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Mill Creek Mall, LLC v. Fabco Shoes Mill Creek, LLC

A-3580-05T2 (N.J. Super. App. Div. 2007) (Unpublished)

LEASES; GUARANTIES — Where, before a lease guaranty expires, the guarantor advises a landlord that its tenant will move out the premises within a few days after the guaranty expires ( in violation of the lease) unless the landlord reduces the tenant’s rent, the landlord may have a claim for anticipatory breach of the lease occurring before the guaranty expires and, as a consequence, the guarantor may be liable under its guaranty even though the tenant does not move out until after the guaranty has expired.

A shoe store assumed a shopping mall lease from a prior tenant who had declared bankruptcy. At the time that the shoe store assumed the lease, there were seven years left in its term. Since the shoe store was a limited liability company, the landlord insisted on a written guaranty. The guarantor signed one agreeing to guarantee the payment of the shoe store’s rent and other charges under the lease for a period of three years, which was a point four years earlier than the lease’s termination. The guarantor’s president had arranged for the assumption of the lease by the shoe store.

Shortly before the guaranty was about to expire, the guarantor’s president suggested, in a letter to the landlord, that the guaranty could be extended or renegotiated if the landlord agreed to reduce the rent. The letter also raised the question of whether the shoe store planned on remaining at the mall after the expiration of the guaranty. The landlord refused to lower the shoe store’s rent. Around the same time, the shoe store started to remove inventory from the premises. Three days following the expiration of the guaranty, the guarantor’s president sent the landlord a letter informing it that the shoe store would vacate the premises within two weeks and enclosed a check for one-half month’s rent up until that time. In response, the landlord’s attorney contacted the guarantor and demanded that the guarantor cure the shoe store’s default, and, alleging a wrongful termination of the lease, demanding payment of all future sums that were due under the lease. The president responded by mailing the keys for the vacated premises to the landlord.

The landlord sued the shoe store and the guarantor, alleging a default by the store. The shoe store did not respond and a default judgment was entered against it for all rents and monies due for the remaining four years of the lease. The guarantor sought a dismissal of all claims against it for any liability involving the shoe store’s actions under the lease. The lower court granted summary judgment to the guarantor and dismissed all of the claims against it. The lower court found that the shoe store did not breach the lease during the three-year period of the guaranty agreement and the guarantor was not responsible for any of the shoe store’s actions beyond the termination date of the guaranty agreement.

On appeal, the Appellate Division found that since the shoe store began removing its inventory and did not remain open during all business hours as required, it did not perform as it was supposed to under the lease during the term of the guaranty agreement. It pointed out that upon a material breach of a contract, the non-breaching party has the right to consider the contract terminated and bring suit against the breaching party. The Court found that a question remained whether an anticipatory breach by the store had occurred when the guarantor’s president notified the shopping mall that the tenant might leave the premises. The Court also found that if such a breach did occur, a question remained as to whether the termination occurred before the expiration of the guaranty agreement. Because the Court found that factual questions remained, the summary judgment was reversed and the matter was remanded back to the lower court for a determination.

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