MEMORANDUM OPINION AND ORDER
SHIRLEY WOHL KRAM, U.S.D.J.
In this dispute involving a commercial lease agreement, plaintiff Drutman Realty Company Limited Partnership ("Drutman Realty") moves, pursuant to Rule 56 of the Federal Rules of Civil Procedure, for an order granting it summary judgment. Defendants Jindo Corporation and Jindo Ventures Corporation (collectively, "Jindo") oppose the motion and cross-move, pursuant to Rule 56 of the Federal Rules of Civil Procedure, for an order granting them summary judgment dismissing the complaint and awarding relief on their First through Fifth Counterclaims. For the reasons set forth below, both motions are denied.
I. The Lease
Drutman Realty owns a 21,000-square-foot retail store located in Paramus, New Jersey (the "retail premises").
In August 1983, Drutman Realty's predecessor-in-interest, Drutman Enterprises, Inc., entered into a written lease agreement with F.S. Paramus Corp. ("F.S. Paramus") which provided for a ten-year leasing period followed by option periods extending for an additional thirty years (the "Lease"). See Lease, annexed to the Affidavit of Ralph Drutman, sworn to on Jan. 18, 1994 (the "Drutman Aff.") as Exh. "4," at 67.
In the 1980s, F.S. Paramus was in the retail fur sales business, operating a chain of stores called The Fur Vault. At the time the Lease was executed, the retail premises consisted of empty retail space. F.S. Paramus immediately decided to improve the retail premises in order to create a more favorable atmosphere for selling furs. Accordingly, F.S. Paramus spent over $ 1 million in renovations before opening The Fur Vault store.
According to defendants, the renovations consisted of trade fixtures and property to which ownership was never forfeited. Drutman Realty contends, however, that the renovations were not trade fixtures, but rather were leasehold improvements that now belong to Drutman Realty as the owner of the retail premises.
II. Meridian's Acquisition and the Jindo Guaranty
On May 25, 1990, Meridian Fashions Corp. ("Meridian") acquired F.S. Paramus and certain assets of The Fur Vault (the "acquisition"). As part of the acquisition, F.S. Paramus assigned to Meridian the Lease, which contained a remaining lease term of approximately forty-three months, as well as option periods totaling an additional thirty years.
See Assignment and Assumption of Lease, annexed to the Drutman Aff. as Exh. "5." That same day, Jindo entered into a written guaranty with Drutman Realty in which Jindo agreed to guarantee Meridian's payments to Drutman pursuant to the Lease (the "Guaranty"). See Guaranty, annexed to the Drutman Aff. as Exh. "6."
In determining a fair price for the acquisition, Meridian hired the accounting firm of Coopers & Lybrand to analyze the fair market value of the retail premises, including the renovations. Coopers & Lybrand concluded that the renovations had a fair market value of $ 4,105,300. See letter from Coopers & Lybrand to Y.W. Lee of 1/27/92, annexed to the Affidavit of William Weinberg, sworn to on Feb. 23, 1994 (the "Weinberg Aff.") as Exh. "A."
III. The Lease Default
Shortly after the acquisition, The Fur Vault began to experience financial difficulties due to the declining economy and changing attitudes toward the fur industry. In 1991 and 1992, after losing millions of dollars in the retail fur sales business, Meridian decided to close thirty-five of its approximately forty Fur Vault stores. In February 1992, Meridian closed The Fur Vault at the location owned by Drutman Realty, retaining possession of the key to the retail premises. Thereafter, Meridian continued to pay rent as well as other monthly charges pursuant to the Lease, including sewer rent, real estate taxes and insurance premiums. In October 1992, however, Meridian defaulted on the rent and ceased to make any other payments required by the Lease.
On November 10, 1992, Drutman Realty sent to Meridian a Notice of Termination of the Lease stating that the Lease would terminate on November 27, 1992. See letter from Drutman Realty to Meridian of 11/10/92, annexed to the Weinberg Aff. as Exh. "B." In response, on November 17, 1992, Meridian sent a letter to Drutman Realty requesting that the parties agree on a pay-out schedule for the remainder of the Lease. See letter from Meridian to Drutman Realty of 11/17/92, annexed to the Weinberg Aff. as Exh. "C." Drutman Realty did not respond to this letter.
On December 11, 1992, Drutman Realty sought a Judgment of Possession against Meridian in New Jersey state court. On December 18, 1992, the Judgment of Possession was issued and Drutman Realty entered the retail premises with the county sheriff, thereby locking out Meridian. According to defendants, Drutman Realty had promised to allow Meridian to remain in possession of the retail premises until December 31, 1992.
On January 4, 1993, Meridian informed Drutman Realty that it intended to remove its trade fixtures and property from the retail premises. See letter from Meridian to Drutman of 1/4/93, annexed to the Weinberg Aff. as Exh. "F." In its letter, Meridian stated that it was entitled to repossess its trade fixtures and property pursuant to Section 4.03 of the Lease ("Lease Section 4.03"), which provides:
It is understood and agreed that if Lessee abandons the premises or moves out upon the expiration of this lease or after default in payment of rent or in violation of any provisions of this lease, it is dispossessed and a final order is entered, and after any of the said events, fails to remove any of its trade fixtures or property from the demised premises at the end of thirty (30) days therefrom, at the option of the Lessor, the fixtures and the property shall be deemed abandoned by Lessee and shall become the property of the Lessor.