On appeal from the Superior Court of New Jersey, Law Division, Morris County, Docket No. L-2768-09.
Before Judges A. A. Rodriguez, C. L. Miniman and LeWinn.
Defendant Blanchard Securities Company L.L.C. (Landlord) appeals from the December 15, 2009 declaratory judgment in favor of its former tenant, plaintiff ADP Statewide Insurance Agencies, Inc. (ADP), and ADP's owners, plaintiffs Paul R. Monacelli and Donna M. Cunningham. Following a bench trial, the judge determined that ADP had not renewed its existing lease, and that the Landlord had breached the covenant of good faith and fair dealing. We affirm on the lease issue, and reverse on the covenant issue.
In 1999, the parties entered into a ten-year lease for office space at 170 E. Hanover Avenue in Cedar Knolls (Hanover Building). The lease provided for two successive renewal terms of five years each pursuant to the following procedure:
The right, option, and privilege of the Tenant to renew this lease as hereinabove set forth above is expressly conditioned upon the Tenant's delivering to the Landlord, in writing, by certified mail, return receipt requested, twelve (12) months prior notice of its intention to renew, which notice shall be given to the Landlord by the Tenant no later than twelve (12) months prior to the date fixed for termination of the relevant term of this lease, time being of the essence.
Rental value for the renewal periods was governed by the same section:
1) No less than 14 months prior to the expiration of the relevant term, duly-authorized representatives of the Landlord and Tenant shall meet . . . for the purposes of determining the Fixed Rent which shall be paid during the coming relevant renewal term. If Landlord and Tenant have not reached an agreement as to the renewal period Fixed Rent, each party shall present to the other a written appraisal and opinion of a MAI Real Estate Appraiser setting forth the aforementioned fair market rental value of the leased premises for the renewal term.. . .
2) Such appraisals shall be the basis of negotiations and the efforts of the parties to reach agreement on the amount of Fixed Rent to be paid during the renewal period.
If the parties fail to reach agreement not less than 13 months prior to the expiration of the then valid term, the aforementioned appraisers shall be appointed arbitrators and attempt to resolve the matter in accordance with the rules of the American Arbitration Association. In the event they are unable to resolve the matter within a reasonable time, the said appraisers-arbitrators shall choose a third arbitrator and the matter shall then be resolved in accordance with the rules of the American Arbitration Association . . . .
The parties sharply disputed whether or not a letter sent by Landlord's manager, Richard Blanchard, on June 11, 1998, and signed by Monacelli fifteen days later, was a renewal of the Hanover Building lease. Monacelli testified that Blanchard advised him in July 2006 that his company planned to construct a new building adjacent to the Hanover Building at 91 Horse Hill Road (Hill Building). Monacelli was interested in the Hill Building because ADP was in need of a larger space. In early June 2008, he directed Peter Vardakis, ADP's director of operations, to contact Blanchard in order to "start the process of discussing the renewal" of the Hanover Building lease and a lease for "new space" in the Hill Building.
Vardakis testified that he did not tell Blanchard that ADP wished to renew the existing lease and that he had no authority to renew the lease on behalf of ADP. He also did not discuss any terms of a new lease with Blanchard. Instead, Vardakis's conversation with Blanchard concluded with Blanchard promising to call later to begin negotiations about the new space and the lease renewal.
Blanchard testified that Vardakis asked to renew the lease and that a June 11, 2008 letter from Blanchard to Monacelli memorialized the conversation. In that letter, Blanchard wrote to: acknowledge the renewal of your Lease at 170 East Hanover Avenue for a five (5) year term to commence immediately upon the expiration of your current lease term on January 18, 2010. In accordance with the terms and conditions of the Lease, sometime after November 18, 2008, we need to sit down and determine the fixed rent for the renewal term.
As you requested, we agree to allow you to terminate your existing lease agreement for 170 East Hanover Avenue, without penalty, if we execute a new lease agreement ...