Real Estate Investments, Inc., owns and manages an office building. Secure Insurance Company agrees to lease the building for five years. Under the lease, Secure is obligated to pay all of the utility costs. Two years into the term, Secure asks Real Estate to modify the lease to provide that the utility costs be split equally between them. Real Estate agrees, but later decides it does not want to share the costs and refuses to pay. Is the landlord bound to its agreement to share the utility costs? Why or why not?
What will be an ideal response?
Real Estate Investments, Inc., the landlord, is not bound to its agreement to share utility costs with Secure Insurance Company, its tenant. The agreement to split the utility costs was a modification of the original terms of the parties' lease. Under the preexisting duty rule, a modification of a contract requires consideration to be binding. Real Estate is not bound because the landlord did not receive any consideration in exchange for the agreement to split the utility costs.
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