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Frajari v. Pizza Hut of Monmouth County, Inc.

A-3856-96T1 (N.J. Super. App. Div. 1998) (Unpublished)

LEASES; WAIVER—A party to a lease, pursuant to its implied covenant of good faith and fair dealing, may have an obligation to respond frankly to a request from its landlord as to whether the tenant will terminate the lease by reason of the passing of a deadline for a condition to be met.

A property developer entered into a lease with a prospective tenant before acquiring title to land and constructing a building on it. Accordingly, the lease gave the future tenant the right to terminate the lease if government approvals were not obtained within a specified number of days. Even though the developer received the required approvals after the deadline, it wrote to the tenant seeking confirmation that the delay had no effect on the lease. The tenant never answered the letter, and, six months later, served a notice of termination of the lease. The developer filed a complaint for breach of the lease, alleging that the tenant waived its right to terminate. Alternatively, the developer claimed that the tenant was estopped from terminating the lease as a result of a conversation the developer alleged took place after it sent the letter, but before it received the tenant’s notice of termination. The lower court granted summary judgment in favor of the tenant, holding that the developer was not justified in relying on the tenant’s lack of response to its letter and that no conversation took place between the parties.

The Appellate Division began by citing Sons of Thunder, Inc. v. Borden, Inc. for the proposition that every contract in New Jersey contains an implied covenant of good faith and fair dealing that must be complied with even in the face of unambiguous terms permitting unilateral termination of an agreement. The Appellate Division felt that the trial judge should have considered whether the implied covenant of good faith and fair dealing required the tenant to respond frankly. Because the lower court had not considered this issue, the Appellate Division vacated the judgment and remanded. The Court also ordered consideration of whether any oral promises were made by the tenant to the developer after receipt of the letter, since this would affect whether the tenant breached the lease or induced reliance on the part of the developer.


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