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Henry’s Playland, Inc. v. Samuel Tilles, Inc.

A-6023-95T2 (N.J. Super. App. Div. 1997) (Unpublished)

LEASES—A tenant was entitled to be offered a new lease by its landlord. Landlord offered a lease with a very high rent. When the tenant’s right expired, the landlord offered a lease with a much lower rent to a new tenant. The landlord breached its implied covenant of good faith and fair dealing.

In 1989, a landlord filed an action for possession of premises based on unpaid rent. In July 1993, the parties reached an oral settlement that included release of all claims, the right to a new lease after the remaining 18 months of the term of the lease, and a right of first refusal on the premises during the 18 month period. In September 1993, landlord offered tenant a triple net lease for a ten year term, with rent of $300,000.00 per year for the first 5 years and $350,000.00 per year for the last 5 years. Tenant refused this offer but reminded landlord of tenant’s right of first refusal. No new lease offers were made to tenant during that 18 month period. Following expiration of tenant’s right of first refusal, landlord entered into a 5 year lease with a third party for $80,000.00 for the first year, $180,000.00 per year for the second and third years and $200,000.00 per year for the last two years.

Tenant brought suit alleging fraudulent inducement and breach of the implied covenant of good faith and fair dealing. Following discovery, the landlord moved for summary judgment while tenant argued in opposition that the settlement entered into in July 1993 contemplated that landlord would act in good faith in offering a new lease to tenant. In granting landlord’s summary judgment motion, the trial judge determined that the settlement provided that if tenant did not accept the lease terms, landlord could offer the lease to anyone else and that landlord did not have to offer the lease at any particular rental. Tenant appealed.

The Superior Court reversed and remanded for a full trial. It relied on recent opinions holding that every contract contains an implied covenant of good faith and fair dealing, even those contracts that may be terminated without cause. Viewing the evidence most favorably to the tenant, the Court held that a reasonable finder of fact could conclude that even though landlord complied with the express terms of the settlement, it never intended to offer tenant a lease that tenant would accept. The Court cited the fact that during the entire 18 month period tenant had a right of first refusal, landlord never altered the terms first offered to tenant, but immediately after that period had expired, landlord entered into a lease with more favorable terms than had been offered to tenant. [Note: Certification has been denied.]


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