South-Western Legal Studies in Business

Lease Unenforceable When Major Terms Missing
Description Utah supreme court held that a commercial lease failed to form an enforceable contract because it was silent as to a major issue of financial responsibility. Since the lease was ambiguous, it was unenforceable against the tenant.
Topic Real and Personal Property
Key Words Commercial Property; Tenant; Improvements
C A S E   S U M M A R Y
Facts Peterson signed a standard, pre-printed commercial lease agreement with Nielsen to rent space in a strip mall, which Peterson planned to use for a health club. The lease was for three years at a fixed price. When the agreement was signed, the building was under construction. Nielsen referred Peterson to the contractor who estimated a cost of $168,000 for tenant improvements to the building shell to make the space fit for use as a gym. Peterson discussed payment for the improvements with Nielsen, but no agreement was reached on how those costs would be covered. Peterson refused to take possession of the property, so Nielsen rented it to another tenant for, he claims, a loss of $112,000. Nielsen says the lease was for a building shell; Peterson says the lease was for a finished building with improvements. The trial court held that the lease was unenforceable for lack of mutual assent as to the nature of the property to be leased. There was no meeting of the minds about the improvements to the building shell. Nielsen appealed.
Decision

Affirmed. The lease was ambiguous and therefore was unenforceable against the tenant. The lease was silent on the issue of which party was responsible for improvements and the parties did not even discuss the issue until after the lease was signed. A lease, like any contract, is ambiguous if it is capable of more than one reasonable interpretation because of uncertain meanings of terms, missing terms, or other facial deficiencies.

Citation Nielsen v. Gold's Gym, --- P.3d --- (Sup. Ct., Utah, 2003)

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