A Landlord-Tenant Anniversary

On February 6, 1967, the Supreme Court decided Mayfair Fabrics v. Henley, 48 N.J. 483 (1967). In an opinion by Justice Jacobs, the Court unanimously held valid what came to be known as an “exculpatory clause” in the commercial lease at issue.

The case centered on a clause in a typewritten rider to a commercial lease of factory premises between experienced business parties. The lease was negotiated by counsel. The rider provided: “It is mutually agreed that the landlords will insure the building against fire and the tenant agrees to carry fire insurance upon all equipment and personal property used, placed or stored in, on or near the leased premises and in no event shall the landlord be responsible or liable for loss or damage to the tenant’s property by fire, explosion or otherwise. In the event that the hazards of the tenant’s business makes it impossible for landlords to obtain fire insurance at standard rates covering the said building then this lease shall at the option of the landlord be null and void.”

Perhaps inevitably, a fire occurred, doing what Justice Jacobs called “very considerable damage” to the plaintiff tenant’s property at the premises. Plaintiff had bought property insurance as required, and that insurance paid plaintiff approximately $180,000. However, plaintiff also sued the landlords, arguing that the negligence of the landlords and of contractors whom the landlords had engaged to perform work at the premises was the cause of the fire. The landlords moved for summary judgment based on the exculpatory clause, but the Law Division denied that motion. The landlords appealed to the Appellate Division, but the Supreme Court took the case up before the Appellate Division could hold argument.

The Supreme Court reversed and ruled for the landlords. “Where they do not adversely affect the public interest, exculpatory clauses in private agreements are generally sustained. But where a party to the agreement is under a public duty entailing the exercise of care, he may not relieve himself of liability for negligence through an exculpatory clause; illustrative are common carriers, public utilities, and the like. Similarly, in other situations where there is unequal bargaining power, the public interest may call for rejection of an exculpatory clause exacted by the dominant party ….” (citations omitted).

But none of those exceptions appeared in this case. “[T]he parties here were not in unequal bargaining positions. They deliberately distributed the risks and designated who was to obtain the necessary insurance. The commercial tenant had full legal representation and the typewritten rider, which included several provisions for the tenant’s benefit, evidenced the actual bargaining between the parties. [The exculpatory clause] was patently designed to place responsibility for fire damage to the tenant’s property entirely on the tenant who was to carry fire insurance thereon…. The distribution of the risks entailed no elements of injustice and did not conflict with the public interest. It was a private contractual arrangement fairly and freely entered into and which the common law would sympathetically carry out in accordance with the contemplation of the parties.”

The exculpatory therefore was enforceable, and the landlords prevailed. According to a Lexis search, the decision has been cited over fifty times by our Supreme Court and other New Jersey state and federal courts, as well as by federal district and circuit courts in a number of other jurisdictions. This opinion continues, 56 years after its issuance, to be a leading case as to whether and when exculpatory clauses in leases are enforceable.