Van Horn v. Harmony Sand & Gravel, 442 N.J. Super. 333 (App. Div. 2015). When is a document titled “Lease Agreement” not a lease? When it is in fact, regardless of its title, a lease or a “profit a prendre.” Today, the Appellate Division, in an opinion by Judge Hayden, affirmed a summary judgment entered by the Law Division, though on grounds different from those that the Law Division gave.
Van Horn’s father owned a 45-acre property. He entered into a ten-year “Lease Agreement” with Harmony under which Harmony could “remove available soil materials and aggregates from the premises … during the term of this Agreement.” Harmony was allowed to construct certain improvements on the property that would enable it to perform this quarrying. Harmony had significant ability to terminate the agreement, but Smith could terminate only if Harmony defaulted.
When that agreement expired, the parties entered into a second agreement. That agreement contained many of the same provisions as the first one, but the term was changed from ten years to “an indeterminate period of years until [Harmony] determines, in its sole discretion, that sufficient aggregate materials cannot be removed in a manner and/or in such amounts as to make it commercially reasonable to continue the removal of soil materials and aggregates.” The document was neither witnessed nor notarized.
Two years after the second agreement was entered into, Van Horn’s father died, and Van Horn ultimately inherited the property. Thereafter, Van Horn notified Harmony that she was terminating the second agreement. She also filed a complaint for possession and for a declaratory judgment that Harmony had no further rights in the property. After discovery, the parties agreed that no material facts were in dispute.
On summary judgment, the Law Division ruled for Harmony. The Law Division found that the second agreement was a lease and rejected Van Horn’s argument that the second agreement violated the statute of frauds because it did not contain a definite term as required for leases. N.J.S.A. 25:1-12(a). The Law Division noted the use of the word “indeterminate,” but stated that the “actual term was clear, as the agreement terminated under specific conditions, namely default or the depletion of the gravel to a commercially unreasonable point.” Van Horn appealed, but without success.
Judge Hayden applied the de novo standard of review that is applicable to summary judgment decisions, citing cases on that subject at some length. Noting that the parties argued that the second agreement was either a lease or a license, of one sort or another, with or without conditions, she cataloged the law that defines what a lease is and what a license is. She concluded that the second agreement was neither lease nor license.
“A lease gives exclusive possession of the premises against all the world, including the owner,” which the agreements did not do, granting Harmony only the ability to mine but allowing the property owner to interfere with Harmony’s possession of the land as long as there was no interference with the mining operation. The name “Lease Agreement” was not determinative.
Likewise, Judge Hayden said, the second agreement was not a license. A license is revocable and terminates on the death of either party, but the second agreement could not be revoked absent a default, and it purported to be binding on Van Horn’s father’s heirs. Treating the agreement as a license would have violated the parties’ intent,”the lodestar in interpreting an agreement.”
Instead, this was a profit a prendre, or an easement in gross, as quarrying rights often are. “A profit is distinct from both a lease and a license, as it conveys a lesser interest than exclusive possession, but still conveys an interest that is ‘alienable, assignable, and inheritable,’ which distinguishes it from the mere personal privilege of a license.” Agreements that create profits are often called “lease agreements,” Judge Hayden said, but what matters is the intent of the parties.
Van Horn objected that the lack of formalities (no witnessing or notarization) precluded calling this a profit, since a profit is an interest in real property that must comply with the requirements for a deed. Judge Hayden was not persuaded. The intent of the parties governs, and even the statute of frauds would not operate to prevent a profit from arising.
This opinion brings to mind concepts from basic property law that many lawyers have not dealt with since law school. Judge Hayden has provided a useful refresher course on those issues.