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Provident Mutual Life Insurance Company v. Lerman Architecture

A-3143-97T1 (N.J. Super. App. Div. 1999) (Unpublished)

LEASES; RENT—When a lease is clear that rent is to be paid in money, parol evidence that the parties agreed to a barter arrangement will not vary the express rent term of the lease.

In an action by a landlord to collect back rent from a tenant, the tenant argued: (1) it could offset accounts receivable for architectural services it rendered to a party affiliated with its original landlord against rent due; (2) it had a right to reduce the rental space contained in the lease if a certain business merger did not occur; and (3) it had the right to vacate the premises and terminate the lease if it could not stay in the premises. While the written lease granted the tenant the option of reducing the rental square footage “should Tenant’s business arrangement with architect also occupying demised premises not be successful,” the other two agreements were not contained in the lease or in any other agreement. In addition, the tenant claimed a credit for the fair value of leasehold improvements that it had made to the demised premises.

The claim for an offset for architectural services performed for an affiliate of the landlord’s predecessor was rejected on several grounds. First, the affiliate was not the landlord. In addition, the alleged “barter” agreement preceded the written lease and therefore was barred by the statute of frauds. Although the current version of the real estate statute of frauds might not have barred an oral agreement, the changes in that statute were not effective until January, 1996 and therefore did not apply. The tenant argued that the rights of an assignee could rise no higher than those of its assignor and that an assignment is subject all defenses available against an assignor. In the Court’s view, the new landlord was not obligated to accept the tenant’s provision of services to an unrelated party in lieu of the payment of rent. Indeed, under the terms of the lease, the assignee (new landlord) had the “right” to be paid in the form of money. Thus, the landlord was not seeking to enforce a right that was “higher than that of its assignor.” Here, where the rent was to be paid in dollars, not services, and where the terms of the contract were clear, the Court insisted that the contract be enforced as written. It didn’t matter that the tenant and the original landlord may have had an arrangement for providing and accepting architectural services in lieu of rent because such parol evidence is inadmissable in the absence of an ambiguous agreement, which this lease was not.

With respect to the tenant’s contention that the arrears were subject to reduction because it had exercised an option to reduce the total square footage of the space, the Court determined that the option had never been effectively exercised. In a letter sent by the tenant to its landlord, the tenant did not state that it was exercising its option pursuant to the lease agreement. In addition, that letter proposed a reduction to a size well below the lower limit that the lease would have permitted. Further, the lease provided that notices were to be addressed to the landlord and sent by registered or certified mail. The letter in question was not sent in that fashion. Finally, and most important to the Court, a subsequent letter from the tenant pretty much indicated that the letter relied upon by the tenant before the lower court was merely a request for a modification of the lease agreement and no such modification was never effectuated.


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