On October 16, 2014, the Appellate Division issued a case for publication concerning a tenant’s right to transfer a non-payment eviction matter to the law division. The Appellate Division in Bejoray, Inc. v. Academy House Child Development Center, A-5161-12T3 held that a tenant’s request to transfer an eviction matter, when it asserted claims for negligent misrepresentation and breach of contract for damages and rescission of the lease, should have been granted. This case is very important for commercial landlords in New Jersey as it raises a number of issues that should be addressed prior to proceeding with an eviction action.
In Bejoray, landlord and tenant had entered into a five-year commercial lease. The monthly rent was $15,000 at commencement, but increased 3% every year. The lease provided an “as is” paragraph that acknowledged that the tenant inspected and examined the premises prior to executing the lease. Further, the lease’s terms included the retail space comprised “approximately” 3,800 ft.² on the ground and approximately 7,400 ft.² below ground providing a total square footage of about 11,200 ft.²
In January 2013, tenant discovered plans that revealed that the square footage was approximately 9,600 ft.² about a 15% difference in the amount represented in the lease. After attempting to contact landlord’s attorney with no response, tenant’s attorney advised the tenant would only pay $13,000 of the $15,000 in rent due and deposit the difference into court. Approximately a week later, landlord advised that it had retained an architect to determine the square footage was actually 12,100 ft.², about 900 ft.² more than indicated in the lease.
In March 2013, landlord filed a complaint seeking possession based on non-payment for February and March. Tenant filed a motion to transfer the action to the Law Division with a verified answer and counterclaims, alleging breach of lease and negligent misrepresentation, seeking compensatory damages of about $29,000, punitive damages, counsel fees, as well as rescission of the lease.
At trial, the Court denied the motion to transfer the matter. The Court concluded that tenant’s concerns could be resolved by examining the lease and the “as is” provision. A judgment of possession was then entered in favor of landlord.
On appeal, tenant claimed that the trial Court erred to transfer the matter because the issues were complex and not amenable to adjudication in a summary proceeding. The Appellate Division noted nine (9) factors as guidelines to be used when determining a transfer to law division, citing Morocco v. Felton, 112 NJ Super. 226, 235 (Law Div. 1970). Among the factors are the complexity of issues presented and whether discovery or other pretrial procedures are necessary or appropriate.
Here, the Appellate Division held that parties each retained an expert concerning the issue of square footage and each expert held significantly different views. Further, the Appellate Division held that tenant made affirmative claims for damages, as well as rescission of the contract. The Appellate Court held that a claim for rescission was “…more than a defense or avoidance by the tenant”. As such, the Appellate Division vacated the judgment for possession and remanded the matter to the law division.
Interestingly, nowhere in the opinion does it provide whether tenant actually posted the difference in the funds into court. Although the opinion references that tenant advised landlord prior to the eviction action that it would post the funds into court, nowhere in the opinion does it provide that the tenant actually did that. The trial judge in this matter could have simply required the tenant post the difference into court, if it thought that tenant was just making frivolous defenses and either transfer the matter to the law division and/or heard the matter with expert testimony. Additionally, nowhere in the opinion does it provide whether the Court actually heard testimony from the two (2) experts concerning the square footage. Had the court required the tenant post the monies into court and then carry the matter for hearing at the court convenience, the Court could have adjudicated the substance of whether the defenses were in fact correct.
For landlords, this ruling is very important. Prior to going to file on any matter, it is recommended that landlord and their counsel thoroughly understand the defenses being asserted by a tenant and have the appropriate responses ready to present to tenants defenses. For instance, in this matter, questions arise of whether the landlord had its retained expert provide a short expert report and/or whether the landlord’s counsel requested to exclude any net opinion asserted by tenant? Having issues like this addressed in the record is vital to ensuring that such an appeal can be adequately defended. Strategizing with knowledgeable legal counsel on how to properly prepare for a commercial eviction trial and enforce your rights as a commercial landlord is essential to ensuring the best outcome and limiting an appeal.
For more discussion on lease enforcement issues for commercial landlords, Stark & Stark’s Commercial, Retail and Industrial Real Estate Group can help. Contact the group’s chair, Shareholder Thomas Onder, by calling (609) 219-7458 or emailing tonder@Stark-Stark.com. Mr. Onder litigates commercial eviction and enforcement matters regularly in the tri-state area. He writes regularly on commercial real estate issues and is a member of ICSC and its NextGEN Committee for NJ/PA and DE.