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X-tra Meat Corp. v. Romeo

A-5556-03T3 (N.J. Super. App. Div. 2005) (Unpublished)

LEASES; OPTIONS; ASSIGNMENT—An option in a lease to buy the property is not personal to the tenant unless the lease says so or unless there is an ambiguity that allows parol evidence to be used to show the parties’ intent, and a restriction on assignment that does not speak of corporate share transfers does not cover such transfers unless the parties’ intent can be shown otherwise.

A supermarket sold its business and entered into a lease agreement with the purchaser. The tenant under the lease agreement was a corporation. The lease contained an option wherein, during the first five years, the tenant could buy the property for a stated price. It also contained a provision that required the tenant to obtain the landlord’s permission upon assignment or other transfer of the lease. With respect to the proposed assignment of lease, the landlord had a right to recapture the premises. If the landlord did not recapture the premises, its consent could not be unreasonably withheld. Within the option period, the tenant exercised its right to buy the property, but the landlord refused to sell because the landlord “claimed the lease agreement, including the option to purchase, was personal to [the family that originally owned the corporation] and that the sale of their stock to someone else violated” the assignment provision of the lease.

The lower court recognized that an option holder is required to exercise the option “in strict accordance” with the terms and time requirements of the contract. It further recognized that courts “generally should not tinker with a finely drawn and precise contract entered into by experienced business people that regulates their financial affairs.” Further, under New Jersey case law, “[p]roperly exercised options become absolute contracts upon which a specific performance suit may be maintained.” With that in mind, the lower court found that the lease agreement never expressed that the option would be personal to a particular family. It rejected the one-sided testimony of the landlord that “everyone knew” that when the lease referred to “tenant” it was “understood” that it meant the family, not the corporation. The family that owned the corporation, however, testified that this was not their understanding and that there were no discussions about the option and “certainly [there was] nothing said to indicate that it was to be personal.” The lease already made reference to some of the family members as “guarantors” and, according to the thinking of the lower court, if the landlord wanted the purchase option to be personal to the tenant’s “family,” then it certainly could have made the provision dependent on the named individuals owning the tenant. Further, the lower court found that the transaction was “as much for the benefit of [the landlord] as anyone. He wanted to be out of the business, even it meant sweetening the pot a little through generous financial terms.” Lastly, the lower court found that the landlord had not been damaged. Instead, it had “a successful tenant,” and the landlord was paid monthly. He wasn’t compelled to take back the supermarket business and he still had the family as guarantors. For those reasons, the lower court ordered specific performance and, upon appeal, the Appellate Division agreed.

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