Lease agreement and alienation of property

Florida Case Law

PEAVEY v. REYNOLDS AND DAILY BUS., 5D05-3640 (Fla.App. 5
Dist. 12-15-2006) LAVERNE PEAVEY, Appellant, v. RODNEY
REYNOLDS AND DAILY BUSINESS FORMS, ETC, Appellees. No.
5D05-3640. District Court of Appeal of Florida, Fifth
district. Opinion filed December 15, 2006

Appeal from the Circuit Court for Orange County, Donald E.
Grincewicz, Judge.

REVERSED and REMANDED.

Charles L. Handlin, III, of Handlin & Hefferan, P.A.,
Orlando, for Appellant.

William N. Asma, of William N. Asma, P.A., Winter Garden,
for Appellee.

ORFINGER and LAWSON, JJ., concur.

EVANDER, J.

The issue in this case is whether a lease agreement between
Laverne Peavey (the landlord) and Daily Business Forms &
Supplies, Inc., (the tenant) is void as an unreasonable
restraint on the alienation of property.

The parties entered into a lease agreement which, inter
alia, provided:

Lease to be for a period of two years beginning October
24, 2001. Tenant has option to renew for additional
subsequent two year periods upon notification to landlord
of tenant’s desire to continue lease within 90 days of
lease anniversary. If for any reason tenant terminates
lease prior to anniversary date, tenant agrees to continue
making monthly rental payments to landlord until such a
time that the landlord rents the property, or the
anniversary of the lease, whichever comes first. Tenant
has the first option to purchase property if landlord
determines that property is to be sold. If property is
sold to any one other than tenant, lease is binding and
transferable to new landlord. If tenant determines not to
renew lease, tenant will notify landlord 90 days prior
to lease renewal. The monthly rental amount for the first
two-year period will be $650.00 per month. Upon lease
extension being executed by tenant for an additional
two-year period, rent will increase to $700.00 per month.
Upon completion of first two year extension, and upon
notification by tenant to landlord, lease agreement will
automatically renew for subsequent two-year periods there
after, with rental amount increasing by $50.00 per month,
per anniversary, for as long as tenant desires. (emphasis
added)

In July, 2003, the landlord filed a declaratory judgment
action seeking a determination that the lease was void.
Both parties eventually filed cross motions for summary
judgment. The trial court found the lease was valid and
entered a final judgment in favor of the tenant. We
reverse.

The rule against unreasonable restraints on alienation is
founded entirely upon considerations of public policy,
specifically, the idea that the free alienability of
property fosters economic and commercial development.
Seagate Condominium Assoc., Inc. v. Duffy, 330 So. 2d 484,
485 (Fla. 4th DCA 1976). The test to be utilized with
respect to restraints on alienation is the test of
reasonableness. Iglehart v. Phillips, 383 So. 2d 610, 614
(Fla. 1980). The validity or invalidity of a restraint
depends upon its long-term effect on the improvement and
marketability of the property. Id.

In Iglehart, the defendants sold certain real property to
the plaintiff’s predecessor in interest. The deed purported
to grant the defendants the right to repurchase the
property if the plaintiff ever desired to sell it. The
option price was fixed by terms set forth in the repurchase
option. The repurchase option was of unlimited duration.

The court found that such restriction would discourage the
owner from making any improvements to the property. The
court further noted, as long as there was an inflationary
market, it was unlikely the owner would ever sell the
property. The court concluded the repurchase option was
void as an unreasonable restraint on alienation.

In this case, the lease grants the tenant the right to
renew the lease indefinitely at a rental rate fixed by the
terms of the lease. The lease also provides that any
subsequent landlord would be bound by the terms of the
lease. If upheld, the lease would have the potential to
forever prevent the landlord (and her successors) from
being able to utilize the property for any purpose other
than renting the property to the corporate tenant at a
predetermined rate. The landlord would, however, remain
obligated to pay the property taxes and the expense of
properly maintaining the exterior of the property’s
structure — regardless of the cost.

As in Iglehart, the landlord has little incentive to make
improvements on her property. Furthermore, it is highly
questionable whether the landlord would be able to sell the
property to a third person. Few people would be willing to
purchase a property which they might never have the right
to use other than to rent it at a predetermined rate.
Accordingly, we find the lease to be void as an unreasonable
restraint on alienation.[fn1]

We recognize the tenant may have made improvements to the
property based on its belief that it had the right to renew
its lease indefinitely. Therefore, on remand, the trial
court may use its equitable powers to ensure “full justice
[is] done between the parties.” Iglehart, 383 So. 2d at
617. See also Hutchinson v. Kimzay of Florida, Inc., 637
So. 2d 942, 945 (Fla. 5th DCA 1994). Specifically, it would
appear that if the tenant is required to vacate the
property, it should be compensated for the value of any
improvements it made to the leased property based on its
expectation of remaining on the premises for a lengthy
period of time.

[fn1] Although we are unaware of any Florida cases directly
addressing this issue, the Delaware Supreme Court has
similarly found a lease provision giving the lessee an
option to renew the lease perpetually, at a fixed rental
rate, to be void. Wilmington Parking Authority v. Ranken,
105 A.2d 614, 634 (Del. 1954).