Idaho’s Supreme Court recently issued a new opinion discussing the requirements to form a valid lease agreement. Unfortunately, the case raises as many questions as it answers.
In 616 Inc. v. Mae Properties, LLC, No. 49190 (Feb. 8, 2023), the court reminded us that four necessary terms must be agreed upon to create an enforceable lease: (1) a definite agreement as to the extent and bounds of the property leased; (2) a definite and agreed term (length of time); (3) a definite and agreed price of rental, and (4) the time and manner of payment. If any of those essential terms are left for future negotiations, no lease comes into being and the parties are left with an unenforceable “agreement to agree.” In addition, if the length of the lease term is more than one year, the lease will not be enforceable against a party unless the four essential elements are memorialized in a writing that is signed by that party. The court may, however, overlook the lack of a signed writing in cases where the contract has been partially performed if there is other sufficient evidence of agreement on all the essential terms.
In 616 Inc., the court held that the agreement under review was insufficient to create a lease because it lacked essential terms (1) and (4). In doing so, the court elaborated on what is required with respect to the extent and bounds of the property leased (i.e., the description of the leased premises) and the time and manner of payment.
Description of the Leased Premises
On the description issue, the court discussed the differences between sales and leases. The court noted that, in a sale situation, the standard for descriptions is very high. The writing must contain a property description that designates “exactly” what property is being conveyed. In contrast, the requirement is less onerous for a description of real property to be leased. To lease real property, the parties must expressly or impliedly agree on “the general extent and bounds” of the property to be leased.
In 616 Inc., the court found it insufficient that the writing merely referred to the address of the property and contained names of rooms and areas on the property (e.g., “Front Showroom,” “Vinyl Area,” and “Embroidery Area”). The situation was undoubtedly complicated by the fact that there were at least two and possibly more buildings on the land and there were several other tenants occupying portions of the property. We suspect the court would have been less demanding if the lease was for all the real property owned by the landlord at that location.
Time and Manner of Payment
Regarding the time and manner of payment, the court noted that although the writing set forth the amount of the monthly rent, it did not state
what day rent is due each month (time), how rent is to be paid or applied (manner), or to whom rent is due (manner). Without these details, the [writing], on its face, does not include a definite and certain agreement on the “time and manner of payment” for the agreed rental price.
This seems to indicate that there may be three subparts to the “time and manner of payment” requirement, namely: (a) the day rent is due each month, (b) how rent is to be paid or applied, and (c) to whom rent is due. The court did not cite any source for the language in these subparts, leaving the impression that it made them up on the fly.
In analyzing the facts presented in 616 Inc., the court focused only on the fact that the writing did not say what day rent is due each month. For that reason alone, the court concluded that the “time and manner of payment” requirement was not satisfied. Clearly, a lease ought not leave out that detail.
But that leaves questions about what other details are required to satisfy the “time and manner of payment” test. Subpart (c), “to whom rent is due,” seems clear enough, but it also seems strange that a court might toss out a lease for failure to specify that detail rather than just presume that, in the absence of a contrary indication, the rent is due to the landlord.
Even more troubling is subpart (b), “how rent is to be paid or applied.” Can that requirement be satisfied by simply specifying an address for sending payments, or does the lease need to go into detail about the mode of delivery (e.g., hand delivery, mail, or overnight courier) or the forms of payment the landlord will accept (e.g., cash, wire transfer, or personal check)?
And what does “applied” mean in this context? Does the lease need to discuss how the landlord will handle (i.e., apply) partial payments in situations where a tenant may owe not just base rent, but other things like operating expense charges, late fees, and interest? Is failing to address that subject really as problematic as leaving out the description of the property or the amount of the rent? And, why did the court put an “or” in “paid or applied”? Is detail on one subject or the other, but not both, sufficient? One hardly seems like a substitute for the other.
Clearly, the more detail a lease has concerning the time and manner of payment, the better, but after 616 Inc., it is still anyone’s guess how much detail on that subject is necessary to keep Idaho courts from tossing out leases.