Can Utah courts enforce lease options with indefinite rental terms? Brown's Shoe Fit Co. v. Olch Explained

The Utah Court of Appeals addressed a fundamental question in Brown’s Shoe Fit Co. v. Olch: whether a lease agreement containing option periods with indefinite rental terms can be specifically enforced. The court’s analysis provides crucial guidance for practitioners drafting commercial lease agreements.

Background and Facts

Brown’s Shoe Fit Company executed a document titled “Basic Lease Provisions” (BLP) with 330 Main Street Partners for retail space in Park City. While the BLP specified rental amounts for an initial three-year term, the two three-year option periods contained no agreed-upon percentage rent amounts. Instead, the BLP stated that prior to each option period, the parties “would agree on the gross volume figure from which to base additional rent.” When negotiations for a final lease failed, Brown’s Shoe sued for specific performance and breach of contract.

Key Legal Issues

The primary issue was whether the option periods were sufficiently definite to be enforceable when they lacked specific rental terms or mechanisms for determining rent. The court also addressed whether the covenant of good faith and fair dealing could cure the indefiniteness and whether reliance damages were available.

Court’s Analysis and Holding

The court applied the established Utah rule from Pingree v. Continental Group that lease renewal options are unenforceable unless the rent or a mechanism for determining rent is specified with “such a degree of certainty and definiteness that nothing is left to future determination.” The court rejected arguments that the covenant of good faith and fair dealing could remedy the indefiniteness, noting that parties could “negotiate in good faith indefinitely and never agree upon the price term.” The court also denied reliance damages, holding that reliance on unenforceable option periods was unreasonable.

Practice Implications

This decision reinforces that Utah courts strictly apply the definiteness requirement for lease options. Practitioners must ensure that option periods include either specific rental amounts or clear, objective mechanisms for determining future rent. Agreements to agree on future rental terms will not satisfy this requirement, even when coupled with good faith negotiation obligations. The ruling also demonstrates that courts will not award reliance damages when the underlying agreement terms are unenforceable due to indefiniteness.