United States: A Lease, License Or Profit: The Appellate Division Revisits Distinctions In Van Horn v. Harmony Sand & Gravel, Inc.

On September 10, 2015, the New Jersey Superior Court, Appellate Division revisited the legal distinctions between a lease and a license in the context of a dispute over a 25-year-old agreement framed as a "Lease Agreement." In the published opinion, Lisa Van Horn v. Harmony Sand & Gravel, Inc., Lisa Van Horn, the plaintiff, was the owner of a 45-acre parcel of land in Warren County, NJ, after inheriting it from her father, Earl Richmond Smith. In 1990, the plaintiff's father signed an agreement with the defendant, Harmony Sand & Gravel, Inc., which gave the defendant an exclusive right to "remove available soil materials and aggregates from the premises . . . during the term of the agreement." The agreement required the defendant to pay a fixed price per ton of materials removed from the premises and allowed the defendant to construct improvements to facilitate the extraction of such materials. The agreement had a 10-year term, but provided the defendant with discretion to terminate earlier in the event that it chose to terminate its mining operations.

On March 2, 2000, the plaintiff's father entered into a new agreement substantially similar to the 1990 agreement, but with the following material changes. The new agreement changed the 10-year term found in the initial agreement to "an indeterminate period of years until [the defendant] 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 from [the plaintiff's] properties." The new agreement also increased the per ton payments and imposed upon the defendant additional obligations upon termination of the agreement, including the duty to re-slope banks and spread stockpiled soil.

In 2002, the plaintiff inherited the property. In 2008 and 2012, the plaintiff sent notices to the defendant stating that the lease had been terminated and requesting that defendant vacate the property. In July 2012, plaintiff filed a declaratory judgment action to establish that the defendant's rights to the property were terminated and that the plaintiff was entitled to exclusive possession. After completing discovery, the parties agreed that there were no material facts in dispute and the plaintiff moved for summary judgment. The trial court granted summary judgment in favor of the defendant on the theory that the new agreement created a lease and that the lease was valid under the statute of frauds despite the absence of a defined term.

On appeal, the plaintiff raised the following issues. First, the plaintiff alleged that the new agreement was a license revocable at will. In the alternative, the plaintiff argued that if the agreement was a lease, it must be interpreted to run year-to-year terminable on reasonable notice. The Appellate Division requested that the parties submit supplemental briefing on whether the agreement is a profit a prendre.

Initially, the Appellate Division reviewed the distinctions between a lease and a license. Under New Jersey common law, a lease is an agreement where a landowner agrees to turn over exclusive possession of a property to another party for some period of time. During the period of the lease, the tenant's rights of possession and use are greater than the landowners. Additionally, leases with a term greater than three years are not enforceable unless they comply with the New Jersey statute of frauds. The statute of frauds requires an agreement to be signed by the party against whom it is sought to be enforced. The statute also requires a clear description of the leased property, the term and the parties to the agreement. In contrast, a license grants permission to use the land at the owner's discretion but limited to a specific purpose. A license is generally revocable at will and provides limited protection to the licensee.

In evaluating the intent of the parties, the Appellate Division ultimately characterized the agreement as a profit or "easement in gross." The Appellate Division noted that the agreement was not a lease as it did not grant exclusive possession to the defendant. The Appellate Division also found that the agreement was not a license as it was not revocable and was binding upon successors and assigns.

In concluding that the agreement was a "profit," the court noted that the agreement conveyed an interest in land that was less than exclusive possession, but still "alienable, assignable and inheritable." The court noted that a profit confers a right to remove something of value from land, including things such as "marl, loam, peat, sand, gravel, coal and other minerals." The court cited several cases that established a profit as a possessory right in land with analogous characteristics.

In Harmony Sand, the Appellate Division revisited the subtle distinctions between property interests. The court reaffirmed the tenet that in characterizing these agreements, substance trumps style and the key focus is the intent of the parties.

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