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Montpen Sc, L.L.C., A Successor In Interest To Hilton Realty Co. of v. Mathews Art

March 30, 2011


On appeal from the Superior Court of New Jersey, Law Division, Mercer County, Docket No. L-1168-08.

Per curiam.


Argued February 14, 2011 Before Judges Reisner and Sabatino.

This appeal arises out of a commercial lease. The landlord, plaintiff MontPen SC, L.L.C., owns a building in Pennington. At the times relevant to this case, the sole tenant in the building was defendant Mathews Art, Inc. ("MAI"), a company that sells artwork to retail stores.

In April 1997, MontPen's predecessor in interest, Hilton Realty Co. of Princeton ("Hilton") entered into a written lease for the entire premises with Art Wholesalers, Ltd. ("AWL"). The lease initially ran through the end of July 2000. The lease had an option to renew for an additional three years, which AWL exercised. The lease was again extended for two successive one-year periods, the latter ending in July 2005. Meanwhile, Hilton assigned its interests as landlord to MontPen, a wholly-owned subsidiary, as part of a corporate reorganization.

Paragraph twenty of the lease addresses circumstances in which the tenant continues to remain in the property after the lease term has ended. In such instances, the landlord, at its option, may either "elect to treat the Tenant as one who has not removed at the end of its term, and thereupon be entitled to all the remedies against the Tenant as provided by law in that situation." Alternatively, the Landlord may elect, at its option, to construe such holding over as a tenancy from month to month, subject to all the terms and conditions of this lease, except as to duration thereof, and in that event the Tenant shall pay monthly rent in advance at the rate provided herein as effective during the last month of the demised month.

The lease also specifies in paragraph twenty that, in the event the tenant holds over after the lease term expires, "such holding over shall not constitute a renewal or extension of [the] lease." (Emphasis added).

In 2005, MAI purchased AWL's artwork business. Through a written agreement with MontPen dated June 22, 2005, MAI was assigned the leasehold. In connection with that assignment, MontPen and MAI agreed to a one-year written extension of the lease through July 31, 2006. The parties' agreement also provided MAI with an option to extend the lease an additional four years from August 1, 2006 through July 31, 2010, followed by a second option period for an additional five years, all subject to rent increases.

As part of these arrangements in 2006, the principal of MAI, defendant Rajan S. Mathews ("Mathews"), signed a personal guaranty. In that guaranty, Mathews agreed to be responsible to MontPen for up to one year of rent for any default during the initial term of the assigned lease or during "any extensions or renewals thereof." The pertinent terms of the guaranty specifically stated as follows:

The undersigned Guarantor [Mathews], intending to be legally bound hereby, jointly and severally, does hereby guarantee to Landlord [MontPen], its successors and assigns, the payment of rent, TIM charges and additional rent accruing for not to exceed one (1) year in the event of default by Assignee [MAI] under the terms of this Lease during the initial term of the Lease and any extensions or renewals thereof. [Emphasis added.]

As the one-year lease term was nearing a close in July 2006, MontPen proposed to defendants a renewal agreement. However, defendants declined to execute the lease extension. Defendants felt that the rent was not affordable and that the property needed renovations to make it more attractive to potential retail customers. Defendants also raised other complaints about the premises.

MAI remained in the premises after the lease expired on July 31, 2006. It continued to make rent payments, although its business was dwindling. In the meantime, MontPen restricted the square footage that MAI could occupy, but it did not obtain any additional tenants. Eventually, MAI stopped paying rent in August 2007. Facing eviction, MAI vacated the premises on April 20, 2008, with substantial rent arrears remaining unpaid.

MontPen attempted to enforce the personal guaranty against Mathews. Mathews denied any liability under the guaranty. Consequently, MontPen brought an action against defendants in the Law Division to collect the unpaid rent and other damages from the corporate tenant, MAI, and also to enforce Mathews' personal guaranty. Defendants filed a counterclaim, alleging, among other things, that the landlord had breached its own obligations, and that the landlord had acted in an unconscionable manner by demanding higher charges, per square foot, for MAI's occupancy.

After depositions and other discovery, the parties each moved for summary judgment. Upon considering the terms of the lease documents and the factual proofs, the motion judge granted summary judgment to Mathews, concluding that the personal guaranty was not enforceable in this situation. The judge determined that the tenancy had been converted to a month-to-month tenancy and that there was no extension or renewal. Consequently, he found that Mathews' personal guaranty did not cover the situation because of the literal terms of ...

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