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Cotswold vs. Renaud, et al.

On April 30, 2008, the Appellate Division in Cotswold v. Renaud, et al. evaluated whether an historic fountain, although not affixed to the real estate, was protected under a local preservation of historic landmarks ordinance.  In this case, a dispute arose when a property owner sought to remove from the grounds of an historic estate a six-foot high fountain after converting the property into condominiums without first obtaining a certificate of appropriateness from the municipality under the ordinance.  The fountain / statue, which consisted of four figures around an urn and weighed over 1,000 pounds, was designed by sculptor, Enid Yandell, and had been located at the historic estate since 1925.  The property owner maintained that “since the fountain was not mechanically attached to the land, it was not a fixture and hence was not encompassed within the historic site designation[,]” and, after being instructed by the municipality to return the fountain, the property owner instituted a declaratory action for a court order finding the fountain to be outside the ambit of the municipality’s regulatory authority under the ordinance.  The municipality brought a counterclaim requesting the return of the fountain and the imposition of penalties.  The trial court ruled that the fountain was a part of the historic estate and ordered the property owner to return it until and unless the property owner is able to obtain a certificate of appropriates for its removal and relocation.  The trial court denied the municipality’s request for penalties.

On appeal, the property owner reiterated its position that the fountain is not properly governed by the local preservation of historic landmarks ordinance and also raised, for the first time, the contention that “the Ordinance is unconstitutional as applied because it effectively confiscates the fountain.”  The Appellate Division affirmed the trial court’s ruling in all respects and rejected the property owner’s constitutional argument stating, among other things, that “the Ordinance does nothing more than require that the fountain remain on the property where it has been for more than eighty years unless a Certificate of Appropriateness is obtained.”  “These circumstances[,]” which neither establish a physical taking nor deprive the property owner of all economic or beneficial use of the fountain, “do not constitute a governmental taking.”

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With the recent downturn in the market, a number of commercial tenants are experiencing financial difficulties. In turn, this can lead to problems for commercial landlords, most importantly, the tenant staying current with lease payments. This may then lead to the tenant filing for bankruptcy protection. If your commercial tenant files for bankruptcy, it is wise to have a strategy in place to not only minimize the time of non-payment, but also maximize the ability to receive rents and damages allowed under the Bankruptcy Code. 

 

Following are four (4) questions for commercial landlords to review with an attorney  whenever a commercial tenant files for bankruptcy protection:

 

1.    Have You Filed a Proof of Claim(s)?  As soon as the tenant/debtor files for bankruptcy protection, commercial landlords should ensure their rights to payment(s) by filing appropriate proofs of claim.  It is advisable to review with your attorney the current account history and lease to ensure all fees are being accounted. Landlords may be able to file upto three (3) different types of claims:

    a.    Pre-petition Claim. Section 502 of the Bankruptcy Code provides that creditors are permitted to file a proof of claim for all pre-petition charges and assessments owed.  If a tenant files for bankruptcy, the landlord is permitted to file a proof of claim for all fees and charges incurred prior to the filing date;

 

    b.    Post-Petition Administrative Claim.  Section 503(b)(1) of the Bankruptcy Code provides a creditor a priority claim for all “actual, necessary costs and expenses of preserving the estate”.  If the tenant remains in the premises after the bankruptcy and does not reject the lease, the commercial landlord may be allowed payment  ahead of other creditors for amounts incurred during this period; and

 

    c.    Post-Rejection Damage Claim. Section 503(b)(7) of the Bankruptcy Code provides a commercial landlord the right to be paid for “post bankruptcy rejection” damages. If the tenant rejects the lease, certain damages incurred and the remainder of the lease may be permitted priority before payment of certain claims.

 

2.    Is the Debtor/Tenant Assuming or Rejecting the Lease?  Landlords should inquire whether the debtor/tenant intends to assume or reject the lease.  Bankruptcy Code Section 365 provides that tenants are permitted to assume a commercial lease, as long as they cure all post-petition defaults. If they reject the lease, then the landlord may be able to proceed with an eviction action to remove the tenant. However, landlords should know that the Bankruptcy Code permits the debtor 120 days to decide whether to assume or reject the lease, with an additional 90 day extension.  All told, this can leave the landlord sitting around for more than 7 months without payment.  If your not being paid, it may be advisable to have the Bankruptcy Court allow you to proceed with an eviction action. 

 

3.    Should you File a Motion for Stay Relief to Proceed with an Eviction?   The debtor/tenant may not advise their intent to assume or reject the lease.  As noted, during this time, the debtor/tenant can use the premises without paying anything.  The landlord is permitted to file a motion for “Relief from the Automatic Stay”.  This Motion, if granted,  permits the landlord to resume or commence with a state court eviction action.

4.    What to Do with Items Left by a Tenant?  If the debtor/tenant leaves equipment, inventory or equipment at the premises, can you just throw it away? Does anyone have an interest in the left over items, like the debtor/tenants’ bank?   Can you recover storage fees? When a tenant/debtor files for bankruptcy, these left over items may be part of the bankruptcy estate. Gaining proper approval from the Bankruptcy Court, before disposing of the left over “junk” is essential to limiting liability.  For instance, the left over property may be secured by a bank, financial institution or creditor. You may want to have a UCC Search conducted to ascertain whether any security interest exists.  If security interests are discovered, it is advisable to give notice to those entities, possibly through a motion with the Bankruptcy Court.

 

These are just a few of the questions a landlord should ask when a debtor files for bankruptcy.  By asking these questions at the start of the bankruptcy, landlords can limit the loss or liability, as well ensure their right to payment through the Bankruptcy Code.

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On March 31, 2008, the New Jersey Supreme Court decided Toll Bros. v. Board of Chosen Freeholders, which principally held that a developer may seek to modify or reform an off-tract improvements obligation in a developer’s agreement when the project to which such obligation relates has changed.  By ruling in this fashion, the Supreme Court took a practical and equitable stand in resolving the problems that developers and property owners face when things just don’t work out as planned.

The facts of Toll Bros, like all cases, are of importance to understanding fully the context of the instant controversy and the breadth of the Supreme Court’s decision.  Briefly, the developer in this case - Toll Brothers, Inc. - acquired a parcel of land in foreclosure with municipal and county approvals and, thereafter, entered into developer’s agreements with Burlington County and Moorestown Township to memorialize its agreement to complete certain off-tract roadway improvements, which the local planning board and the county planning board had required as a condition of the approvals applicable to the Toll Brothers property and a smaller, adjacent parcel owned by another corporate entity.  Over time, Toll Brothers substantially decreased the scope of the original development plan for its property while the approximate cost of the required off-tract improvements had risen from $2,100,000 to $5,000,000.  However, notwithstanding these circumstances, neither the County nor the Township were willing to adjust Toll Brothers’ obligations and, consequently, a multitude of lawsuits were commenced.

The trial court consolidated all of the aforesaid actions and found, among other things, that unlike the conditions of approval contained in a resolution Toll Brothers had no right to seek a modification or reformation of a developer’s agreement based upon a change in circumstances.  In a reported decision, 388 N.J.Super. 103 (2006), the Appellate Division affirmed the trial court with respect to its rulings on the County’s right to enforce its developer’s agreement, but reversed the trial court’s decision regarding the Township’s developer’s agreement.  The reason for the Appellate Division’s distinction in this regard resided in the specific text of each contract.

Under the County’s developer’s agreement, Toll Brothers had to construct all the off-tract improvements when the number of buildings for which it had received permits generated more than 18% of the traffic projected for development under the original plan.  As such, according to the Appellate Division, Toll Brothers’ downsizing was largely irrelevant to the County’s developer’s agreement, because its obligation to build out the improvements was not tied to the completion of development under the original plan but, rather, accrued upon the 18% trigger. 388 N.J.Super. at 129.  Although the Appellate Division acknowledged that the Municipal Land Use Law prohibited the County from requiring Toll Brothers to build the off-tract improvements identified in the developer’s agreement as a condition of approval for Toll Brothers’ downsized development plan, it ruled that such limitations are inapplicable to a voluntary agreement. Ibid. at 123-124.  Contrarily, under the Township’s developer’s agreement, the contractual language required staged improvements that were directly linked to the original development plan and, therefore, could not be enforced once the scope of such plan had been reduced. Ibid. at 130-131.

On appeal, the Supreme Court began its analysis by recognizing that “[u]nder the MLUL, a planning board may only impose off-tract improvements on a developer if they are necessitated by the development.”  As such, “[a] developer cannot be compelled to shoulder more than its pro rata share of the cost of such improvements. . . . [This] is so even if the developer is a willing participant in a separate developer’s agreement.” – A.2d –, 2008 WL 833160 (N.J.) at *1.  To hold otherwise, would be contrary not only to the letter and spirit of the MLUL, but also sound public policy. Ibid. at *14.

Furthermore, even if disproportionate public benefits and improvements could be obtained from developers on a truly voluntary basis, such arrangements would “[p]lainly violate the nexus and proportionality requirements in the MLUL that serve as the Legislature’s check on a municipality’s limited planning power[,]” and thereby would be unenforceable.  A municipality’s exercise of this “limited planning power” must comply with the dictates of the MLUL even if the same is expressed in a contract rather than a resolution of approval.  Indeed, “[a] developer and a municipality cannot do by contract what the statute prohibits.” Ibid. at *15.  On the contrary, “[a] developer’s agreement is an ancillary instrument, tethered to the conditions of approval, and exists solely as a tool for the implementation of the resolution establishing the conditions.  Accordingly, if the resolution . . . changes, the developer’s agreement enjoys no independent status and must be renegotiated.”  As such, “[w]e do not view the ancillary developer’s agreement as a bar to Toll Brothers’ application for modification of the resolution setting the conditions of approval.” Ibid. at *13.

The Court also rejected the County’s alternative arguments, namely, that “[e]ven if Toll Brothers is not barred from advancing a changed circumstances challenge to the conditions of approval,” it is not entitled to relief, because the project was not completely abandoned and “[b]ecause the County relied to its detriment on what it considered the binding developer’s agreement in its later dealings with other developers.”  As to the first alternative point, the Court stated that limiting a developer’s right to seek a modification of a condition of approval only to instances where a project is abandoned “would offend the nexus and proportionality requirements reflected in the MLUL.”  Respecting the County’s detrimental reliance claim, the Court likened this to promissory estoppel and given that “[b]oth Toll Brothers and the County knew or should have known that the conditions of approval were subject to change if the facts in the case changed and that the developer’s agreement was not a stand-alone obligation[,]” the County’s reliance was not reasonable and, therefore, “this argument too must fail.” Ibid. at *15-16.

In light of the Court’s determinations, it reversed the Appellate Division and remanded the matter to the trial court for further proceedings.

The foregoing summary of Toll Bros. v. Board of Chosen Freeholders shows how the Supreme Court in this case was determined not to let local and county government reap a windfall of public benefits at the expense of a single developer, who for one reason or another was unable to complete a particular project as originally approved and, instead, send a firm message that such situations call for flexibility and accommodation.  The common sense approach taken by the Supreme Court will have positive implications for developers and the building industry, especially now, in the current financial climate where flexibility is unquestionably at a premium.

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Recently, the Appellate Division of the State of New Jersey in Patel v. 323 Central Avenue Corp., et. al., declared that a tenant’s exercise of his option to purchase certain commercial property was barred.  The court found that the contract was never signed, no enforceable oral agreement was ever intended, the tenant did not make a valid election to exercise his option under lease, and the tenant did not extend his option under the lease.  See Patel v. 323 Central Ave. Corp., et al. A-3724-06T2 (App. Div. 2008).

This decision is very helpful to commercial landlords as it supports basic contract law maxims, which requires commercial tenants who wish to exercise certain options to exercise those options with particularity and pursuant to the terms of the contract.

Background
The tenant was a physician who entered into a lease agreement for commercial property in Orange, New Jersey.  The landlord was wholly owned by Ocean Mountain Healthcare Incorporated.  In addition, Cathedral Healthcare Systems (the “Affiliate”) had an affiliation agreement with the hospital.  The tenant’s lease for the commercial space was to terminate on March 19, 2005.  The lease provided the tenant with an opportunity to extend the term of the lease and the right to purchase the commercial property.  The tenant sent a letter to the Chairman of the Affiliate (not the landlord)  in February 2004 expressing a desire to exercise the option - almost a year prior to the expiration of the contract.  Although not specifically noticed by the tenant, the landlord sent back an unsigned  written contract to sell the property.  The tenant then forwarded a deposit check to the landlord with the signed contract.  After the lease term ended, the landlord forwarded to the tenant a letter advising that it was no longer in the position to sell the commercial space, later returning the tenant’s deposit check.

The tenant filed suit claiming specific performance, breach of contract, breach of implied covenant of good faith and fair dealings, fraud, consumer fraud, successor liability.  The lower court dismissed all counts of his complaint.  The Appellate Division affirmed that ruling.  

Appellate Division Upholds Landlord’s Rights
The Appellate Division, upon review of the case, noted that the tenant failed to present clear and convincing proof of the contract.  Noting in the record, that although that the landlord had forwarded a contract to the tenant to sign and the tenant had executed the contract, as well as provided the deposit, at no point had the landlord actually signed the contract.  Further, the Court noted that when the tenant exercised its option to purchase the lease term failed to request an extension of the term.  As such, when the landlord advised the tenant that it no longer wanted to sell the building, the tenant was outside his contractual period.  The Court also noted that the tenant had failed to strictly comply with the terms of exercising his option.  For instance, the contract provided that the tenant was to provide notice to the landlord via certified mail, return receipt.  Rather than sending to the landlord, the tenant sent this option to the Affiliate.

Practical Implications for Commercial Landlords
This opinion is very beneficial to commercial landlords providing a tenant the option to purchase the commercial property.  The contractual obligations of both parties will not be over ridden simply by one party’s assumption that it has complied with specific provisions of the contract.
    
Following are some issues that commercial landlords should review with their attorney before providing an option to purchase.  

1. Review the notice provisions of the option.  For an option to be exercised correctly, it should be noticed pursuant to the terms of the contract.  If the notice requires for certified mail, return receipt then the notice should be sent via that method. .
2. Be sure to correctly exercise the option.  When an option is exercised, it is important for the party exercising that option to ensure that all portions are exercised.  In this case, the tenant only attempting to exercise his option to purchase the property.  He did not exercise any option to extend the lease term.  Due to the tenants failure to exercise his option to extend the lease period, when the landlord rejected his offer to purchase the property, the tenant had no recourse.
3. Is this the final version of the lease?  In this case, the landlord’s counsel was acute to note to send a “draft” contract without any signatures.  The landlord did not agree to these terms but rather put a “draft” contract out for the tenant’s review.  As such, when the tenant signed it, the contract was still in flux at this point.

For more information on exercising options under a contract or enforcing rights of specific performance under a commercial lease,  please feel free to contact Tom Onder of Stark & Stark’s Commercial Litigation and Creditor’s Rights Group at (609) 219-7458 or via email a tonder@Stark-Stark.com.

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On March 31, 2008, the New Jersey Superior Court, Appellate Division, decided Viecelli et al. v. Planning Board of the Borough of Point Pleasant, et al., an unpublished decision. In this case, the plaintiffs constructed improvements on land for an ice cream shop after receiving site plan approvals from the planning board. After numerous inspections, the planning board’s engineers advised the municipality by letter that the plaintiffs had satisfactorily completed the project in accordance with the planning board’s resolution of approval and in reliance upon these representations the municipality issued a certificate of occupancy.

Some time later, the planning board discovered that the completed improvements differed from the approved site plans and demanded that the plaintiffs remedy all such deficiencies.The plaintiffs filed suit challenging the planning board’s decision. In addition to requests for declaratory and injunctive relief, the plaintiffs brought claims for damages under the Tort Claims Act and the Civil Rights Act of 1871. In response the planning board filed a claim against the plaintiffs under the Frivolous Litigation Statute and one of its members, who the plaintiffs were suing personally, brought a counterclaim alleging the plaintiffs’ facilities constituted a nuisance.

The chancery judge found, among other things, that the planning board was not estopped from requiring the plaintiffs to comply with the approved site plan despite the issuance of a certificate of occupancy and, as such, required the plaintiffs to either submit to the planning board an amended site plan application or comply with the site plan, as approved. Additionally, the chancery judge dismissed without prejudice the Tort Claims Act causes of action for failing to comply with the statute and dismissed with prejudice the Civil Rights Act claim on grounds of immunity.The chancery judge also dismissed the nuisance counterclaim and denied the planning board’s request for counsel fees under the Frivolous Litigation Statute.

 

The plaintiffs appealed from the judgment of the trial court, which the Appellate Division affirmed. In upholding the trial court’s ruling on the estoppel issue, the Court found that the plaintiffs had no grounds for reliance upon the certificate of occupancy.

Although the CO was issued by the Planning Board on their engineer’s apparently erroneous recommendation, plaintiffs did not fulfill their obligations either.  The authorizing resolution and the application for the CO specifically required plaintiffs to bring any deviations to the Planning Board’s attention, and they chose not to do so. . . . [P]laintiff’s knowledge and failure to act in accord with the resolution and the application for a CO defeats their claim of equitable estoppel.

In light of this determination, the Court concluded that the planning board “[w]ill not be barred from compelling plaintiffs to modify their completed site, or seek approval of a modified site plan, despite the issuance of a CO.” 

 

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For more information on landlord tenant issues, for residential or commercial leases, please feel free to contact Tom Onder, Stark & Stark’s Commercial Litigation and Creditor’s Rights Group at (609) 219-7458 or via email a tonder@Stark-Stark.com.

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Timothy P. Duggan, Shareholder and member of Stark & Stark's Condemnation and Bankruptcy & Creditor's Rights groups, has authored the article Surviving the Silent Killer: Failure to Respond to a Tax Assessor's Chapter 91 Request May Not Bar An Appeal for the January 28, 2008 issue of the New Jersey Law Journal.

The article discusses the recent change in the nation's real estate market, what these changes can mean for a property owner's tax assessments, and address when a tax assessment appeal is warranted.

You can read the full article here.

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The average property owner in the Garden State pays about $6,000 a year in property taxes, twice the national average.  To make matters worse, New Jersey is facing a projected $3 billion budget deficit for 2008, which will only complicate the legislature’s effort to provide property owners with any meaningful type of property tax reform.  One of the few ways to reduce property taxes is to correct errors in the annual tax assessment, which may be improperly increasing one’s tax burden.   This article will summarize the steps to correct assessment errors.
   

As a preliminary matter, property owners must understand how property is assessed in New Jersey. Tax assessors are required to mail to each property owner an annual tax assessment notice, which is generally done in late January or early February of each year.  The tax assessment is on a small green card and provides an assessed value for both land and improvements. The assessed value is determined as of October 1 of the pre-tax year.  For example, the tax assessment date for 2008 is October 1, 2007.
   

The assessment for any particular property must be converted to its imputed true value by dividing the assessment by the average ratio for the municipality where the property is located. For example, the average ratio for Princeton Township in 2008 is 47.45%.  If a home in Princeton Township has an assessment of $600,000, the property owner must divide the assessment by the ratio of 47.45% to determine the “true value” of his or her property (ie., what the town believes your property is worth).  In our example, the imputed true value is $1,264,488.
   

The municipal assessor is also required to maintain a property record card.  The property record card contains information about the property, including size of the lot, square footage of the improvements, number of rooms, etc.  Most tax assessors will give a property owner a copy of his or her property record card upon request.  It is not uncommon for property record cards to contain errors, and once spotted, need be brought to the tax assessor’s attention immediately for correction.
   

Tax appeals must be filed by April 1 of the tax year in question. If an error is discovered in a 2008 tax assessment, the property owner’s first step is to file a tax appeal and seek to have the error corrected for that year. Any error can be challenged in the year in question if a complaint is filed by the appeal deadline. However, if the error has been in place for several years, the property owner must look to the Correction of Errors statute for relief - a law that is very restrictive.
   

The Correction of Errors law allows a property owner to seek to correct “typographical errors, errors in transposing, and mistakes in tax assessments,” providing that the mistake does not relate to “matters of valuation involving an assessor’s opinion or judgment.”  If an error falls with this definition, a property owner can go back four years to correct an error.
   

Initially, the New Jersey Tax Court limited the types of errors that could be corrected and denied most requests.  However, in 1994 the New Jersey Supreme Court loosened the standard and held that any error that (1) is indisputable and cannot plausibly be explained on the exercise of judgment or discretion by the assessor, and (2) its correction is also self-evident and non-discretionary, can be remedied by the court.  For example, if a parcel of vacant property is assessed with a building on it, both the error and correction are self-evident and, therefore, the error can be corrected.
    

However, in a recent case, the court denied a request to correct an error where the tax assessor lost an application for farmland assessment  and assessed the property as if it was not a farm.  Although the error was self-evident because losing a farmland application cannot possibly involve an exercise of the assessor’s judgment, the court found that the “correction” was not self-evident based upon the mistake made by the assessor.  This decision is difficult to understand since the correction (ie. reduce the value to the standard farmland assessment) also seems self-evident.
   

Although the case law interpreting the Correction of Errors statute is ambiguous, it is clear that most types of errors will involve some level of judgment or discretion by the tax assessor and cannot be corrected by the Tax Court.  Once value is determined by the assessor, the exercise of judgment is generally involved taking the issue outside the Correction of Errors statute.  As a result, it is very important for property owners to review their assessments each year and file an appeal by the April 1 deadline.  If there is no plausible explanation for the error, a property owner can look to the Correction of Errors statute for relief providing the relief sought is also self-evident based upon the information placed before the court.

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Gary S. Forshner, and Vincent J. Mangini, Shareholders in Stark & Stark's Real Estate, Zoning and Land Use group, will speak at the 59th annual Atlantic Builders Convention. This year's convention will take place April 16-18, 2008 in Atlantic City, New Jersey.

Gary Forshner will present Legal Trends - Part 1, Land Use Law on Wednesday April 16, 2008 at 1:00 PM. The presentation will include a discussion on legislation, regulations and court decisions relating to the land development review process and how these issues continue to modify the legal framework within which real estate is developed. In Part 1 of this two -part seminar, Mr. Forshner, along with a panel of additional presenters, will examine the most recent and significant changes in land use law and discuss their implications for the future.

Vincent Mangini will present Redevelopment: Problems on the New Frontier? on Thursday April 17, 2007 at 1:00 PM. The presentation will focus on new regulatory proposals and court decisions that could pose potential problems for residential construction. The program will give insight on the latest issues facing the redevelopment industry, including: court decisions limiting definition of blight, utility problems and concerns, public notice requirements for site remediation, and guaranties for engineering and institutional controls.

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The New Jersey Appellate Division in an unpublished decision, Cesar S. Arredondo v. Nersy Pujols, Docket No. A-5459-05T25459-05T2, ruled that breaches of both of a lease provision and a New Jersey statute for failing to obtain municipal permits before commencing construction work were NOT grounds for evicting a commercial tenant.  Although very fact specific to a landlord with apparently “unclean hands”, this decision highlights pitfalls that can beset a landlord in the New Jersey eviction process.

Background - Landlord Tries to Evict on 3 Non-Payment Grounds
In Cesar S. Arredondo v. Nersy Pujols, the tenant operated a bodega in Jersey City pursuant to a written lease with a 15 year term.  The landlord, who purchased the property from a prior owner, claimed not to have known of the tenant’s lease.  Subsequently, the landlord filed an eviction complaint based on three (3) non-payment defaults, failure to: 1) provide insurance; 2) obtain municipal electrical permits for the relocation of refrigeration compressors and an exhaust fan (the “Electrical Work”); and 3) get the landlord’s written approval on the Electrical Work.

At trial, testimony included the landlord, the tenant, and the tenant’s two witnesses, an electrical inspector of the City of Jersey City and a close friend of the defendant.  The inspector testified that a physical inspection did not disclose any dangerous conditions and the work appeared to be in a workman-like manner.  More importantly, the inspector advised that the permits could be obtained post-completion to correct deficiencies.

The trial court concluded the failure to obtain permits for the Electrical Work breached the lease, but denied the landlord’s judgment on the other two allegations.  Essentially, finding the landlord’s testimony inconsistent on the approvals and because the defendant provided insurance prior to the trial (no harm no foul). The tenant appealed the judge’s ruling that failure to obtain an electrical permit was a “material” breach of the lease.

Cannot Evict for “Minor” Breaches (No Permits, No Insurance, Sidewalk Sales, Etc.)
The Appellate Division agreed with the trial court on the insurance issue and the landlord’s inconsistent testimony.  However, the Appellate Division held that the breach was “not material” to warrant the tenant’s forfeiture of his leasehold interest. The Appellate Division noted that the New Jersey statute specifically provides grounds for an eviction where there is a “...violation of such covenants or agreements” of the lease. See N.J.S.A. 2A:18-53.  However, before a judgment may be entered, the landlord must establish the breach. 

Citing New Jersey case law, the Appellate Division held an eviction based on a “forfeiture” is deemed a penalty for failing to do a particular thing.  In New Jersey, the law does not favor forfeitures and requires a trial court to strictly review the provisions of the lease that a landlord seeks to forfeit the tenant’s interest, resolving any ambiguous language in favor of the tenant.

Based on the testimony and review of the lease, the Appellate Division held the breach was a minor deviation of the lease terms.  The court held that the work was undertaken under the direct order of the plaintiff and done by an independent contractor.  Further, all work was done in a workman-like fashion and that pursuant to the Jersey City inspector, the defendant could retroactively cure any of the code violations by obtaining a permit. 

In discussing such minor violations, the court noted that other actions that could be deemed minor violations of a lease that would not be grounds for an eviction could include sidewalk sales, citing the prior Appellate Division case of Johnson v. City of Hackensack, 200 N.J. Super. 185 (App. Div. 1985).

Concerns When Instituting Eviction Action for Non-Payment Defaults
This unpublished decision raises a number of pitfalls for commercial landlords when deciding to institute an eviction based on non-payment issues. In this case, the landlord clearly failed to submit the proper proofs that there really was a “material” non-payment ground to evict.  Before instituting an action to evict a tenant, landlords should consider a number is issues including:

1)     What proofs do I have?  In this case, the landlord had serious inconsistent statement, whereas the tenant’s testimony was not questioned.  Further, the tenant had two additional witnesses to prove his case, one being a city electrical inspector; and

2)     Is the Breach “Material”?  Here, failure to obtain permits was not “material”.  However, would that have changed if what the landlord was cited for resulted in a fine or penalty from the municipality?

3)     Can the Breach be Remedied before Trial?  Here, the lack of insurance became a non-issue because it was remedied prior to trial. What other breaches can be remedied?

Strategic Use of Eviction Proceedings
This and other recent decisions by the Appellate Division raise pitfalls for commercial landlords in eviction proceedings. Landlords may think to strategically use the eviction process as a way in which to make the tenants become compliant with the lease.  To lessen the legal costs, landlords should take care to place in their lease that the tenant is required to pay the landlord’s attorney fees. 

In the case discussed, although an eviction did not occur, the act of taking the case to trial precipitated the tenant to obtain the proper permits and get insurance.  However, if a landlord wishes to actually evict the tenant due to a non-payment issue, it is extremely important to sit down with your attorney ascertain “minor” or technical breaches.

For more information on evictions or other commercial lease issues, please feel free to contact Tomas S. Onder or Vincent J. Mangini in Stark & Stark’s Commercial Real Estate Litigation Group.  Mr. Onder can be reached at (609) 219-7458 or via email a tonder@stark-stark.com and Mr. Mangini can be reached at (609) 219-7437 or vmangini@stark-stark.com.

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