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Pathmark Stores, Inc. v. JSM at Somerville, LLC

A-5533-06T1 (N.J. Super. App. Div. 2008) (Unpublished)

CONDEMNATION; REDEVELOPMENT — A landlord, when acting as a redeveloper of its own property under a municipality-sanctioned redevelopment plan, does not per se breach the implied covenant of fair dealing or covenant of quiet enjoyment in a tenant’s lease by reason of the subsequent lengthy period of demolition and construction in connection with its redevelopment.

A supermarket tenant sued to enjoin its landlord, who also was a redeveloper, from proceeding with a municipality-sanctioned redevelopment plan to demolish all neighboring buildings and create new ones on its property. The tenant alleged breach of lease, breach of the implied covenant and fair dealing, and breach of covenant of quiet enjoyment. The municipality began condemnation proceedings of the disputed area. Restraints were ordered pending motion and then trial. The lower court found no breach of good faith and fair dealing because every lease is subject to appropriation for public use and this lease had a provision dealing with eminent domain. It would not issue a permanent injunction because issues of good faith and fair dealing or express covenant of quiet enjoyment require a trial on the merits. After trial, the lower court found no basis or testimony as to sublet value or attempts to assign the lease. The Court also stated that damages for the under-market lease value would be determined in the condemnation case that was then pending. The lower court held that the redeveloper would breach lease provisions if construction began and enjoined further redevelopment, but noted it would lift the injunction if the municipality filed a declaration of taking.

The supermarket appealed. It alleged that the lower court erred in not finding a breach of the implied covenant of good faith and fair dealing and that the supermarket had lost its ability to assign its lease or sublet because of a lengthy period of demolition and construction. The Appellate Division affirmed the lower court’s rulings. According to the Court, even though there is an inherent inconsistency with a party as both a landlord and redeveloper of the same property, this does not necessarily result in a violation of the covenant of good faith and fair dealing. The Court noted that the supermarket and the public were generally aware of the redevelopment plans before the landlord entered as buyer of the shopping center and then as the redeveloper for the property. It observed a record which established the negotiations between the supermarket and the landlord, and the landlord’s attempts to keep the supermarket as its anchor store and satisfy its needs and concerns about the redevelopment. The Court also stated that there was sufficient evidence in the record showing the municipality’s desire to create a town center and redevelop the area.

The Court also affirmed the lower court’s finding that the supermarket did not prove that it had lost its ability to assign the lease as a result of improper landlord actions. It approved the lower court’s rejection of a net opinion by the supermarket’s expert where the expert offered no analysis or hard evidence of this allegation. The Court noted the expert’s testimony that the supermarket made no attempt to assign its lease and that he did not call even one supermarket chain to ask about any interest in taking over the lease.

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