Essential Lease Terms

A lease may be formed by a meeting of the minds as to the essential terms even in the absence of a formal, signed lease document.[1]

In Satterfield, a tenant had leased commercial space for ten years. At the end of the lease the parties each had their own attorney draft a proposed lease, signed their proposed lease, and forwarded the signed copy to the other side. Each refused to sign the other’s lease.

The court parties formed a new lease because the essential terms in each lease did not conflict and other non-essential terms were either “boilerplate” terms or had been agreed to.

At a minimum the essential terms probably include:

1. Identity of the parties

2. Identity of the  property

3. The term (time period)

4. Rent amount

Courts are not always liberal in finding an implied lease.

In a recent unpublished opinion the Washington Court of Appeals found there was no lease though the defendant occupied the property and paid rent.[2] The defendant occupied property previously rented to a tenant who had entered into a lease.  The landlord had given notice that the rent would increase at the end of the lease term.

The tenant vacated and allowed the new occupants to enter.  The new occupants continued to pay the old rate and signed a lease with the old rate and forwarded to the landlord.

The landlord rejected the proposed lease.  The landlord also accepted the rent payments, but under protest demanding that the new rate be paid and that the occupants negotiate a proper lease.

The court upheld the trial court in finding that there was no lease and that the occupants were tenants at sufferance and subject to being evicted in an unlawful detainer action.  The court reasoned that there was no lease because 1) both the landlord and its property manager denied that there was a lease 2) the only lease form produced in evidence was not signed by the owner or its agent 3) the owner consistently challenged the amount of payments being made and whether a lease even existed and 4) the court found it very difficult to believe that after going to great lengths (including holding a public hearing for all tenants) to raise the rent and give proper notice that the owner would accept a lesser rent from newcomers, especially when they were a much larger group of tenants than had previously occupied the property.

[1] See, for example, Satterfield v. Pappas, 67 N.C. App. 28, 312 S.E.2d 274 (1984).

[2] Groom, Inc. v. Holten, No. 27017-3-III (2009).

Posted in Lease Interpretation.

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