Agreeing to Negotiate Is Not Agreeing to Renew: A Michigan Lease Case for Business Tenants

Many business tenants invest in space they do not own. They remodel, add rooms, and plan for years in the same location, often because the landlord has signaled that the lease will be extended. A 2025 Michigan Court of Appeals decision shows how little that signal may be worth when the document behind it only promises to talk.

In Branch Line School v. St. Andrew’s Episcopal Church, a school that rented space from a church signed a memorandum of understanding saying the two would “engage in negotiations” to extend the lease for another five years. The negotiations failed, and the school sued. The Court of Appeals held that, even if the memorandum was binding, it required negotiation and nothing more.

The decision is unpublished, so it does not bind other Michigan courts. But it rests on ordinary rules for reading contracts, and its lesson applies to any business that leases its space.

What happened

The church was the landlord, and the school was its tenant. In 2013 they signed a five-year lease that allowed the school to use the church’s premises as a school, and they later extended it for a second five-year term that ran into 2023. Both leases said that improvements to the structure would become the church’s property when the lease ended.

During the second term, the school wanted to remodel the space and add classrooms. The parties then signed a memorandum of understanding, or MOU. Its central sentence read: “The parties will engage in negotiations to extend the lease for another five-year term until July 31, 2028.” The MOU also listed financial terms that the extended lease would include, among them two options for the church to raise the rent by 10 percent and a right of first refusal for the school, giving it the first chance to buy, if the Diocese of Michigan decided to sell the property.

As the second lease neared its end, the parties negotiated but could not agree. The school sued, arguing that the MOU required the church to give it a new five-year lease at the rent it was already paying. It also brought claims for unjust enrichment and promissory estoppel. The Wayne County Circuit Court granted summary disposition to the church, ruling in its favor without a trial, and the school appealed.

What the Court of Appeals held

The MOU required negotiation, not a new lease

The parties disagreed about whether the MOU was an enforceable contract at all. The court did not decide that question. It held that even if the MOU was binding, its terms did not give the school what it was asking for.

The court read the words as written. The MOU did not promise that the lease would be extended. It promised that the parties would “engage in negotiations to extend the lease.” The record showed lengthy negotiations that ended without an agreement. Reading the MOU as a guaranteed extension, the court explained, would make the phrase “engage in negotiations” meaningless, and Michigan courts give effect to every word of a contract where they can. The court held that by engaging in lengthy negotiations, the church fulfilled the obligation the MOU stated.

The school argued that disputed facts should have sent the case to trial, including whether the parties had a shared understanding of the rent for a new lease and several disputes about the school’s use of the building. The court held that none of those disputes mattered to the only question that counted: whether the MOU gave the school an enforceable right to an extension. The school also argued that the parties had different understandings of what the MOU was for. Because the language was unambiguous, the court held that the words controlled, not either side’s private beliefs.

The lease had simply run out

The school also challenged the church’s reasons for terminating the lease. The court said those reasons did not matter. The second lease’s term had already ended before the church sent its termination notice, and the lease did not renew automatically. With no extension in place, there was nothing left to terminate.

The fallback claims failed too

Unjust enrichment lets a court imply a contract when one party has been unfairly enriched at another’s expense. It is not available when an express contract covers the same subject. Here, the lease said that structural alterations, additions, and improvements became the church’s property at the end of the term. Because the parties had already agreed in writing on that subject, the school could not use unjust enrichment to recover for its alterations to the building.

Promissory estoppel can enforce a clear promise that the other party reasonably relied on, even without a contract. The school’s claim failed at the first step. Neither the church nor the MOU had promised to extend the lease, so there was no promise for the school to rely on.

What the court did not decide

• Whether the MOU was an enforceable contract. The court assumed it was and held that the school would lose anyway.
• Whether the church negotiated in good faith. The school claimed the church’s new leadership wanted the space for another school at a higher rent, but it offered no evidence, so the court treated the argument as abandoned. The opinion does not say what a duty to negotiate in good faith would require.
• Whether the church had valid grounds to terminate the lease. Because the term had already ended, the court did not need to reach that question.

Because the decision is unpublished, other Michigan courts may consider its reasoning but are not required to follow it.

What this means for commercial leases in Michigan

The holding is narrow: this MOU did not create an enforceable right to a lease extension, and the church fulfilled its stated obligation by engaging in lengthy negotiations. The points below are general practices for commercial leases that the case illustrates, not rulings from the case.

• Read promises about the future word for word. In this case, a promise to “engage in negotiations” did not give the tenant a right to an extension, and other wording can mean different things. If you need a commitment, the document should state it plainly.
• If staying in the space matters to your plans, put a renewal option in the lease itself. A renewal option typically lets the tenant extend by giving notice before a deadline, with the rent or a method for setting it agreed in advance.
• Settle the improvements question before you build. If the lease gives your improvements to the landlord when the lease ends, the time to negotiate a rent credit, reimbursement, a longer term, or the right to remove certain items is before the work starts.
• Know the limits of fallback claims. An express lease may foreclose an unjust enrichment claim about subjects the lease already covers, such as who owns improvements. Promissory estoppel requires a sufficiently definite promise and reasonable reliance on it; in this case, no one had promised an extension.
• Watch the calendar. Here, the lease did not renew automatically, so its term ended even though the parties had been negotiating. Know whether and how your own lease renews, and when the current term ends.

Landlords can read the case from the other side. Wording like the MOU’s did not obligate the church to agree to an extension. A landlord that intends to commit to an extension should say so plainly, and one that does not should avoid language that reads like a promise. The same care applies to letters of intent and term sheets in other kinds of deals: whether a particular document binds anyone depends on its language and the legal rules that apply.

Frequently asked questions

Did the MOU in this case require the landlord to renew the lease?

No. The Court of Appeals held that, even assuming the MOU was binding, its text required the parties to negotiate, not to agree to a new lease, and the church met that obligation through lengthy negotiations. The court did not decide whether the MOU was enforceable or what good-faith negotiation requires. The decision is unpublished, so it is persuasive rather than binding on other courts.

What is the difference between a renewal option and an agreement to negotiate?

As a general matter, a renewal option gives the tenant a right to extend the lease, usually by giving notice before a deadline, on terms set in advance. A promise to negotiate is weaker, and what it requires depends on its wording. Under the MOU in this case, the tenant had no enforceable right to an extension once the negotiations failed.

Who owns improvements a tenant makes to leased property?

It depends on the lease. In this case, both leases said that structural improvements became the landlord’s property when the lease ended. Because that written term covered the subject, the court held that the tenant could not use an unjust enrichment claim to recover for its alterations.

Can a tenant use promissory estoppel if a landlord will not renew?

Only if the landlord made a sufficiently definite promise on which the tenant reasonably relied. Promissory estoppel requires a promise the landlord should reasonably have expected the tenant to act on, and actual reliance on it. In this case, the court found that neither the landlord nor the MOU had promised an extension, so the claim failed.

Related reading: how a contract lawyer can review a lease or letter of intent before you sign, what to know before signing a personal guaranty, and working with a Grand Blanc business lawyer.

Please note: This article is provided for general educational and informational purposes only and does not constitute legal advice. Reading it does not create an attorney-client relationship between you and the Law Offices of Maynard F. Newman, P.L.L.C. Branch Line School v. St. Andrew’s Episcopal Church is an unpublished decision of the Michigan Court of Appeals; it does not bind other Michigan courts, and outcomes depend heavily on the specific documents and facts. You should consult a qualified Michigan attorney about your own circumstances before acting. This content may also be considered attorney advertising.