On appeal from the Superior Court of New Jersey, Atlantic County, Chancery Division.
Before Judges Skillman, Wallace and Kleiner.
The opinion of the court was delivered by
On March 9, 1990, Dr. John Zimmerman, a chiropractor, entered into a written lease for premises within the Leeds Point Shoppes in Galloway Township, Atlantic County, for a three-year term commencing April 1, 1990. The lease provided the tenant with two options to renew, each for a three-year period, at the original monthly rental but subject to a cost of living rent adjustment calculable in accordance with a formula set forth within the lease. The lease contained a unique restrictive covenant clause which provided in part that for a period of three years after the lease term ended, the tenant could not engage in the practice of chiropractic within a two mile radius of the demised premises.
In this appeal by the landlord covenantee Richard Simon, as assignee of Betty Simon, we address an issue of first impression in New Jersey. Is a restrictive covenant within a commercial lease which seeks to limit geographically and temporally the tenant's freedom to relocate at the Conclusion of the lease enforceable? The Chancery Division, on a motion for summary judgment, declared the restrictive covenant clause unenforceable. Additionally, the court dismissed defendant Simon's counterclaim which alleged malicious interference with contract and tortious interference with economic advantage. We are constrained to reverse both decisions.
Defendant Richard Simon is the owner of the Leeds Point Shoppes, a strip mall situate in Galloway Township, Atlantic
County. Defendant utilizes the services of codefendants, J & M Land Company and its vice president Herman Zell, to negotiate all leases and to manage the mall.
Prior to April 1, 1990, third-party defendant Dr. John F. Zimmerman, Jr., a licensed chiropractor, approached Zell and inquired about leasing a mall store for his use as a professional office. Based upon the square footage of an available store, Zell advised Zimmerman that the rent would be $1,200 per month. Zimmerman indicated he was new to the area and was just beginning his practice. Through negotiations, Zell offered Zimmerman a three year lease. As an incentive, the offer provided rental for the first six months at $950 per month, at $1,325 per month for the next twelve months, and at $1,200 per month during the balance of the term. The lease as drafted contained two options to renew, each for a period of three years at the same base rent of $1,200, but subject to a rent increase at the commencement of each option period utilizing a cost of living index formula.
Based on their Discussions, the lease as tendered to Zimmerman contained the following two clauses:
51. Landlord hereby agrees that he will not rent any of the premises located in the Leeds Point Shoppes to any party for the purpose of engaging in the operation of a Chiropractic Office during the term of this Lease and renewals thereof.
53. During the term of this Lease or any extension or renewal, and for a period of three (3) years after Tenant has vacated the premises, Tenant shall not, directly or indirectly, open, establish, buy or operate or be involved in the operation or ownership of any store located within a radius of two (2) miles of the nearest boundary of the Premises, having a name and/or type of business similar to the one Tenant will operate at the Premises ....
After reviewing the proposed lease, Zimmerman voiced concern over the restrictions in Clause 53. Through further negotiations, Clause 53 was redrafted. In final form, that clause added the following phrase to Clause 53:
however, notwithstanding any of the aforementioned should the Tenant have a need to increase the square footage of his office and Landlord is unable to provide the square footage the Tenant needs anywhere within the Leeds Point Shoppes and the Tenant has exercised the second option to renew as specified in Paragraph 55 and Tenant is 18 months into the second option period and Landlord cannot
provide Tenant's square footage requirement then the provisions of this Paragraph shall then be waived by the Landlord.
In the summer of 1992, Zimmerman approached plaintiff, James Cox, the owner of Smithville Professional Center, and inquired as to the possible purchase of a condominium for use by Zimmerman as a professional office. Smithville Professional Center is less than two miles from Leeds Point Shoppes.
During the ensuing months, Zimmerman allegedly informed Zell that Cox was encouraging him to purchase the condominium and to relocate his chiropractic practice. Zimmerman utilized the possible condominium purchase as leverage in his Discussions with Zell respecting a renegotiated lease. In response, Zell apparently reminded Zimmerman that relocating to the Smithville Professional Center would violate the provisions of Clause 53.
In October 1992, Zimmerman informed Zell that Cox had offered to "buy-out" Zimmerman's lease and to indemnify Zimmerman for any liability he might incur as a result of litigation which Simon might institute if Zimmerman moved to Smithville.
Zell contends that on November 6, 1992, Zimmerman orally agreed to exercise his lease option. Zell prepared a written extension of lease and submitted it to Zimmerman. That document was never signed.
On December 11, 1992, Zimmerman informed Zell in writing of his intent not to renew the lease. In a conversation shortly thereafter, Zimmerman again informed Zell that Cox had agreed to indemnify Zimmerman and his parents, John F. Zimmerman, Sr. and Patricia Zimmerman, guarantors under the original lease, in the event of litigation.
On December 14, 1992, Simon's attorney informed Zimmerman that suit would be instituted if Zimmerman violated Clause 53. On December 15, 1992, Simon's attorney informed Cox that suit for malicious interference with contract would ...