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Central Paper Distribution Services v. Intl. Records Storage and Retrieval Service, Inc.

325 N.J. Super. 225, 738 A.2d 962 (App. Div. 1999)

LEASES; OPTIONS—Even where the parties to a lease do not comply with the literal conditions for the exercise of a purchase option, a court will look at the intent of the parties in the way they attempted to treat the option language.

A paper company owned and operated a commercial building in which it leased two floors to a records storage company. The lease gave the records company a certain right to purchase the building if its landlord received an offer for the building from another party. It also set forth the mechanics governing the exercise of that right. Two years after the lease was signed, another records storage company offered to buy the building by taking a ten year lease of the entire building, an assignment of all of the landlord’s existing leases, and by obtaining the grant of an option to purchase the building at the end of the lease term. A copy of that offer was transmitted to the tenant. The tenant responded by claiming that the offer was not complete. In response, the landlord’s attorney sent it a new notice with a revised offer, including a copy of the offering letter. With that second transmittal, the landlord’s attorney stated that the initial offer and notice met the terms of the lease notwithstanding that it was subject to a physical and financial inspection of the property and the execution of a mutually and acceptable contract and lease agreement. In response to the landlord’s attorney’s question: “[a]re you willing to meet the price and pay on the terms set forth in the Initial Offer and can you provide my client with the security and guarantees which are contained in the Initial Offer,” the tenant’s attorney replied that its client “hereby agrees to purchase on the terms set forth in the offer. I request that we have a meeting to discuss paragraph 2, 4, and the next to last paragraph of the offer letter.” Upon receipt of that letter, the landlord’s attorney advised the second record storage company that the offer had been matched. A meeting between the landlord and its tenant followed, but “before anything else was even discussed at the meeting, [the tenant’s attorney] announced that [the tenant] was not going to buy the building.” Before the motion judge, the landlord certified that its tenant’s president said that the reason the tenant originally exercised its right of first refusal was to prevent its competitor from becoming its landlord. The sale to the second records storage company was lost and ultimately the property was sold, but at a price substantially lower than the original offer. The lower court dismissed the landlord’s claims on summary judgment based on its determination that “no contract existed between” landlord and tenant or between landlord and the prospective buyer. On appeal, the landlord challenged the dismissal of its breach of contract claim and its tortious interference claims. In dismissing those claims, the motion judge had determined that the prospective buyer’s “alleged offered to purchase ... was not an offer to purchase but an offer to lease, which included therein an option to purchase the premises.” The Appellate Division, however, took note of testimony from the landlord’s president that it was clearly his intention to sell the property and he did not intend merely to create an option to purchase. In addition, the response of the tenant to the alleged purchase offer was conditioned upon negotiation of the terms of the agreement, particularly that section of the lease which contained the option to purchase. Consequently, the Appellate Division felt that the issue could not be determined on summary judgment. “Manifestly, the question whether the dealings between the parties constituted an offer and acceptance sufficient to create a contract to purchase is an issue of law to be determined by the court. . Moreover, the motion judge’s sense that the underlying transaction between the landlord and its tenant did not amount to an offer to purchase may be subject to a different view with the development of a factual record and application of the interplay among pertinent principles governing contractual formation.” The Court also felt that the trial judge gave insufficient consideration to the landlord’s allegations that the tenant had defaulted on its responsibility under the lease, at least to the extent of the “implied covenant of good faith and fair dealing” which “every contract in New Jersey contains.” With respect to the claim based on tortious interference, the Court upheld the lower court’s ruling. There was no showing that the tenant had ever dealt with its competitor at all in an effort to dissuade that entity from dealing with the landlord or to persuade it to withdraw its offer. The Court also recognized that the cause of action for interference with prospective economic advantage is distinct from that of interference with contractual relations. In that regard the former may also be established by showing conduct not necessarily directed at the third party, but which improperly infringes upon the claimant’s reasonable expected economic advantage from or with regard to that third party. Nonetheless, the Court pointed to its preference for adjudicating matters such as this by principles of contract law, and remanded the matter to the lower court to determine whether the landlord’s claim for tortious interference with prospective economic advantage was demonstrably different, either in the evidence offered in support of it, or in the factual or legal theories by which the claim was based, from those advanced to support the breach of contract claims.


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