s case.
The duty arises in a contracting party’s sole discretion if exercising that discretion involves a wide range of choices. For instance, in a 1999 case, Cox v. CSX Intermodal Inc., the First District Court of Appeal imposed a duty of good faith and fair dealing because the discretion pertained to shipping an unspecified number of products.
Where the discretion at issue is a “binary choice,” no duty of good faith and fair dealing exists because imposing the duty is “unnecessary to protect the parties’ interests.” In Biscayne’s case, its discretion regarded such a binary choice — the decision either to say “yes” or “no” to a lease extension. As a result, the landlord owed no duty of good faith and fair dealing to Sunshine.
Entering into commercial leases involves many considerations. To make the most accurate assessment of the benefits and drawbacks of a commercial lease, you should consult with an experienced Florida attorney to help you “unpack” each of the provisions in your lease. For careful advice and diligent representation in your commercial leasing matters, talk to the Florida real estate attorneys at Stok Folk & Kon. Our attorneys can help you determine if the proposed lease makes business sense for you.
Contact us online or by calling (954) 237-1777 to schedule your consultation.
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