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PASSAIC DISTRIBS. v. SHERMAN CO.

December 16, 1974

PASSAIC DISTRIBUTORS, INC., Plaintiff,
v.
The SHERMAN COMPANY, Defendant


Robert J. Ward, District Judge.


The opinion of the court was delivered by: WARD

ROBERT J. WARD, District Judge.

This is an action for damages resulting from the loss of a subtenant because of the failure of defendant The Sherman Company ("Sherman") to consent to the subletting in accordance with the terms of a lease dated August 26, 1965 ("the main lease"). The case was tried to the Court.

 Plaintiff, Passaic Distributors, Inc. ("Passaic") was a tenant of the defendant Sherman in Building 1F in the Sherman Industrial Center located at Dayton Avenue, Passaic, New Jersey. Both parties were assignees of the main lease. Paragraph 14 granted the lessee the right to sublet all or part of the premises for all or part of the unexpired term for any lawful purpose, "provided, however, the written consent of Lessor shall be first had and obtained, which consent shall not be unreasonably withheld and shall be given promptly."

 In or about August, 1972, plaintiff, desirous of subletting the premises it occupied, negotiated an oral agreement with Hawthorne Prints, Inc. ("Howthorne") whereby the latter would take over the obligations of plaintiff's lease with the exception of rent to be paid. Hawthorne agreed to pay rent to Passaic at $1.10 per square foot, commencing November, 1972 for the balance of the term. Plaintiff would remain liable on the main lease. By letter dated August 9, 1972, plaintiff notified defendant of the sublet agreement with Hawthorne and, pursuant to the foregoing provision, requested consent to the subletting. The defendant refused to consent.

 Thereupon, in accordance with the terms of the lease, plaintiff submitted the question of the propriety of the sublet to arbitration. In a decision rendered on January 9, 1973, the arbitrator found:

 
"The Sherman Company . . . acted in contravention of the lease provision in refusing to consent to the proposed subletting of the premises covered by the lease agreement dated August 26, 1965, by Passaic Distributors, Inc. . . . to the proposed subtenant Hawthorne Prints, Inc."

 Meanwhile, Hawthorne Prints, finding itself unable to await the outcome of the arbitration, leased other premises. Subsequently, plaintiff obtained permission from defendant to sublet its space to Rempac Foam Corporation under a lease dated June 5, 1973 at a rent of $ 1.000 per square foot. Plaintiff, by this action, seeks to recover the difference between the rent it receives from Rempac and what it would have received from Hawthorne and the expenses it incurred in obtaining the second subtenant.

 Defendant argues strenuously that there was not a sufficient agreement between plaintiff and Hawthorne to enable the Court to assess damages. It contends there was never a meeting of the minds on essential terms of the lease and, therefore, the negotiations never ripened into a contract. The Court finds that Hawthorne had agreed to be bound by all the terms of the main lease except for rent to be paid. As to this, it is uncontradicted that Hawthorne agreed to pay $1.10 per square foot. There was a meeting of the minds between plaintiff and Hawthorne and the contract was frustrated by defendant in refusing to fulfill its obligation under the main lease.

 Defendant next argues that even if there was an oral agreement of sublease between plaintiff and Hawthorne, the agreement was unenforceable beyond three months by reason of New Jersey law. N.J.S.A. 25:1-1; 2A:18-56. Even if the New Jersey statute is applicable, *fn1" it cannot be interposed by defendant in this action. The New Jersey statute is a statute of frauds for the protection of the party sought to be charged. It is personal and not available as a defense to a stranger to the agreement. See Zwaska v. Irwin, 52 N.J.Super. 27, 144 A.2d 554 (Super.Ct.1958); McCue v. Deppert, 21 N.J.Super. 591, 91 A.2d 503, 505 (Super.Ct.1952); Louis Kamm, Inc. v. Flink, 113 N.J.L. 582, 175 A. 62, 68 (Ct. of Er. & Ap. 1934). Plaintiff and Hawthorne had an oral agreement which they would have reduced to writing but for the wrongful act of the defendant. The defendant cannot now rely on a circumstance which it brought about to shield itself from liability. See McCue v. Deppert, supra, 91 A.2d at 505-506.

 The fundamental question posed by this case is whether a tenant has a cause of action against its landlord for lost profits, as opposed to out-of-pocket losses, arising out of the landlord's breach of a covenant not to unreasonably withhold its consent to a subletting permitted by the lease agreement. The defendant argues that no such affirmative right of action exists but rather the law permits recovery limited to a set-off in a landlord's action for rent under the main lease. It argues that lost profits were not within the contemplation of the parties to the lease at the time it was entered into and are not, therefore, recoverable.

 A threshold question is whether the landlord's consent clause constitutes an affirmative covenant by the landlord, or is merely a qualification of the tenant's covenant not to sublet without consent. If the provision be viewed as the landlord's covenant, breach of the covenant may render the lessor liable for damages. On the other hand, if it is merely a qualification of the tenant's covenant not to sublet, breach by the lessor will operate only to relieve the tenant of its covenant and give rise to a right to seek a declaratory judgment of the reasonableness of withholding consent. The problem of the proper construction to be placed upon a landlord's consent to subletting provision like that involved in the case at bar has been a vexatious one, with different jurisdictions adopting conflicting views. See generally, Annotation, 54 A.L.R.3d 679; 49 Am.Jur.2d, Landlord and Tenant ยง 499.

 Applying New Jersey law, *fn2" it would appear that the landlord's consent clause should be construed as an affirmative covenant by the landlord, the breach of which gives rise to a cause of action for damages.

 In Broad & Branford Place Corp. v. J. J. Hockenjos Co., 132 N.J.L. 229, 39 A.2d 80 (1944), the court held:

 
There is a covenant in the words "which consent shall not be unreasonably withheld." The phrase is not merely restrictive of the character and nature of the tenant's covenant, i.e. that it was not to operate at all if the assent of the landlord be arbitrarily withheld. A peremptory duty was thereby laid upon the landlord to act when his consent was invoked, and to be governed therein by the standard of reason. That was his undertaking by ...

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