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Lauredan v. The G.L.C. Group, LLC

A-4751-03T3 (N.J. Super. App. Div. 2005) (Unpublished)

LEASES; OPTIONS — A tenant who conditions its exercise of a purchase option in its lease on receiving a credit for work done by the tenant in the premises is only making a offer to buy based upon a price other than provided for in the terms of the option.

A tenant had an option within its lease allowing it to purchase the leased property as a condominium unit. To exercise the option, a down payment was required. According to the lease, the down payment included relinquishment of the security deposit and payment of “20% of the rents paid to the date the option is exercised.” The tenant sent a timely letter of exercise, but instead of tendering or offering to tender an amount equal to 20% of the rents, the tenant spoke of approximately $75,000 of improvements that it had made and said that it “wish[ed] to use that amount expanded [sic] for improvement as down payment for the appraised value of the Condo.” The landlord asserted that the exercise notice was not in conformity with the terms of the lease. The lower court agreed, holding that the “attempted exercise of the option did not meet the terms of the option and amounted to a counter-offer.” On appeal, the tenant endeavored to rely on a recent New Jersey Supreme Court case holding that a landlord’s lengthy silence over whether its tenant had the obligation to send an “exercise” payment at the time it exercised renewal of a long-term lease constituted a waiver that validated the tenant’s attempted exercise of its purchase option. The Appellate Division rejected that argument, pointing out that in the earlier case, the New Jersey Supreme Court “found that by its artful dodging and studied silence, the landlord had breached the covenant of good faith and fair dealing implicit in every contract.” Here, according to the Court, the tenant “sought to alter the sale price by obtaining credit for improvements he had made to the property during his tenancy.” Having made that finding, the Court held that “this amounted to a counter-offer.”

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