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Raceway Petroleum, Inc. v. Gambacorto

A-3171-05T2 (N.J. Super App. Div. 2006) (Unpublished)

LEASES; OPTIONS—While it is possible to read a lease’s renewal provision to require that a tenant exercise its renewal option for both remaining renewal terms at the same time, where the provision is capable of conflicting, reasonable interpretations, a hearing is required to determines the parties’ intent in adopting their particular language.

A landlord and tenant entered into a lease that provided for the lease’s extension upon notice by the tenant to its landlord. The lease provided for an extension for “... two (2) additional consecutive five (5) year periods each.” As the original term was drawing to a close, the tenant exercised its option to extend the lease for five years. As the extended five year period was drawing to a close, the tenant exercised its option to extend the lease for the second five year period. The landlord refused to recognize this second option, claiming both options had to be exercised at the same time, namely when the original lease term expired. The tenant filed a declaratory action seeking a judgment that it had the right to exercise the second option. The landlord cross-moved for the tenant’s removal. The lower court found the contract to be unambiguous and granted the landlord’s motion. It concluded the tenant was holding over, and ordered the tenant to vacate the premises.

On appeal the Appellate Division found that both the landlord and tenant offered reasonable and conflicting interpretations of the lease. When the text of a lease is unambiguous, then its interpretation is a matter of law for the court. However, when the lease language presents more than one plausible interpretation, the parties must be provided an opportunity to prove their intent by introducing parol evidence. In this case, since the Appellate Division found both lease interpretations to be reasonable, it held that summary judgment in favor of the landlord was inappropriate. The lower court’s judgment was reversed and the matter was remanded for a hearing to establish the parties’ intent in adopting this specific lease language.

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