Daily Development for
Monday, June 10, 1998

By: Ira Meislik

Daily Developments normally are edited and prepared by Prof. Patrick A. Randolph, who is in China until late July. Ira Meislik will file periodic developments reports in Professor Randolph's absence.

LANDLORD/TENANT; COMMERCIAL LEASES; PROMISSORY ESTOPPEL: By instructing a prospective tenant not to renew its existing lease and by indicating that it was "95%" toward having a final lease, a landlord may be liable to the prospective tenant under the doctrine of promissory estoppel.

Pop's Cones, Inc. v. Resorts International Hotel, Inc., 307 N.J. Super. 461, 704 A.2d 1321 (App. Div. 1998)

A franchisee of a frozen yogurt store had numerous discussions with a hotel and casino operator about relocating the store to space available in the hotel. The franchisee was concerned about rental rates and the viability of the new location. In order to allay these concerns, a hotel executive vowed that the financial issues could be easily resolved, and offered to permit the franchisee to operate a vending cart in the hotel free of charge for a summer to test the traffic flow. At the end of the summer of 1994, the franchisee inquired about the status of a lease proposal given to the hotel and informed the hotel that it needed an answer so that it could give notice to its current landlord as to whether it would exercise a renewal option. The franchisee, now a prospective tenant, was told that a more senior hotel executive had to approve the deal, but that approval was highly likely and that the franchisee should not extend its current lease. In reliance on that advice, the franchisee did not renew its lease and, instead, placed all of its equipment in temporary storage, commenced site preparations, and hired an attorney. After four months of preliminary negotiation, accompanied by continuing assurances that everything would work out and that the store was wanted in the hotel, the franchisee received a letter from the hotel at the end of January, 1995 rejecting the offer to lease space. The franchisee tried to find new space to lease since its original space had been re-let, but was unable to reopen for another 18 months. It then sought damages against the hotel, alleging that it detrimentally relied on assurances that it would be able to lease space in the hotel. The Law Division granted summary judgment against the franchisee. The Law Division found no clear and definite promise was made that could reasonably be relied on and no specificity regarding lease terms.

The Appellate Court thought differently. It thought that the motion judge had viewed the franchisee's complaint as seeking enforcement of a lease not yet fully negotiated. Instead, the Appellate Court found that the franchisee was really asserting a claim of promissory estoppel, not breach of contract. The elements of promissory estoppel are: (1) a clear and definite promise; (2) made with the expectation of reliance thereon; (3) the promisee in fact reasonably relied on the promise; and (4) detriment of a definite and substantial nature was incurred in reliance on the promise. The Court found that the first requirement has been relaxed somewhat by courts when determining whether a prima facie case exists. It found particular favor with cases that address whether injustice can be avoided only by enforcement of the promise, a more equitable analysis than the rigid "clear and definite promise" standard. The Court then found that the hotel had instructed the franchisee not to renew its lease and indicated that the parties were 95% of the way toward having a final agreement. As a result, the franchisee relied to its detriment on the hotel's assurances. Whether its reliance was reasonable became a question for the jury. Consequently, the Appellate Division concluded that the prospective tenant presented a prima facie case of promissory estoppel sufficient to defeat summary judgment.

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