Recently, in an unpublished decision, the Superior Court of New Jersey in James Gamble v. David Connolly and Connolly Properties, Inc., DC-6838-07 held that a landlord’s lease was an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.