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What Efforts Are Best Efforts?

The phrase "best efforts" is used constantly in leases. It appears most frequently when both parties agree that one of them should meet a particular objective for the benefit of the other, but the party to perform is uncertain of its ability to meet the objective.

Since the party's failure to perform may cause it to be in breach of the lease, one solution is to require only that the party expend a certain amount of effort to attain the objective. As long as the required amount of effort is made, the performing party will not be in breach of lease, even if the objective is never actually achieved.

The Questions Inevitably, questions arise. What should that standard of effort be, and how should it be defined in the lease? Should the party be required to use, for example, reasonable efforts, good-faith efforts, diligent efforts or best efforts? What do these phrases mean, and is there really any difference among them?

A common belief among leasing lawyers is that "best efforts" is the highest standard of effort that can be required of a party in a lease. Such level of effort demands the party use all its resources to achieve the stated goal. Following this logic, "reasonable efforts" would not require the same level of effort. Surprisingly, this is not necessarily true. A review of court decisions defining "best efforts" reveals that the phrase has no single standard.

For example, one court described "best efforts" as merely positive steps toward fulfillment of a contract. Another court required a showing of good faith, saying a wide range of levels and types of performance that showed good faith would satisfy the "best efforts" standard. Other courts have determined that "best efforts" means diligent, reasonable efforts and use the phrases "best efforts" and "reasonable efforts" interchangeably.

In yet another case, in which the parties used the phrases "reasonable efforts" and "best efforts" in different places in the contract, the court determined that the parties must have intended the phrases to mean different things. The court required a higher standard of performance for best efforts.

And in still another case, the judge, in a concerning opinion, stated that "best efforts" means more than good faith, competence or diligent efforts. It requires all the obligor's skill, talents and available resources to achieve the stated purpose.

In light of this confusing state of the law, one Illinois appellate court in 1991 decided that the best efforts standard was not enforceable in Illinois because of its inherent vagueness. The court held that the phrase "best efforts" was too indefinite and uncertain to be an enforceable standard for performance of an obligation.

Courts seem to have a better idea of what best efforts are not rather than what they are. For example, a party was supposed to use best efforts to obtain a zoning variance for a property. A court determined best efforts were not used when the party took no action for two months after the contract was signed, then presented the application to the wrong board, requested a greater variance than the parties agreed to and failed to present the type of evidence ordinarily presented in zoning hearings.

The Answer So, what does all this mean for the leasing practitioner drafting leases? The best approach is to define the standard of performance directly in the lease. In cases where the contract clearly defined a standard, that standard has been enforced by the courts.

"Best efforts" should be defined as the highest level of performance - more demanding than mere competence, due diligence or good faith - requiring a duty to take all action, do all things, and exercise all of the party's skill, talent and available resources necessary to consummate the transaction.

"Reasonable efforts," on the other hand, should be defined as diligent, reasonable and good-faith efforts to accomplish the objective, but not requiring the expenditure of all available resources.

Defining the standard in the lease will clearly set forth the intention of the parties. It will prevent a jury or court from enforcing a standard that the parties never intended or, indeed, electing not to enforce the provision at all.

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