Owner's Bad Faith Prevented Tenant from Exercising Option

A lease required the tenant to exercise its option for a long-term lease by notifying the owner of its intent to exercise the option and paying the owner $150,000 by a certain date. The tenant gave the owner notice of its intent to exercise the option, but didn't pay the $150,000, believing that the payment was due when it signed the new lease. For almost two years after the tenant gave its notice, the tenant's attorneys tried frequently to contact the owner, its attorney, and its property manager to discuss the lease. The owner and its agents either evaded or ignored the tenant's requests. After the deadline for exercising the option passed, the owner's attorney notified the tenant that it had failed to properly exercise the option. The tenant then sued the owner, asking the court to force the owner to let it exercise the option.

A New Jersey appeals court ruled that the owner must allow the tenant to exercise the option. The court noted that the tenant hadn't properly exercised the option because it failed to pay the $150,000. But, the court said, the owner had acted in bad faith by evading the tenant's attempts to exercise its option by the deadline. The owner knew that the tenant intended to exercise its option, yet engaged in “artful dodging and studied silence,” thus delaying the tenant's efforts to close the deal before the deadline, the court said. In fact, the owner had admitted that it decided to “play possum” and watch the option deadline pass before responding to the tenant because it believed that allowing the tenant to exercise the option wasn't in its economic interest [Brunswick Hills Racquet Club, Inc. v. Rte. 18 Shopping Center Assocs.].