## Facts

- A commercial tenant operated a tennis facility under a 1976 long-term lease and invested about $1 million in improvements.
- The lease provided an automatic 25-year extension unless timely termination notice was given, and granted the tenant an option to purchase or obtain a 99-year lease.
- To exercise the 99-year lease option, the tenant had to notify the landlord and pay $150,000 by September 30, 2001.
- Beginning in February 2000, the tenant’s counsel repeatedly notified the landlord of the tenant’s intent to exercise the 99-year option and repeatedly sought to set a closing date and terms.
- The landlord responded with repeated delays and evasions, did not schedule a closing, and did not mention the $150,000 deadline or request payment before the deadline.
- The tenant failed to tender the $150,000 by September 30, 2001, believing the payment was due at closing rather than by the option deadline.
- After the deadline passed, the landlord declared the option “null and void,” leaving the tenant subject to an automatic extension with rent increasing to more than triple the prior amount.
- The tenant sued for specific performance and related equitable relief; the trial court and Appellate Division ruled for the landlord based on strict noncompliance with the option’s payment term.

## Issues

1. Whether the landlord breached the implied covenant of good faith and fair dealing by evasive conduct that effectively prevented timely exercise of the option.
2. Whether equitable relief may enforce an option despite the tenant’s failure to strictly meet an option deadline when the optionor’s bad faith contributed to the lapse.

## Decision

- The New Jersey Supreme Court reversed.
- The court held the landlord breached the implied covenant of good faith and fair dealing by a pattern of evasions and delays that lulled the tenant and thwarted the option’s exercise.
- The court granted equitable relief enforcing the tenant’s rights under the 99-year lease option notwithstanding the missed payment deadline.

## Legal Principles

- Every contract includes an implied covenant of good faith and fair dealing that bars a party from conduct that destroys or injures the other party’s right to receive the contract’s benefits.
- In commercial contracts, a party may pursue its self-interest, but may not use intentional delay, evasion, or calculated silence to cause the other party’s contractual right (including an option) to lapse.
- Although options generally require strict compliance, equity may intervene when the optionor’s bad faith conduct materially contributes to the failure to meet technical option requirements.
- A party’s knowing failure to clarify a condition precedent, while simultaneously engaging in conduct that suggests the transaction is progressing, can constitute bad faith when it induces forfeiture.

## Conclusion

The court enforced the tenant’s lease option because the landlord’s deliberate evasions and delay violated the implied covenant of good faith and fair dealing and improperly caused the tenant to lose the contract’s expected benefit through forfeiture.


Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Ctr. Assocs., 182 N.J. 210 (2005)