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Asbury Shores, Inc. v. City of Asbury Park

A-2158-08T1 (N.J. Super. App. Div. 2009) (Unpublished)

REDEVELOPMENT — Municipalities, like individuals, are bound by the principles of fair dealing and, as such, even though a “reasonableness required” provision may not be included within a redevelopment agreement, the law implies a covenant of good faith and fair dealing which precludes a municipality from unreasonably withholding its consent under such agreements.

A municipality and a redeveloper entered into an agreement which was subsequently amended. Both the agreement and the amendment stated that the municipality needed to consent to an assignment of the agreement by the redeveloper, but only the earlier of the documents expressly provided that the consent was not to be unreasonably withheld. The redeveloper sought to assign its redevelopment rights to a third party. The municipality did not consent to the assignment and the redeveloper sued alleging the refusal violated its redevelopment agreement. The assignee assigned its rights to yet another party. This assignee alleged that the municipality did not have the discretion to refuse the proposed assignment and therefore acted arbitrarily and capriciously in refusing to grant approval. The municipality asserted that the assignee was unwilling to agree to include an affordable housing element to its project. It believed at that point there was a “schism” between the parties prompting it to seek a new redeveloper. The assignee responded by claiming that it was ready, willing, and able to take an assignment of the rights under the development agreement, but the municipality had added new requirements to the project that were contrary to prior agreements. Further, it contended that the municipality refused to meet with the assignee in a good faith attempt to resolve this issue.

The lower court dismissed the assignee’s claim, finding that the amendment to the original development agreement superseded the earlier agreement which had limited the municipality’s ability to withhold consent. As the Court found that the assignee entered into an agreement to become the assignee of the redeveloper’s rights with the knowledge that a clause prohibiting the municipality from unreasonably withholding consent did not exist, it could not lay claim that the municipality must consent to the transfer. The assignee appealed.

The Appellate Division reversed and remanded. It was satisfied that the lower court erred as a matter of law in its construction of the contract documents. It determined that even though the “reasonableness required” was not reiterated in the express language of the amendment, the law implied a covenant of good faith and fair dealing which precluded the municipality from unreasonably withholding consent. In so ruling, it concluded that municipalities, like individuals, are bound by the principals of fair dealing. It stated that the lower court never reached the issue of whether the municipality acted reasonably in withholding its consent. The matter was remanded to the lower court to make a determination on that issue.

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