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R.A.M. Holding Corp. v. Hoboken No. 1 Blimpie, Inc.

A-6228-07T1 (N.J. Super. App. Div. 2009) (Unpublished)

LEASES; OPTIONS; INTERPRETATION — Although a lease provision has a requirement that something be done within a certain number of days “of” a particular event can be interpreted as that number of days before or after the given event, a requirement to give a renewal option notice within a certain number of days “of” the termination of the lease will only be interpreted as meaning that number of days before the lease expires.

A landlord leased a building to a restaurant for ten years. In a rider to the lease, the tenant was given a five year renewal option followed by a second five year renewal option. The rider stated that it was “intended to supplement, and be a part of, the Lease Agreement between the parties. To the extent that any of the terms of this Rider conflict with the terms as contained within the printed Lease Agreement, the terms of this Rider shall be controlling.” After the end of the ten year term, the landlord and tenant discussed a new lease, but no agreement was ever finalized. Testimony presented to the court showed that the discussions had not broken off; rather, it appeared they had not been completed. At the end of the term, the landlord’s attorney wrote to the tenant, informing it that the lease had terminated at the end of the prior month. The tenant responded with a letter exercising its first renewal term. In turn, the landlord said “it was willing to negotiate the lease, but at a substantially increased monthly rental.” The tenant rejected that proposal and the landlord commenced eviction proceedings. The proceedings were removed to the Law Division.

At a hearing on cross-motions for summary judgment, the landlord argued that the tenant had not exercised its option within the sixty day period and that the tenant’s written efforts to renew the lease came almost five weeks after the lease term had ended. The tenant responded with several arguments. One of its arguments was “that the language of the rider was ambiguous, specifically, that the phrase ‘within sixty days of the termination of this Lease’ did not necessarily require such notification in the sixty days preceding the termination of the Lease. It contended that it could as easily be read to mean that the option could be exercised within the sixty days following the termination of the lease. It pointed to other portions of the lease in which the phrase ‘within’ clearly referred to a period after a defined event. The lower court agreed that the phrase was ambiguous and construed the ambiguity in the tenant’s favor. The landlord appealed.

In its appeal, the landlord argued that the “construction put forth by [its tenant] and adopted by the [lower court was] unreasonable.” The Appellate Division agreed with the landlord and reversed the ruling of the lower court. Therefore, the Court looked to case law that explained the principle behind requiring notice of the exercise of an option. It concluded that a notice requirement is intended to avoid forcing a landlord to wait until the last day of the lease term before knowing whether it made sense to seek another tenant. Such a requirement “substantially reduces the risk that the premises will remain unoccupied for an indefinite period of time in the event that the renewal option is not exercised.” The Court agreed with the landlord “that construing the rider so as to permit the option period to run past the expiration date of the lease would only increase a landlord’s risk.”

The Court, however, disappointed the landlord. The lower court had accepted the tenant’s first argument, and therefore had given no consideration of the tenant’s other arguments. One of the arguments made by the tenant was that the rider said the obligation to pay rent did not commence until two months after the starting date stated on the preprinted form and further specified that the obligation to pay rent extended to a date that was two months after what would otherwise have been the ten year term. With that in mind, the Court looked to the option renewal provision of the rider, and gave deference to the rider’s intention. As a result, it agreed with the tenant that “the most reasonable construction of this provision [was] to extend the termination of the lease” by two months and therefore the tenant’s notice was, in fact, timely.


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