Goldmann, Sullivan and Labrecque. The opinion of the court was delivered by Labrecque, J.A.D.
[88 NJSuper Page 458] Defendant appeals from a judgment of the Chancery Division denying her motion for summary judgment and ordering her to proceed with arbitration to fix the purchase price of certain lands leased to plaintiff with an option to purchase.
Plaintiff is the son-in-law of defendant. On March 25, 1947 defendant and her husband (now deceased) leased to plaintiff for 20 years a tract of land 125 x 100 feet located on Route 4, in the Borough of Fairlawn, Bergen County. The lease contained a provision whereby plaintiff was given the right to purchase the leased premises for the fair market value thereof.
The option clause specifically provided as follows:
"5. The Lessee is hereby given the option to purchase the land hereinbefore described at any time prior to the expiration of the term hereinbefore mentioned for the fair market value of the land at the time he shall exercise said option, but in the event the Lessor and Lessee cannot agree upon a price, then the said land shall be caused to be appraised by a competent real estate expert and if his appraisal should not be satisfactory to both parties, each party shall have the right to choose an Arbitrator, and submit the matter to them for their decision; but in the event said Arbitrators cannot agree, they are to choose a third Arbitrator and the decision of the majority of them shall be conclusive and binding upon both parties hereto; but should the Lessee fail within a period of ninety days thereafter to pay the amount fixed for said land by said Expert or Arbitrators, then his right to purchase said premises shall terminate and become valueless and all interest in the buildings and improvements of said land, after the termination of the period of twenty years aforesaid, shall become the property of the Lessors; otherwise, upon payment of the amount so fixed by the expert or arbitrators, the Lessors for themselves, their heirs and assigns, covenant and agree to convey by Warranty Deed, free and clear of all encumbrances except such encumbrances as may have been caused by the purchaser himself, the demised lands and premises by delivering said Warranty Deed to the Lessee upon payment, in cash or certified check, the amount of the purchase price as fixed.
6. It is further agreed that in the fixing of the value of said land the real estate expert and the Arbitrators are only to consider the land as land and not the value of any building, improvements or business carried thereon."
The leased tract was surrounded by other lands of the lessors which also fronted on Route 4. Plaintiff has been and continues in possession of the leased premises.
On December 3, 1956 defendant and her husband conveyed a ten-foot strip of their land fronting Route 4, including a strip along the lot in question, to the State of New Jersey for highway purposes. On December 4, 1956 plaintiff and his
wife joined in executing a quitclaim deed to the State of any interest they had in the strip in question, and on March 26, 1957 plaintiff conveyed to the State his leasehold interest in the portion of the ten-foot strip located within the lines of the leased premises.
On February 18, 1963 plaintiff notified defendant by letter of his intention to exercise his option to purchase. He followed this up with a letter, dated March 1, 1963, in which he made an offer of $12,500 for the tract. Defendant replied through her attorney that:
"We have copies of your letters of February 18 and March 1, 1963 addressed to Mrs. Alberta Terhune regarding Mr. Keppler's option and his exercise thereof. We have reviewed the situation with Mrs. Terhune and have come to the conclusion, and have so advised her, that Mr. Keppler has no option."
Sometime thereafter, and before the filing of the amended complaint, plaintiff caused the land to be appraised and offered the appraisal figure of $25,000. This in turn was rejected by defendant.
Following defendant's initial refusal, and on March 12, 1963, plaintiff instituted suit in the Chancery Division seeking specific performance of the agreement. Defendant's answer alleged that (1) the deeds to the State concluded any rights plaintiff might have possessed under the option; (2) since defendant had conveyed a portion of the leased premises to the State, specific performance was impossible; (3) plaintiff had waived and released his alleged rights under the option; (4) there was no arbitrable issue between the parties, and (5) ...