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Armur Realty, LLC v. Banco Do Brasil, S.A.

2011 WL 1327422 (U.S. Dist. Ct. D. N.J. 2011) (Unpublished)

LEASES — Where a lease gives the tenant the right to terminate its lease if the landlord fails to meet certain delivery deadlines, the landlord cannot negate such a termination by arguing that the tenant, though having a contractual right to terminate the lease, did so in bad faith or that it, the landlord, had substantially performed its obligations or that there were unforseen circumstances that warranted an extension for a delivery of time, especially where such circumstances were ones the landlord had represented were non-existent.

A landlord agreed to construct the shell of a building based on plans agreed upon by both it and its tenant for the tenant’s use. The lease specified a delivery date and provided that the tenant would receive one free day of rent for each day of delay of up to thirty days. After thirty days, the tenant was to receive an additional two free days of rent for every day of delay. The lease specified that the tenant had the right, beginning after the delivery date, to terminate the lease and relieve both parties of any obligations. The tenant terminated the lease by letter prior to delivery. The landlord sued, alleging breach of contract.

The landlord did not dispute that the tenant had a right of termination if the premises was not delivered; that the premises were not delivered; and that the tenant had served a timely termination notice. Instead, the landlord alleged that the tenant should have been precluded from terminating the contract by reason of its bad faith conduct; substantial performance of contractual obligations on the part of the landlord; and unforeseen circumstances that warranted an extension of delivery time.

The Court noted that when contract terms are clear, as they were here, the implied covenant of good faith and fair dealing could not override the contract’s express language allowing termination. Further, the landlord failed to point to anything in the record substantiating near-completion of construction work or compliance with the lease’s delivery requirements. Thus, the substantial performance argument could not survive the tenant’s summary judgment motion.

Finally, the landlord argued that it was impossible for it to deliver the premises by the delivery date because of asbestos contamination and a wall collapse, justifying an extension of the delivery date. However, the landlord had made an affirmative representation that the premises were free from asbestos, that the landlord would be responsible for any asbestos removal needed, and that the tenant would be held harmless from any asbestos in the building. Thus, the doctrine of impossibility was unavailable to the landlord because the presence of asbestos had clearly been contemplated by the parties. Further, the record indicated that the wall collapse resulted in an eight-week delay, but failed to explain why the building remained undelivered nineteen weeks past the delivery date.

Based on a term in the lease entitling either party to fees when litigating to enforce their rights under the lease, the Court granted attorney’s fees to the tenant.

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