The seminar will take place Friday, September 26, 2008 from 8:00 AM - 4:30 PM at the Parsippany Holiday Inn Hotel & Suite in Parsippany, New Jersey. You can access the full seminar brochure with additional information and registration form here.

Under the proposed New Jersey Transit Villages Act, at Section 11, “[a] municipality or a county in which a transit village has been designated by the [C]ommissioner [of Transportation], shall receive priority on all applications for funding from programs that are administered by State agencies and departments that support the use of transit through transit oriented developments.”  This legislation would also, among other things, authorize the New Jersey Department of Environmental Protection to develop an expedited and coordinated permit review and approval process for transit villages and make available to developers of property within a designated transit village tax credits “equal to four percent of allowable costs plus such other incentives deemed appropriate[.]” The term “allowable costs” is defined under Section 12 of the Senate bill and includes such expenses as “legal, engineering, architectural, and other professional fees allocable to construction or rehabilitation . . . not to exceed $200 per square foot of finished interior space.”

The New Jersey Transit Villages Act is also being considered in the State Assembly under a companion bill (No. A1633).  However, the future of this proposed legislation is uncertain.  In light of the current economic downturn and the concomitant budgetary concerns, it appears unlikely that the Legislature or the Governor will be receptive to any new funding or tax credit programs. On the other hand, because the proposed New Jersey Transit Villages Act encourages redevelopment planning and construction which, in turn, promotes economic activity it might have a chance during the 2008-2009 legislative session.  It certainly is a bill that is worth watching.

The article discusses the March 31, 2008 Supreme Court decision in Toll Bros. v. Board of Chosen Freeholders, in which the court held that a developer cannot be required by contract to provide offtract improvements that offend the nexus and proportionality test mandated by constitutional principles and by N.J.S.A. 40:55D-42.

You can read the full article here.

The article discusses a company's need to have a clear understanding of the Construction Industry Independent Contractor Act (CIICA), as well as the need for employers to follow the requirements outlined in the Act. Mr. Faber discusses the need for an employer to exercise control over the methods and quality of a worker's performance in order to maintain a positive and productive employment relationship.

You can read the full article here. (PDF)

Another example is the proposed clarification of the language governing entitlement to liens for work performed and materials or equipment provided on leased property at N.J.S.A. 2A:44-3. Presently, a construction lien attaches to the leasehold estate rather than the interest of the owner in the real property, unless the owner-landlord authorized in writing the specific improvement contracted to be installed at the leased premises. This essentially was how the Appellate Division read N.J.S.A. 2A:44-3 in its 2007 unreported decision captioned Cherry Hill Self Storage, LLC v. Racanelli Construction Company, Inc. The proposed change, if enacted, would allow construction liens for improvements to leased premises to attach to the owner-landlord’s interest in the real property without a separate written authorization for a given improvement provided that “the tenant’s lease agreement, signed by the owner, permits the improvement without further owner authorization[,]” and would thereby legislatively overrule the Cherry Hill Self Storage case.

The Commission’s revised draft tentative report also contains revisions to the requirements for the filing of lien claims at N.J.S.A. 2A:44-6, which specifies what must be included in a lien claim and increases the amount of time to file lien claims for work performed and materials or equipment provided on residential construction contract from 90 to 120 days. Additionally, among other things, the Commission seeks to create a new section - proposed to be codified at N.J.S.A. 2A:44-9.1 - that outlines in detail the method for calculating a lien fund, an owner’s maximum liability and impermissible reductions from a lien fund. The addition of proposed N.J.S.A. 2A:44-9.1 is one of the most significant changes to the Construction Lien Law recommended by the Commission, which was prompted, at least in part, by a number of case decisions, such as Labov Mechanical, Inc. v. East Cost Power, L.L.C., 377 N.J.Super. 240 (App. Div. 2005) and Craft v. Stevenson Lumber Yard, Inc., 179 N.J. 56 (2004).

It is uncertain what the fate of the aforesaid proposed legislative revisions will be in the coming months. However, it is interesting to see how a handful of judicial rulings on the Construction Lien Law have sparked debate and provided the basis potentially for some decisive legislative action in this area of law.

On May 2, 2008, the Appellate Division in Milford Mill 128, LLC v. Borough of Milford, et al. evaluated, among other issues, the validity of a redevelopment plan that required the municipal governing body to review of all proposed redevelopment projects for consistency with the redevelopment plan and any relevant redeveloper agreement as a prerequisite to the filing of an application for development with the local planning board - in this case a joint board - and prohibited the joint board from granting any variances from the plan requiring, instead, that any such deviations be approved by the governing body by way of amendment to the redevelopment plan. Ultimately, the Court upheld the redevelopment plan, but was careful to limit its ruling strictly to the circumstances presented.

In this matter, the plaintiff had sought consistency review for a redevelopment project within a redevelopment zone that contained uses not permitted in the redevelopment plan or by the underlying zoning district regulations for the subject property and proposed an intensity of development well in excess of permitted densities. When the municipal governing body failed to conduct a review of the plaintiff’s redevelopment proposal for consistency with the redevelopment plan in a timely manner, the plaintiff proceeded to file an application for variances directly with the joint board. However, this application was deemed incomplete due to the lack of the aforesaid consistency review. The plaintiff then brought suit against the municipal governing body and the joint board alleging, among other things, that the redevelopment plan was arbitrary, capricious and unreasonable and that the joint board unduly delayed its review of the application for variances and, thereby, should have been approved.

Although the Appellate Division determined that the plaintiff’s challenge to the redevelopment plan was barred by the 45-day appeal period provided by the Rules of Court, the Appellate Division addressed the plaintiff’s substantive challenge to the review procedures contained in the redevelopment plan and rejected it. According to the Court, nothing in the Local Redevelopment and Housing Law, N.J.S.A. 40A:12A-1, et seq. (“LRHL”), the governing statute, “foreclose[s] a redevelopment plan from specifying, as here, that an applicant must present its proposal initially to the governing body for a determination of consistency.” Moreover, “[i]t is entirely sensible for the municipal governing body, rather than the municipal land use board or boards, to conduct an initial review of a developer’s proposal to assure that it does not amount, in effect, to a de facto repeal of, or amendment to, the redevelopment plan.”

The Appellate Division also upheld the provision in the municipality’s redevelopment plan that restricted the joint board’s review of variance applications as applied to the instant circumstances where “the massive scope of plaintiff’s proposal” was in effect an attempt “to rezone the entire redevelopment area.” However, the Court noted that had plaintiff sought approval of “a ‘minor exception’ to the requirements of the Redevelopment Plan, as we countenanced in Weeden [v. City Council of Trenton, 391 N.J.Super. 214 certif. denied 192 N.J. 73 (2007),] it might not have permitted the governing body to foreclose such consideration.

In short, although a victory for the municipality, the Appellate Division’s decision in Milford Mill 128, LLC v. Borough of Milford, et al. should be viewed with caution by local governments that are intent upon restricting redevelopment of designated areas through the use of pre-application review procedures or other development controls. Indeed, the Court made clear in its decision that redevelopment plans will not pass muster if they have the effect of depriving developers or landowners “of the opportunity to make use of the property in an economically productive manner.” The Milford Mill 128 opinion has been approved for publication and is officially reported at 400 N.J.Super. 96 (App. Div. 2008).

On May 30, 2008, the Appellate Division in Monroe Properties, LLC, et al. v. The City of Hoboken, et al. (and the companion case Hoboken Parks Organization, et al. v. The City of Hoboken, et al., which was consolidated with the former for purposes of the opinion) squarely rejected an attempt on the part of a municipality to select and enter into a memorandum of understanding with a private redeveloper prior to designating the study area as an area in need of redevelopment.

According to the Court, a municipality or other redevelopment entity has no inherent authority to enter into a memorandum of understanding for redevelopment but, rather, must abide the statutory procedure set forth in the Local Redevelopment and Housing Law, N.J.S.A. 40A:12A-1, et seq. (“LRHL”). This procedure requires the conduct of a preliminary investigation by the local planning board into whether a given study area is in need of redevelopment, the actual designation of such area by the municipal governing body and the adoption of a redevelopment plan by ordinance. “Once an area is determined to be a redevelopment area and a redevelopment plan is adopted, then a municipality may exercise redevelopment functions[,]” which includes, among other things, entering into contracts with redevelopers “for the planning, replanning, construction, or undertaking of any project or redevelopment work.” N.J.S.A. 40A:12A-8f.

Although the Monroe Properties decision has not yet been approved for publication, and therefore has no precedential value, it is well reasoned and firmly grounded in the statutory text of the LRHL. As such, municipalities or developers who have entered into (or are considering entering into) a memorandum of understanding or other pre-redevelopment agreement would be well advised to reevaluate their legal strategy.

On April 9, 2008, the Appellate Division of the Superior Court of New Jersey clarified the issue and held that Chapter 91's appeal-preclusion provision solely applies to income-producing properties. H.J. Bailey Company v. Neptune Township, 399 N.J. Super. 381 (App. Div. 2008). In this case, the tax assessor of Neptune sent the property owner a Chapter 91 request. The property owner failed to respond to the request within the statutory 45 day time period. When the property owner filed a tax appeal, the tax assessor moved to dismiss the appeal based upon the property owner’s failure to reply to the Chapter 91 request, relying principally upon Southland Corp. v. Dover Tp., 21 N.J.Tax 573 (Tax Ct. 2004) (discussed in NJ Law Journal Article). The property owner opposed the motion arguing that the property was owner-occupied and, under the applicable law, it had no obligation to respond to the Chapter 91 request. The Tax Court sided with the property owner and the Appellate Division affirmed holding that the appeal-preclusion provision of Chapter 91 does not apply to non-income producing property.

It is now clear that under New Jersey law, a owner of non-income producing properties is permitted to file a tax appeal even if it does not respond to the Chapter 91 request. Property owners must be aware of this decision since many assessors will seek to knock out appeals based upon a property owner’s failure to respond to a Chapter 91 Request, even if the property is owner-occupied.

It is important to note that this decision is limited to non-income producing properties. If a property owner receives any type of income from any source, it risks being found to be a “income producing property.” This is often problematic when an owner forms a separate company to hold title to a property, and enters into a lease with another company he or she owns. This will be found to be an income producing property. Often times it is beneficial to respond to a Chapter 91 request even if you are an owner-occupied property to avoid the potential of a tax court judge finding some type of income attributable to the property.

The seminar will be held at Thomas Edison State College, tomorrow Thursday May 22, 2008 at 8:30 AM. You can access additional information regarding the seminar and other information provided by the New Jersey Redevelopment Authority here.

In Greenridge Estates, a developer filed an application for preliminary major subdivision approval with the local planning board and, two days later, the municipal governing body adopted an ordinance requiring certain disclosures by applicants for land use approvals. For example, the said ordinance provided that an applicant must “[d]isclose all political donations made by the applicant, and any professionals of the applicant, within the past two (2) years, and any business relationship of the applicant or any of the applicant’s professionals with a board member, and list all consultants, facilitators or other professionals used in connection with the pending application.” All such disclosures “shall be a required checklist item for any land development application requiring a variance, waiver or exception,” and any “knowing failure” on the part of an applicant to comply with this mandate “shall be punishable by a two thousand dollar[-f]ine and/or remanding of the application to the board for reconsideration.”

When the planning board had deemed the developer’s application incomplete for failing to make the aforesaid disclosures, the developer filed suit against the municipality. In evaluating the merits of the developer’s challenge, the trial court described the controversy as impinging upon the developer’s constitutionally protected right to freedom of association and right to privacy and invalidated the Monroe Township ordinance on both grounds. The trial court based this ruling principally on the lack of a rational connection between the disclosures required by the subject ordinance and the stated purpose of the ordinance, that being the elimination of appearances of impropriety, and due to its being both over-inclusive and under-inclusive. In this regard, the trial court opined that “[t]here cannot be an appearance of favorable treatment due to political contributions since none of the members of the Zoning Board of Adjustment are elected, and only two of the nine Planning Board members may be elected officials.” In addition, “the Ordinance cannot be upheld because it is overly-broad[,]” since it requires the disclosure of all political contributions irrespective of the amount or the person to whom they were made requiring, hypothetically, “the disclosure of a $10 political contribution made by an applicant to the governor of Hawaii[.]” By the same token, “the Ordinance is under-inclusive[,] . . . because it does not apply to objectors to an application.”

In addition to constitutional infirmities, the trial court struck the “remand remedy” in the ordinance due to the lack of legislative authority in the MLUL to enact such provisions and “without such authority in the MLUL, the governing body cannot confer upon itself or anyone else the authority to remand an application for reconsideration once rights have vested.”

In the face of mounting regulations at every level of government, the Greenridge Estates decision is a breath of fresh air for beleaguered landowners and developers in Monroe Township. Although not precedential, the Greenridge Estates decision is well-reasoned and could serve as a springboard for positive rulings in other cases and the eventual elimination of local disclosure laws in the land use application process.

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 the fountain was not attached to the land and, therefore, it was not within the historic site designation. 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 subject ordinance is unconstitutional, as applied, because it effects a taking of 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.”  Under these circumstances, which neither establish a physical taking nor deprive the property owner of all economic or beneficial use of the fountain, there is no governmental taking.

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 permits had been issued 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.

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.

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.” 

Recently, in an unpublished decision, the Superior Court of New Jersey in James Gamble v. David Connolly and Connolly Properties, Inc., DC-6838-07 held that a landlord’s lease was an adhesion contract that did not create a year tenancy, but rather only a holdover tenancy. Due to the landlord’s failure to return the full security deposit for a prior lease, the tenant was awarded double the security deposit owed, plus full costs of court and reasonable attorney fees.

This decision is extremely important for landlords and their attorneys because failure to comply with the security deposit section of the Anti Eviction Act (N.J.S.A. 46:8-21-1) can lead to the landlord having to return double the security deposit and paying the tenant’s attorneys fees. Further, this decision is extremely instructive as to pit falls that landlords can incur by NOT having a tenant sign a lease agreement. Failure to do so can lead a tenant to be considered a holdover tenant. 

BACKGROUND AND HOLDING OF CASE
The tenant had an apartment in Essex County owned by the landlord since October 2002. Although the tenant had a prior lease with the previous owner, he never had a written lease agreement with the new landlord. Although the landlord had forwarded a Notice to Quit, as well as a Lease Renewal in three consecutive years from 2004 to 2006, at no point did the landlord ever have the tenant execute a new lease. The landlord, in his Notice to Quit, clearly provided what the security was, the monthly rent as well as the term. The tenant, however, stayed in the residence and continued to pay rent, which the landlord accepted. On July 1, 2006, the tenant sent the landlord a letter advising that he was in compliance with the Notice to Quit. Further, the tenant wanted the return of his prior security deposit, which the landlord applied without consent.

The Court considered the pivotal question of whether the tenant was bound by a renewal lease of one year through the Notice of Renewal in the Landlord’s letters to him, or whether the tenant was considered a holdover tenant, which resulted in a thirty day month to lease pursuant to N.J.S.A. 46:8-10. 

In determining the case, the Court held that the landlord’s contract was an adhesion contract because it provided a “take it or leave it” position. The Court noted that the standard for determining adhesion contracts in New Jersey was four part test. (1) the subject matter of the contract, (2) the parties relative bargaining positions, (3) the degree of economic compulsion motivating the “adhering” party, and (4) the public interest affected by the contract. 

Although the Court went through a exhausted citation to prior cases discussing adhesion contracts, it failed to provide any distinguishing factors other than a cursory note that the tenant was in an unfavorable position with the “dominant” landlord. Further, the Court noted that in New Jersey that the purpose of the Anti Eviction Act is to protect residence from the effect of arbitrary or capricious actions of landlords in extending a lease unilaterally. However, the tenant readily seemed to accept the landlord’s renewals.

Practical Implications for Landlords and Counsel
This decision bodes very poorly for landlords if they allow tenants to continue on a month to month basis. In New Jersey, it is virtually impossible to remove a tenant if they continue on a month to month basis. Although the landlord can increase rent, pursuant to certain New Jersey statutes, if they accept the tenant on the month to month tenancy, they have created a holdover tenant. 

Further, the Court’s failure in this decision to expressly provide an explanation for how the contract is an adhesion contract other than the fact that the tenant was not the contract’s maker, although the tenant seemed to accept the terms, is questionable at best. In the Court’s opinion, just because the landlord is the maker of the contract, the contract is automatically an adhesion contract. The question is when would a landlord of a residential property not be in such a position to provide the form of the contract? (Answer: Never).   Further, the landlord is the one paying the real estate taxes, maintaining the property and also providing other essentials to the tenant. Why should the landlord be subject to such onerous provisions when the tenant has willingly acted to accept the tenantcy?

Questions Every Landlord Should Note Before Apply a Security Deposit
The following are some questions, that you should ask before applying a security deposit. Failure to do so could result in an action like the Gamble case and cost you 2Xs the security deposit and the tenant’s reasonable attorneys fees. 

Do You Have Written Lease? It is extremely important, if not essential, to have a written lease agreement between you and your tenant. Having a tenant review and execute the lease provides a written agreement that can be enforceable by the landlord. Failure to do so can create a month to month tenancy which is virtually impossible if the tenant continues to pay to evict the tenant.

What is the Tenant’s Status? Is your tenant a leasehold tenant or a month to month tenancy. Just because you send a confirming letter advising what he is does not mean that the tenant has accepted that.

Do You Have an Assignment From a Prior Landlord? When purchasing property from a prior landlord, you may want to “step into their shoes” for certain issues. Although that there are many liabilities that you could incur and want to avoid, there are certain specific assignments from the prior owner that could be beneficial. For example, taking an assignment for the leasehold, will put you into the shoes of the landlord with their prior lease. Failure to do this, leaves a landlord in a position such as this case whether they had no contract with the tenant but only a thirty day lease.

Have All Notice Provisions Been Complied? Before you send out a notice to the tenant, have you complied with the notice provisions of the lease? Your attorney should advise the specific notice provisions that need to be followed under the lease, as well as under the New Jersey Anti Eviction Act and other statutes if applicable.

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.

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.

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.

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.

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.

Mr. Forshner comments on the proposed expansion of the South Brunswick Family YMCA and what the added support for the additions could mean for the South Brunswick community.

You can read the full article here.