July 19, 2007
WEDGEWOOD PROPERTIES, LLC, PLAINTIFF-RESPONDENT,
LATIF II INTERNATIONAL, INC., D/B/A ONE DOLLAR WORLD, DEFENDANT-APPELLANT.
On appeal from Superior Court of New Jersey, Law Division, Special Civil Part, Passaic County, Docket No. LT-6100-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued May 22, 2007
Before Judges Payne and Graves.
Plaintiff Wedgewood Properties, LLC (plaintiff or landlord), is the owner of a commercial shopping center in Wayne, New Jersey. Since January 2001, defendant Latif II International, Inc. (defendant or tenant), has leased approximately 7,600 square feet of space from plaintiff, pursuant to a written lease agreement, to operate a discount variety store, commonly known as a "dollar store." The initial term of the lease is ten years, however, defendant has the right to extend the initial term for two additional periods of five years each. Defendant appeals from a judgment for possession entered on December 1, 2005, and a companion order awarding counsel fees and costs to plaintiff in the amount of $5,197.
After reviewing the record and applicable law in light of the contentions advanced by the parties, we reverse.
On appeal, defendant presents the following arguments:
THE TRIAL COURT'S FINDING THAT THE DEFENDANT HAD REPEATEDLY VIOLATED THE 20 FT. RESTRICTION OF ITS LEASE HAS LITTLE OR NO SUPPORT IN THE RECORD.
THE MAY 5, 2005 LETTER FROM DR. BERMAN DID NOT CONSTITUTE A VALID AND ENFORCEABLE NOTICE OF DEFAULT.
THERE WAS NO EVIDENCE THAT ANY VIOLATION OF THE 20 FT. LIMITATION CONSTITUTED A MATERIAL BREACH OF THE LEASE.
DEFENDANT CLEARLY DID NOT VIOLATE SECTION 7.1C OF THE LEASE AGREEMENT.
THE PARTIES' LEASE WAS NEVER PROPERLY TERMINATED BY THE LANDLORD IN ACCORDANCE WITH THE REQUIREMENTS OF THE LEASE.
THE DOCTRINE OF UNCLEAN HANDS IS TOTALLY INAPPLICABLE TO THE CASE AT BAR.
As the trial court noted, "the essence of the case" involves the permitted use of the rental premises under article seven of the lease, which reads as follows:
7.1 Permitted Use
A. The Premises may be used and occupied as a discount variety store. Tenant may sell good customarily sold in stores of a similar nature, including but not limited to flowers, window cling, stickers, candies, yard signs, non-aluminum tins, jewelry, stampers, pens, Beanie Babies or equivalents, polyester fiber Beanie Babies or equivalents, picture frames, key chains, candles, candle holders, baskets, bows, ribbons, holiday cards, gift bags, gift boxes, tissue paper, wrapping paper, cellophane paper, ceramic and poly-resin figurines that are not party favors, and plates, napkins, and tablecloths that do not have a party theme.
B. Notwithstanding the above, or any specific item listed above, Tenant may not use the Premises primarily for the purpose of a party goods store, and Tenant shall not display for sale competing party goods products -- i.e., costumes, balloons, paper party goods, aluminum pans, and ceramic party favors -- in display space that is greater than twenty (20) lineal feet.
C. Notwithstanding any specific item listed in subsection A above, it is the intent of the parties that the uses allowed under the terms of this Lease shall be fully consistent with the exclusive use clauses contained in the leases of the Shopping Center's existing tenants. In the event an existing tenant of the Shopping Center challenges Tenant's right to sell any item displayed for sale in the Premises under the exclusive use clause of that tenant's lease (including any item listed in subsection A above), Tenant shall cooperate with Landlord and such other tenant to resolve the dispute in an amicable fashion and, if the dispute cannot be resolved amicably, Tenant shall abide by Landlord's good-faith interpretation of which items may be sold under the Lease, and whether such items may be displayed for sale only in the twenty (20) lineal feet space described in subsection B. If Tenant is dissatisfied with Landlord's determination under this subsection C of the Lease, Tenant may, at its option, cancel the Lease upon sixty (60) days notice to Landlord.
D. Tenant hereby waives any claim for damages Tenant might have against Landlord or any other tenant of the Shopping Center in the event it is determined by a court, arbitrator, mediator, or Landlord in good faith under subsection C above, that Tenant is prohibited from, or limited in, selling or displaying for sale any item listed in this Section 7.1 that Tenant would otherwise be permitted to sell under the terms of this Lease, or which Tenant believes it is permitted to sell under the terms of this Lease, as a result of an exclusive use provision contained in an existing tenant's lease.
E. Each party will bear its own attorney[']s fees, costs, expenses and damages arising from any litigation related to this section 7.1 of the Lease, and neither party will seek indemnification from the other for the same.
Article 7.1B of the Lease restricts defendant's ability to display certain items, including balloons, to a twenty-foot space. The trial court found plaintiff was entitled to a judgment for possession because defendant "sporadically" violated the twenty-foot restriction for the display of party goods----especially balloons. The court's findings and conclusions included the following:
Based on the testimony received, based on the exhibits received and examined, as well, there appears to be a dispute as to the use of the property concerning this 20-foot linear space as to repeated violations by the tenant.
Some testimony was taken as to how the landlord felt that this exceeded the 20-foot space. The reference given was ceiling tiles. Ceiling tiles, once -- of a known distance, can readily be estimated. The testimony by Mr. Mills [plaintiff's property manager] was that at one point in time at least the linear space exceeded 30 feet or was about 30 feet based on his estimation of the ceiling tiles.
Secondly, I believe at the same time that that estimation was being made there were balloons for display at the counter. I find Mr. Mills'[s] testimony to be credible. I see no reason to doubt that. I believe he did go in in good faith. I believe he looked up, tried to estimate what was there, and by his estimation I do believe the violation occurred. I do believe the violation continued sporadically.
The tenant's testimony that when he had the balloons on display[,] they were already sold to other customers, I do not accept that as credible. I believe it was an additional advertising mechanism for the sale of balloons.
As to his other assertion that he placed floss on parts of his shelves that contained party items and did not sell them when he had the balloons in display, I do not find that testimony credible, as well.
I therefore do believe that a violation of the lease did occur, that of a violation of the restrictive covenant, if you will, to limit the type and quantity of certain items for sale on the premises, and therefore I find for the landlord for possession.
. . . I do believe he's entitled to possession for a material violation of this commercial lease.
As defendant points out, the landlord's letter of May 5, 2005, did "not constitute a valid and enforceable notice of default," because it did not mention any violation of the twenty-foot display limitation. Moreover, the record confirms neither the tenancy complaint nor the attachments to the complaint specified plaintiff was seeking possession because defendant violated the twenty-foot space limitation set forth in article 7.1B. Thus, we conclude that the judgment for possession should not have been entered because plaintiff failed to comply with N.J.S.A. 2A:18-53(c), which requires a landlord to serve a commercial tenant with written notice setting forth the "cause of the termination of the tenancy." "[P]roper notice [is] essential to the exercise of the [court's] jurisdiction."
Carteret Props. v. Variety Donuts, Inc., 49 N.J. 116, 124 (1967).
We are also convinced plaintiff failed to establish a material breach of the lease warranting the forfeiture of defendant's leasehold interest. See Mandia v. Applegate, 310 N.J. Super. 435, 449 (App. Div. 1998) (holding tenants' display of merchandise on boardwalk constituted minor breach of lease obligations and did not trigger forfeiture clause in lease); see also 49 Am. Jur. 2d Landlord and Tenant § 269 (2006) ("If a breach of a lease is insignificant or accidental, even if there is a default clause, the courts will not allow termination of the lease.").
We reverse the judgment for possession and the order awarding counsel fees, and we remand for entry of a judgment dismissing the complaint.
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