What happens when a commercial lease is missing terms? (Video)

Sometimes commercial landlords and tenants are so eager to sign a written lease agreement that they neglect to include all of the essential terms that will govern the relationship. When this happens, it is likely that the parties do not even have an enforceable contract.

This is what happened with a landlord and a Gold’s Gym. They signed a three-year lease. But, the building needed significant tenant improvements to be used for a gym. The lease said nothing about who would be responsible to pay for the tenant improvements.

After the bid for tenant improvements estimated a cost of $168,000, the parties could not agree on who would pay. Gold’s Gym never occupied the space, and the landlord sued Gold’s Gym for $112,000 in lost rent.

The court explained that, "It is fundamental that a meeting of the minds on the integral features of an agreement is essential to the formation of a contract. An agreement cannot be enforced if its terms are indefinite.” Nielsen v. Gold's Gym, 2003 UT 37, ¶ 11, 78 P.3d 600. The court held that because the lease did not address tenant improvements, and the parties could not reach an agreement on who would pay, the parties did not reach a meeting of the minds. The court concluded that "while payment for tenant improvements is by no means an essential term in every commercial lease agreement, the facts of this case persuade us that it was an essential part of the bargain to be reached here.” Id. at ¶ 13. Therefore, there was no enforceable contract.

In the end, the landlord lost the case. The lesson learned here is to ensure that the lease clearly states the parties’ intentions regarding all essential terms of the agreement.

This Article provides general information only and should not be considered legal advice. Please consult a professional regarding your specific situation.