On appeal from the Superior Court of New Jersey, Law Division, Essex County.
O'Brien and Scalera. The opinion of the court was delivered by O'Brien, J.A.D.
Plaintiff Allstate Redevelopment Corporation (Allstate) appeals from a summary judgment dismissing its complaint against defendant Summit Associates, Inc. (Summit). At issue in this case is the nonperformance by plaintiff-lessee of a condition precedent in a commercial lease agreement allegedly caused by defendant-lessor's bad-faith failure to disclose a material fact. We hold that plaintiff sufficiently raised the issue of defendant's bad faith to preclude summary judgment, and therefore reverse and remand.
On January 14, 1977, Allstate entered into a lease with Summit, under the terms of which Allstate leased approximately 25 acres of vacant land in North Bergen owned by Summit, beginning on January 1, 1977 and ending on June 30, 1982, to be used by Allstate as a "dump site for non-organic materials and wood derived from the demolition of buildings and other structures." The parties agree that it was intended that the premises would be filled in a manner so as to be suitable for the erection of a building or buildings. In connection with that purpose, paragraph 38th of the lease required Allstate to submit to Summit a report prepared by Allstate's engineers indicating in detail the procedures which Allstate planned to follow in filling the demised premises with demolition material. It further authorized Summit, at Allstate's expense, to retain a firm to perform preliminary subsurface investigations. The paragraph further authorized Summit to terminate the lease after receipt of the engineering data if, in Summit's opinion or in the
opinion of its engineers, the method of filling and suggested elevation interferes with Summit's proposed development of the demised premises after the filling has been completed, or if the subsurface report reveals that the costs for necessary site preparation for building construction will be increased by Allstate's use.
The clause in the lease upon which the court granted summary judgment reads as follows:
39th. The Tenant shall obtain on or before the expiration of the 4 month period set forth in paragraph 38th hereof any and all necessary permits and approvals required to permit the proposed use from any governmental unit having jurisdiction over the demised premises, said governmental units to include but not be limited to the Township of North Bergen, the Hackensack Meadowlands Development Authority, Hudson County, the State of New Jersey, and the United States of America until all such permits and approvals are obtained. If the necessary permits and approvals have not been obtained by said date, the time to obtain said permits and approvals shall be automatically extended from month-to-month, subject, however, to the right of either Landlord or Tenant to terminate said automatic extensions by thirty (30) days advance written notice to the other. If on the last day for obtaining permits and approvals, all necessary permits and approvals have not been obtained, this lease shall terminate and have no further force or effect and all of the security deposits not needed to satisfy the tenant's obligations hereunder shall be returned to the tenant. During any extension period for obtaining the necessary governmental permits and approvals, rent shall accrue and be payable by the tenant hereunder notwithstanding that said permits and approvals have not yet been obtained.
Pursuant to its obligation, Allstate began applying for the necessary permits. When Allstate's attorney applied to the New Jersey Department of Environmental Protection, he learned of an outstanding riparian claim by the State of New Jersey against the premises, and that no permits could be granted until that claim was resolved.
According to an affidavit filed by general counsel for Summit, the premises in question are located in the Hackensack Meadowlands District and portions thereof have been claimed by the State of New Jersey as riparian since 1970. Summit has been involved in negotiations and litigation over the State's claim since 1971 and had retained special counsel to litigate the matter on its behalf. In his affidavit, general counsel admitted
that "as a result of the State's claim indicating that portions of this property are owned by the State, we have been unable to develop or use this property in any manner until those claims have been resolved." A potential settlement with the State was thwarted because of a change in administration and the appointment of a new attorney general.
The principals of Allstate certified that they were not aware of the existence of the riparian claim of the State of New Jersey at the time the lease was executed. Upon learning of the existence of this claim, Allstate was repeatedly assured that the claim was in the process of settlement and that it would not interfere with the project. Suggestions by Allstate that its representatives take part in an effort to clear up the riparian claim were rejected by Summit. In appearances before the Hackensack Meadowlands Development Commission (HMDC), attorneys for Summit testified as to the potential settlement of the claim. According to representatives of Allstate, ...