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Berardi v. Acme Markets, Inc.

A-2367-97T1 (N.J. Super. App. Div. 1998) (Unpublished)

LEASES; CONTINUOUS OPERATION—The absence of a continuous operation obligation in an anchor tenant’s lease does not necessarily mean that the tenant can board-up the premises if it continues to pay rent.

A supermarket with a long term lease in a shopping center moved into new premises at another shopping center about one-half mile away from its leased location. It refused to give up the vacant premises at the old shopping center and asserted that it had the right to continue to pay rent and leave the space “dark.” In making that argument, it pointed to a provision of its lease that, in essence, said that the tenant was not obligated to continuously operate within the leased premises. The lower court, by summary judgment, agreed with the tenant that it could leave the premises “dark.” In reaching that conclusion, the Court relied on the “no continuous operation” provision, a provision allowing the tenant a right to assign or sublet with the landlord’s permission, and a provision that said the lease was not a joint venture or partnership between the supermarket and its landlord. Fortunately for the landlord, the Appellate Division believed otherwise and found that the matter could be presented to a jury.

While the Court felt that the “no continuous operation” provision certainly appeared to grant the supermarket a “privilege” to close its store if it continued to pay the minimum monthly rental, it found that such a result was not the likely intention of the parties. Construing the provision in light of the circumstances under which it was written, the Court believed that the store closing clause contemplated avoidance of the coerced operation of the store with unjust losses, and was not intended to insulate the supermarket from competition in a new location, while impacting adversely on the old shopping center. Furthermore, both the “no continuous operation” clause and the assignment and sublet provisions were intended to be protective shields for luckless tenants, not for use as swords of destruction against landlords. In addition, the Appellate Division found that construing a “no continuous operation” clause as permitting a tenant to compel a shopping center to maintain its anchor store in a boarded-up state would violate the implied covenant of good faith and fair dealing which underlies all New Jersey contracts. To the Court, the implied covenant meant that “neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.” Also, “a party can violate the implied covenant of good faith and fair dealing without violating an express term of a contract.” As to the supermarket’s argument that the lease did not create a joint venture between it and the landlord and therefore it owed no duty to the landlord to insure the success of other stores at the shopping center, the Court recognized that there is an interdependence of stores in the shopping center and that an anchor store in a shopping mall serves a function not unlike an obligation to pay percentage rent. Because the Appellate Division felt that a jury considering the fair dealing issue might reasonably find the purpose of the supermarket’s insistence upon control of the boarded-up premises was to improperly foreclose prospective competition for its new supermarket, and incidently to diminish the attractiveness of the old shopping center in favor of the newer center, it was proper to permit the landlord to pursue its claims.


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