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Didco Urban Renewal Company v. 1160 Operating Corp.

A-6488-95T1 (N.J. Super. App. Div. 1997) (Unpublished)

LEASES; DAMAGES—A lease provided that the landlord would pay a cancellation fee to the tenant if the property was sold. When the tenant did not pay its rent and was otherwise in default of its lease obligations, it wasn’t permitted to collect the cancellation fee because the sale was not the cause of tenant’s losing possession of the leased premises.

A husband, wife, and their corporation, as tenants, negotiated a lease for the operation of a commercial parking garage. The individuals personally guaranteed all lease payments. The lease required the tenant to pay all relevant taxes and expend $150,000 in repairs during the first year of the lease. Since the landlord was negotiating for the sale of the building in which the garage was located, the lease also contained a cancellation provision providing for payment of damages to the tenant in the event that the building was sold. Although the initial rent payment was made, the next two payments were only for partial rent. Then, the tenant notified the landlord it would vacate the premises if the terms of the lease were not renegotiated. One month later, the landlord signed a contract for the sale of the building. After completion of the sale, the City of Newark informed the landlord that parking taxes were still outstanding and owed by the landlord because the relevant license was never transferred to the tenant. The landlord served the tenant with a notice of termination of the lease for failure to pay the full rent, and filed a dispossess action. The case was transferred to the Law Division, which held that the landlord did not waive full payment of rent, and that the cashing of the partial rent checks by the landlord was not acceptance of the lower amount tendered, since the lease specifically provided that acceptance of less than the full rent was not an accord and satisfaction. The Law Division also concluded that the tenants’ failure to undertake the repairs specifically required under the lease constituted a default. The Law Division awarded the damages to the landlord.

The tenant appealed, claiming that even if it didn’t meet its own lease obligations, landlord was still liable to pay the cancellation fee. The Appellate Division disagreed. It concluded that the landlord’s obligation to pay the cancellation fee was not independent of the tenants’ obligation to pay rent. In finding these covenants dependent, the Court first looked to the intent of the parties and found that the cancellation clause was inserted into the lease to prevent the tenants from losing possession of the premises solely as a result of the sale of the building. However, the tenants breached the express terms of the lease by failing to make numerous payments of rent or taxes. The Court held that the structure of the lease indicated an intent that the landlord’s obligation to pay the cancellation charge was dependent on the tenants’ fulfillment of its lease obligations. Any contrary holding would result in the tenants receiving a windfall despite substantial noncompliance with numerous provisions of the lease. Even if the clauses were independent, the Court would still have found that the tenants were not entitled to the cancellation fee since the lease requires, as a condition precedent to the landlord’s obligation to pay the fee, that the tenants vacate the premises. Since the tenants failed to properly vacate, the landlord was not liable for payment. The Court also found that the landlord was not in breach of the covenants of good faith and fair dealing since the tenants were aware that the landlord was attempting to sell the building before, during and after negotiation of the lease.


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