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Mountain Broadcasting Corporation v. Department of Environmental Protection

A-446-02T1 (N.J. Super. App. Div. 2004) (Unpublished)

CONTRACTS; GREEN ACRES—Where a contract between a public authority and a private enterprise is intended to bring a public benefit and the private enterprise, to the prejudice of the public entity, has failed to satisfy a condition precedent within a reasonable period of time, the public entity may terminate the contract.

A company owned a television station next to a Wildlife Management Area (WMA). It wanted to improve reception in the area and to expand its coverage. Accordingly, the company and the Department of Environmental Protection (DEP) entered into a contract for the lease of land that had been purchased by the State with Green Acres funds and administered by the DEP as part of the WMA. The company intended to erect a tall television transmission tower, a large transmitter building, and multiple satellite dishes on the land. The contract required the company to obtain ingress and egress rights to the premises, get the state’s approval of the company’s certificates of insurance, and construct a thirty-car parking lot which could be used by the general public for access to the wildlife management area.

Problems occurred. The company’s application for a use variance was denied by the municipal zoning board. While the company was preparing to contest the decision, and more than two years after the contract had been signed, the DEP notified the company that it intended to terminate the contract because of the company’s noncompliance with the access and insurance requirements. The company responded by suing for specific performance of the contract. The lower court held that the contract was only an agreement to enter into a lease, and that no lease agreement existed at the time of termination. It also held that the company had failed to meet the conditions necessary to render the lease effective and, since there was no specific time frame in the contract, compliance with the conditions was required within a reasonable time. The court found the delay of the zoning approvals was “probably reasonable,” but that an issue of fact existed as to why the rights to ingress and egress had not been obtained in a timely manner and whether that delay was reasonable.

At a hearing in which the credibility of witnesses played a key role, the company could not explain the lengthy delay in obtaining the rights. Consequently, the lower court ruled in favor of the DEP.

On appeal, the Appellate Division noted that the DEP’s principal benefit under the agreement was to get access for the public to a landlocked wildlife area, and had failed to obtain it in a timely fashion. Without this access, the proposed lease agreement lacked any public purpose and violated the Green Acres Land Acquisition Act, the State Park and Forestry Resource Act, and the “public trust” doctrine, because the lands would have been converted from recreation and conservation purposes to strictly private use.

Although there was no need for the company to create the access until the zoning approvals were obtained, the interest of the public as expressed in the contract would not have been furthered if the delaying tactics had continued. The Court stated that where the terms of a contract clearly express the parties’ intention to make performance by one side a condition precedent to performance by the other, that intention will be given effect. When failure to comply with a condition precedent works like a forfeiture, the terms of the contract must be clear. Here, the company admitted that they were.

Where there is no time limit stated for performance, a reasonable time limit is implied. The determination is usually a question of fact that can be inferred from the language of the contract, the specific situation, and the parties’ intentions. The Appellate Division agreed with the lower court’s factual findings that the delay in the company’s obtaining of ingress and egress rights was unreasonable.

The DEP sent a default notice to the company. The company argued that, prior to the termination, it should have been given more than the sixty days to cure the alleged defects in its performance. It further claimed that what it accomplished within that sixty-day period constituted substantial compliance with the agreement. Case law has developed the following elements as considerations in determining substantial compliance: 1) the lack of prejudice to the defending party; 2) the series of steps taken to comply with the requirements; 3) a general compliance with the purpose of the statute; 4) a reasonable notice of petitioner’s claim, and 5) a reasonable explanation why there was not strict compliance.

Analyzing the facts at hand, the Court held that the company did not establish a lack of prejudice to the DEP, which had waited over two years for the access it contracted for. The most the company could offer at the time of the termination was a non-binding offer of access from another company. It was unable to provide evidence that the access would be achieved within a reasonable time. The company could not provide any reasonable explanation for its failure to act prior to its receipt of the default notice. The Court found that the company had chosen to pursue its own interests in obtaining a zoning variance before addressing the interest of the public. Consequently, it held that the company failed to achieve substantial compliance.

The company also contended that the DEP failed to satisfy the heightened standard of good faith and fair dealing applicable to all contracts. The Court disagreed, finding that the DEP’s demands were reasonable, specifically because the company had taken no action during the more than two years that the pre-lease agreement was in effect. During that time, while the company pursued its goal of obtaining zoning approval, the DEP collected no rent and the land remained inaccessible to the public. “The land was thereby burdened by a contract under which the public reaped no benefit.”

The company’s next contention was that the lease should not have been forfeited because its delay in obtaining the access rights was only a minor breach, and the law disfavors forfeitures of leases as a remedy for minor breaches. The Appellate Court disagreed.

The company’s final contention was that it “incurred significant expense and engaged in substantial efforts” to avail itself of the benefits of the lease because it applied for zoning board approval and appealed the denial, negotiated a license agreement, and purchased a title insurance policy. The Court noted that the company would not have had standing to apply for the use variance without the lease agreement. Furthermore, the company was not permitted to contend that its pursuit of the required variance was prejudiced by the DEP’s attempt to secure compliance since the company had in fact completed the application and appeal process. According to the Court, failure to achieve a favorable outcome does not equate with prejudice.

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