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Law Offices of Donald P. Fedderly v. Skoda

A-4355-07T2 (N.J. Super. App. Div. 2009) (Unpublished)

LEASES; RIGHT OF FIRST REFUSAL — A holdover month-to-month tenant cannot enforce a right of first refusal after its written lease expires.

A landlord and tenant entered into a written lease for commercial space. The lease contained a provision requiring the landlord to notify the tenant if any additional space became available in the building and granting the tenant a right of first refusal when additional space became available. During the term of the lease, the landlord never notified the tenant when space became available and the tenant never asked for any additional space. When the lease expired, the parties entered into a year-to-year lease which incorporated, by reference, the “exact” terms and conditions as the expired lease. Later, when the landlord located a replacement tenant, the landlord and tenant agreed to a month-to-month tenancy without any rent increases. Some time later, the landlord sent its tenant a notice terminating the lease and demanded that it vacate the premises. The tenant claimed that the landlord was estopped from requiring it to leave because it never notified it of available space pursuant to the right of first refusal provision in the original lease. The landlord responded by billing its tenant for six years of previously unbilled charges. The tenant then sought an injunction to prevent its landlord from requiring it to move. The landlord filed a counterclaim seeking payment of the past due additional rent, as well as double rent for the tenant’s alleged improper holdover.

The tenant and landlord agreed to a consent order requiring the tenant to move by a date certain. The contract claim for rent was referred to an arbitrator. The arbitrator awarded the landlord double rent for the holdover period, but rejected the landlord’s claims for additional rent for the previously unbilled tax, maintenance, and utility charges. The landlord moved for a trial de novo. The lower court found that the tenant’s right of first refusal expired when the written lease expired, and that the tenant had no justification in holding over. It awarded double rent to the landlord for the holdover period. Further, it found that the landlord was entitled to the past due charges even though the landlord waited a long time to bill for them because the lease specifically provided that the landlord’s failure to demand payment when due did not constitute a waiver of its right to payment.

The tenant appealed, and the Appellate Division affirmed in part. The Court held that a holdover month-to-month tenant cannot enforce a right of first refusal after its written lease expires. It held that a right of first refusal does not survive the expiration of the written lease because it is a collateral agreement that is independent of the lease and applies to the additional space and not to the leased space. In addition, this particular right of refusal only applied if the tenant expressed an interest in obtaining additional space during the term of the written lease. Here, the tenant never expressed an interest in increasing its space during the term of the lease. With respect to the additional rent, the Court held that the landlord waived its entitlement to receive additional rent for four of the six years because it never billed the tenant when the bills were incurred or within a reasonable time thereafter.

Lastly, the Court rejected the tenant’s claim that it should not be obligated to pay double rent as a holdover tenant, noting that in order to avoid the double rent penalty for holding over, a tenant must have a legitimate reasoning for doing so other than its mere belief that it had a right to stay in the leased premises. In this case, the tenant did not demonstrate a legitimate reason for staying on, it only argument being that the landlord was estopped from removing it due to the landlord’s failure to notify it regarding the additional space. Therefore, the landlord was entitled to double rent for the holdover period.

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