Tag: covenant

Good News: That Tenant You May Not Have Known You Had Is Not A Cloud On Title

by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

AuctionIf you have ever been to a sheriff's sale in New Jersey then you are familiar with the litany of announcements that precede each sale — "This sale is made subject to easements of record," "The property is being sold on an 'as is' basis," etc. Sellers make these announcements because, under New Jersey law, they are required to disclose "any substantial defect in or cloud upon the title of the real estate sold, which would render such title unmarketable." If a seller intentionally or negligently fails to disclose any substantial defects or clouds on title, then a court may vacate the winning bid and return the winning bidder's deposit. For example, if a seller fails to reveal the amount of unpaid taxes on a property before a sheriff's sale, the sale can be vacated if the winning bidder discovers the amount and is unwilling to pay it.

Usually included in these announcements is something making clear that the property is being sold subject to the rights of tenants and occupants, if any. But what happens when, after the sale, the winning bidder visits the property and discovers a tenant, or at least someone claiming to be a tenant, occupying the property? Does that entitle the winning bidder to vacate the sale and get its deposit back?

This is exactly what happened in PHH Mortgage Corporation v. Alleyne. In that case, the winning bidder at a sheriff's sale moved to set aside its successful bid and compel a refund of the amount it tendered to the sheriff at the sale (winning bidders are generally required to put 20% of the bid price down at the sale and pay the balance within 30 days). The winning bidder argued that, after the sheriff's sale, it sent a representative to the property and he discovered an individual who "refused to give his name but asserted rights to possession of the property as a tenant." The winning bidder argued that (1) this tenancy was a cloud on title, therefore it should have been disclosed at the sale, and (2) the seller has an independent duty to inspect for tenants on the property before the sale. The trial court rejected these arguments and the Appellate Division affirmed.

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Landlords Have Duty To Maintain Premises Attractive To Tenants’ Customers

by: Katharine A. Muscalino

Although a landlord is generally required to maintain a leasehold in good condition, the Appellate Division has now clarified that the leasehold’s condition must make the premises attractive to tenants’ customers and assist in the tenants’ “in selling their wares and goods.”  In Wallington Plaza, LLC v. Taher, decided on July 7, 2011, the tenant vacated the premises upon one months’ notice, with six months remaining in the lease term.  The landlord demanded judgment in the amount of six months’ rent.  However, the tenant claimed that because the landlord had breached an implied covenant to maintain the shopping center in a good condition attractive to tenants’ customers, tenant was only obligated to pay rent for the time it occupied the premises.  Finding that the parking lot of the shopping center was run-down and that many of the other shopping center stores were vacant, the court agreed that landlord had breached this obligation.  The court held that tenant was responsible for paying two months’ rent, inclusive of its last month of occupancy following its notice, because the lease required two months’ notice of termination of the lease.