Contracts

Fact pattern

In the fall of 2014, Student prepared to move to New City, to study for a Ph.D at a prestigious university there. Needing a place to live, she found a small house for rent, owned by Landlord, who wanted $1,000 per month in rent. Soon after, Student reached out to Landlord, and the two met so that Student could tour the house. 

As they talked, Landlord explained that because he managed the property himself, he would prefer a tenant committed to stay in the property for several years. Student replied that she would prefer to live in one place for the six years she expected to spend in school. 

In September 2014, both Landlord and Student signed a lease specifying that Student’s rent would be $1,000 per month for the first year. The lease also provided that in subsequent years, Student could renew the lease, but the parties would revisit the rent amount. The pertinent language from the lease read: “ Landlord and Student shall agree upon a new rent amount for the subsequent renewal year. This amount shall be a fair increase, taking into account inflation and market changes.” 

Over the course of the lease’s first year, several new businesses opened and thrived in the neighborhood surrounding the house. This, in turn, generally increased property values in the area. In the eleventh month of the lease, Student notified Landlord that she wished to renew her lease and remain in the house for the next year. Landlord responded that he would be delighted to extend the lease for another year—at the monthly rate of $2,000. 

Student responded that doubling her rent was far too high an increase. She said that she had asked several classmates about their rent increases. Considering their answers, Student believed that a fair rate for the second year would be $1,200 per month. Landlord and Student exchanged several emails arguing about an appropriate renewal rent, but were unable to come to an agreement before the first lease expired in September 2015. 

Meanwhile, as that date approached, Landlord offered to allow Student to remain in the house after the first lease’s expiration, paying Student’s proposed rate of $1,200 per month, while they continued negotiating the renewal rent. Landlord would consider that rent to be a partial payment towards the presumably higher rent upon which he and Student would eventually agree; he explicitly noted that they had not yet agreed upon the final rent for the second year, and would have to do so at some point. Student agreed, but (quite correctly) pointed out that most rental periods in town were tied to the academic calendar, so it would be very difficult for her to find an alternate rental home in the middle of the school year. 

Four more months passed, during which Landlord and Student could not agree on an appropriate rent. Then, in January 2016, Landlord sued Student for breach of contract, arguing that the house’s fair rental value was $2,000 per month.

Questions

1. Based solely on the terms of the initial lease agreement, did Landlord and Student form a valid and enforceable contract for Student to rent the house for a second year? If so, how might the court calculate the rent? Explain.
2. Looking beyond the terms of the initial lease agreement, do Landlord and Student’s actions after September 2015 provide any additional support or counterarguments regarding whether Student has an enforceable right to rent the house for a second year? If so, how might the court calculate the rent? Explain.