Kelly v. Alstores Realty Corp.

• Decision Date: 22 October 1992
• Parties: Sadie E. KELLY, Plaintiff-Appellant, v. ALSTORES REALTY CORPORATION, a Delaware Corporation and Bergen Mall Partnership, Defendants-Respondents, and Allied Stores Corporation, a Delaware Corporation, the Edward J. DeBartolo Corporation, an Ohio Corporation, and Does 2 through 10, persons and corporations unknown, Defendants.
• Court: New Jersey Supreme Court

Page 313

130 N.J. 313

613 A.2d 1163

Sadie E. KELLY, Plaintiff-Appellant, v. ALSTORES REALTY CORPORATION, a Delaware Corporation and Bergen Mall Partnership, Defendants-Respondents, and Allied Stores Corporation, a Delaware Corporation, the

Edward J. DeBartolo Corporation, an Ohio

Corporation, and Does 2 through 10,

persons and corporations

unknown, Defendants.

Supreme Court of New Jersey.

Argued May 5, 1992.

Decided Oct. 22, 1992.

Peter N. Perretti, Jr., Morristown, for plaintiff-appellant (Riker, Danzig, Scherer, Hyland & Perretti, attorneys; James S. Rothschild, Jr., of counsel; Mr. Rothschild and Kendall E. James, on the briefs).

E. Neal Zimmermann, Secaucus, for defendant-respondent Bergen Mall Partnership (Waters, McPherson, McNeill, attorneys; Mr. Zimmermann and Perry Florio, on the briefs).

William T. Reilly, Newark, for defendant-respondent Alstores Realty Corp. (McCarter & English, attorneys).

The opinion of the Court was delivered by

BROCHIN, J.A.D. (temporarily assigned).

Plaintiff Sadie Kelly owns approximately one acre of real estate adjacent to New Jersey Route 4 in Paramus, New Jersey. In 1954, defendant Alstores Realty Corporation leased the property from her for ninety-nine years to form part of the area that it intended to develop for a shopping center.

Ms. Kelly's real estate is now part of Bergen Mall, a giant shopping center containing more than one million square feet of leasable space and more than 100 mall tenants, a substantial number of which are nationally known retailers. Her one-acre parcel is the site of Sterns Auto Center, seventy-two parking spaces, and a major entrance into the mall.

The lease from Ms. Kelly to Alstores provides for a net rent of $10,500 a year for the first four years of the lease and $12,600 a year for the balance of the term. The parties to this lawsuit have stipulated that the currently "appropriate" annual rent for the property free of the lease would be $105,650. (In 1954, prior to the commencement of Alstores' tenancy, the annual rent paid by the occupants of the premises totaled $6060.)

Ms. Kelly commenced the present suit to terminate the lease. She claims that she is entitled to terminate it because, in 1986, Alstores Realty Corporation was dissolved as part of a complex corporate reorganization of its parent corporation, Allied Stores Corporation. Prior to the reorganization, Alstores owned five regional shopping centers, including the Bergen Mall. A subsidiary of Campeau Corporation acquired a majority, and then all, of the outstanding shares of Allied. Campeau caused Alstores to be dissolved and to distribute its assets and related liabilities to various subsidiaries of Campeau Corporation. Among the subsidiaries of Campeau Corporation to which the assets of Alstores were distributed were Bergen Mall I, Inc. and Bergen Mall II, Inc. Each of those corporations received a fifty percent interest in the assets of Bergen Mall and assumed fifty percent of the related liabilities. Those assets and liabilities included the ninety-nine-year lease from Ms. Kelly. Bergen Mall I, Inc. and Bergen Mall II, Inc. formed a partnership, the Bergen Mall Partnership, to which they contributed their assets and liabilities, including the Kelly lease. The stock of Bergen Mall I, Inc. was then sold to The Edward J. DeBartolo Corporation and the stock of Bergen Mall II, Inc. was transferred to Campeau Corporation (U.S.), Inc.

In support of Ms. Kelly's contention that the dissolution of Alstores Realty Corporation constituted a material breach of her lease which entitled her to terminate it, she relies principally on Sections 8.02(c) and 11.01 of the lease.

Section 8.02(c) reads as follows:

Any of the following events shall constitute an event of default:

....

(c) If Tenant, finally and without further right of appeal or review, is adjudicated a bankrupt or insolvent, or has a receiver appointed for all or substantially all of its business or assets on the ground of its insolvency, or has a trustee appointed for it after a petition has been filed for Tenant's reorganization under the Bankruptcy Act of the United States, known as the Chandler Act, or any future law of the United States having the same general purpose, or if the Tenant shall make an assignment for the benefit of its creditors or if Tenant's interest hereunder shall be levied upon or attached.

Ms. Kelly's argument based on this section is that there was some brief period of time between Alstores' assignment of its assets, including the lease that is the subject of this lawsuit, and the dissolution of the corporation. During that period of time, she contends, the corporation was "insolvent" within the meaning of the lease and therefore committed a default.

Section 11.01 reads:

Tenant shall have the right at any time and from time to time, without the consent of Landlord, to assign this Lease or to sublet the Demised Premises or any part thereof. Notwithstanding any such assignment or subletting, or any further assignment or subletting, and notwithstanding the acceptance of rent by Landlord from any assignee or subtenant, Tenant shall remain liable for the payment of the rent reserved herein and for the performance of all of the covenants and conditions on the part of Tenant to be kept, observed and performed. [Emphasis added.]

Ms. Kelly contends that this covenant on the part of the tenant to remain liable on the lease despite any assignment or subletting implies an undertaking that the tenant will remain in existence during the term of the lease. The tenant's dissolution, she asserts, was therefore a breach.

The trial court agreed with Ms. Kelly that, as a matter of law, the dissolution of Alstores Realty Corporation was a default under the lease. It held, however, that to avoid a forfeiture, the lease would be reformed to substitute the Bergen Mall Partnership as the tenant in place of Alstores and, in accordance with the maxim that he who seeks equity must do equity, the rent would also be reformed to a currently appropriate amount. The parties ultimately stipulated that that amount was $105,650 a year.

Defendants Alstores Realty Corporation and Bergen Mall Partnership appealed to the Appellate Division. They disputed the trial court's rulings that Alstores' dissolution constituted a breach of the lease and that the lease should be reformed to require payment of a currently reasonable rent. Ms. Kelly cross-appealed from the judgment of the trial court insofar as it denied her possession of the leased premises.

The Appellate Division reversed. Kelly v. Alstores Realty Corp., 250 N.J.Super. 11, 593 A.2d 347 (App.Div.1991). The court recognized that "[t]he rule of general application in the United States is that a lease to a corporation is not terminated by the dissolution of the corporation." Id. at 15, 593 A.2d 347. It held that this rule is applicable unless a lease provides for termination in the event of the lessee's dissolution or unless the dissolution effects an abandonment of the lease. Id. at 19, 593 A.2d 347. The Appellate Division concluded that the present case did not fall within either of these exceptions. Ibid.

On Ms. Kelly's application, this Court granted certification to review the decision of the Appellate Division. She concedes the general rule as stated by that court, but she contends that Sections 8.02 and 11.01 of the lease provide for its termination in the circumstances of this case and therefore that one of the recognized exceptions to the rule applies. We disagree and therefore affirm.

We agree with the Appellate Division that the dissolution of a corporate lessee does not terminate a real estate lease unless the terms of the lease provide for its termination on the lessee's dissolution or unless the lessee has intentionally abandoned the lease. Middendorf v. Fuqua Industries, Inc., 623 F.2d 13 (6th Cir.1980); Haddad v. Francis, 40 Conn.Supp. 567, 537 A.2d 174 (1986), aff'd 13 Conn.App. 324, 536 A.2d 597 (1988); Falcone v. Hinsdale Gynecology & Obstetrics, 148 Ill.App.3d 439, 102 Ill.Dec. 137, 499 N.E.2d 694 (1986), app. denied, 114 Ill.2d 544, 108 Ill.Dec. 416, 508 N.E.2d 727 (1987); Rauch v. Circle Theatre, 176 Ind.App. 130, 374 N.E.2d 546 (1978); Barrowman Coal Corp. v. Kentland Coal & Coke Co., 302 Ky. 803, 196 S.W.2d 428 (1946); Town of Hampton v. Hampton Beach Improvement Co., 107 N.H. 89, 218 A.2d 442 (1966); see 49 Am.Jur.2d Landlord and Tenant § 997 (1970).

Although no reported New Jersey case has applied this rule, our courts have recognized the analogous rule that upon the death of a natural person who is a tenant under a lease, his or her personal representatives ordinarily continue to be subject to the burdens and entitled to the benefits of their decedent's lease. See Gross v. Peskin, 101 N.J.Super. 468, 469, 244 A.2d 692 (App.Div.1968); Egner v. Egner, 183 N.J.Super. 326, 331, 443 A.2d 1104 (Ch.Div.1982) (dictum), aff'd o.b., 185 N.J.Super. 1, 447 A.2d 182 (App.Div.1982); State v. Pierce, 175 N.J.Super. 149, 152, 417 A.2d 1085 (Law Div.1980) (dictum); see also Annotation, Death of Lessee as Terminating Lease, 42 A.L.R.4th 963 (1985). Any other rule, either for corporations or for real persons, would needlessly undermine the stability of real estate...