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ADP Statewide Insurance Agencies, Inc. v. Blanchard Securities Co., L.L.C.

A-2182-09T2 (N.J. Super. App. Div. 2011) (Unpublished)

LEASES; GUARANTIES — Where a party is required to sign a lease to signify its agreement to guaranty that lease, its signature will be required in order to renew the lease.

A commercial tenant rented space in an office building. The lease listed the tenant as both a corporation and its two principals. It contained two successive five-year renewal options. In order to exercise a renewal option, the tenant was required to deliver notice, by certified mail, to its landlord not later than twelve months in advance of the renewal date. The lease also required the landlord and tenant to enter into discussions at least fourteen months before the lease expired regarding the rent to be charged during the renewal term.

The landlord and tenant had discussions about renewing the lease and possibly entering into a new lease for a building being constructed by the landlord. The landlord believed that the tenant agreed to renew the lease. It sent its tenant a renewal letter confirming the renewal for five years and stating that the parties needed to sit down to determine the rent for the renewal term. The letter was signed by the landlord and by one of the tenant’s principals, but not by both. The tenant believed that the letter was merely an acknowledgment of a conversation in which it had said that it wanted to renew the lease with an option to terminate early, without penalty, if it secured space in the new building. The tenant did not consider the “confirmation” letter to be a lease renewal since the renewal rent terms had not been discussed. The landlord believed the letter to be a lease renewal and sent a follow-up letter with its proposed rent for the renewal term. The tenant did not sign the follow-up letter.

The tenant and its principals filed suit seeking a declaratory judgment that the lease had not been renewed and that the landlord had breached its covenant of good faith and fair dealing. The lower court found that the lease had not been renewed because only one of the principals had signed the renewal letter. It also found that, despite the lack of “malevolent intent,” the landlord had breached the covenant of good faith and fair dealing in its negotiations with the tenant. The landlord appealed, and the Appellate Division affirmed as to the non-renewal of the lease, but reversed the lower court’s finding that the landlord had breached the covenant of good faith and fair dealing.

In doing so, the Court rejected the lower court’s conclusion that the lease had not been renewed because the corporation and its principals were tenants under the lease, and therefore they were all required to sign the renewal letter. The Court found that the principals were not tenants, even though they were listed as such on the third page of the lease. It found that, pursuant to another lease provision, the principals were really guarantors of the tenant-corporation’s lease obligations. It noted that the principals could have been either tenants or guarantors, but not both, and construed them to be guarantors of the lease. However, since the principals were required to sign the lease as individuals to signify their agreement to guaranty the lease, their signatures were required in order to renew the lease.

The Court also held that the lease was not renewed because the parties did not abide by the lease’s renewal provisions. The parties had not entered into rent discussions at least fourteen months prior to the expiration of the lease term. The Court rejected the landlord’s contention that the renewal letter it sent modified the lease by pushing back the time for determining the new rent. The letter did not indicate that it served as a lease modification, and it was not signed by the tenant. The Court also reversed the lower court’s finding that the landlord had breached the covenant of good faith and fair dealing. It noted that case law requires proof of “bad motive or intention.” In this case, the lower court found that the landlord did not have an improper motive. Therefore, the lower court should not have found, as a matter of law, that the landlord had breached the covenant of good faith and fair dealing.


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