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Hilltop Supermarkets, Inc. v. Foodarama Supermarkets, Inc.

A-6050-01T3 (N.J. Super. App. Div. 2003) (Unpublished)

LEASES; ASSIGNMENT—An assignee of a tenant’s interest in a lease does not have the obligation to exercise any renewal provisions in that lease and it isn’t a breach of the covenant of good faith and fair dealing not to exercise a renewal even if failing to do so deprives the assignor of its expected profit.

A supermarket entered into a twenty year lease with two ten-year options. About half way into the initial term, it assigned the lease to another supermarket. That assignment agreement called for monthly payments amounting to the difference between the rent that the original tenant was paying and a “new” rent for the assignee. In connection with this matter, the original supermarket took the position “that the assignment was in reality a discounted asset purchase agreement, whereby [the assignee] obtained assets in exchange for payments spread over thirty years (the last ten years of the lease and the two option periods).” The assignee did not exercise the first renewal option. Instead, it entered into a two month extension of the initial lease and thereafter entered into a holdover agreement. Then, it moved to a much larger location in the neighborhood.

The original supermarket sued its assignee and its landlord, arguing various theories such as “breach of contract, unjust enrichment, tortious interference with economic and contractual advantage, and breach of a duty of good faith and fair dealing.” The Court was unsympathetic. It concluded that the assignment conveyed all of the original supermarket’s “right, title and interest in the lease, as well as its obligations, to [the assignee].” It did not reserve any rights in the lease itself. It did not require the assignee to renew the lease or even to give notice that it was not going to renew the lease. The Court also concluded that the “terms of the assignment agreement did not render inevitable an exercise of a renewal option by [the assignee] or the receipt by [the original supermarket] of excess rents in the option period.” Further, it was clear to the Court that the assignee’s “covenant to do nothing to cause the lease to be terminated” could not be read “to require exercise of the renewal options.” All the assignee’s covenant insured against were defaults in compliance with the terms of the lease. Consequently, all of the arguments by the original supermarket “premised upon continuing rights in the lease agreement and assignment,” failed as a matter of law. In addition, the second supermarket proved that it did not intend to remain at the site at the conclusion of the initial lease term. The only reason it stayed beyond the initial term of the lease was because there was a problem with construction of its new supermarket. Consequently, since it was not obligated to stay at the premises, the landlord could not have been guilty of “tortious interference with contract or business advantage.” Further, because the assignee had no obligation to renew the lease, it could not have breached any duty of good faith or fair dealing when, for legitimate business purposes, it chose not to renew the lease.

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