This Is The Landlord-Tenant Equivalent Of Accusing Your Spouse Of Stealing The Covers

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

Cold (pd)And, incidentally, it ends the same way. (At least the same way it always ends for me.) No. You are wrong. Your spouse did not steal the covers.

In Loiacano v. Salemne, defendants stopped paying rent to their landlord. The landlord sued to evict them for non-payment. Defendants responded by requesting a "Marini hearing." In New Jersey, tenants are almost never allowed to withhold rent from their landlords. But, in Marini v. Ireland, the New Jersey Supreme Court recognized an exception to this rule. If a landlord refuses to make repairs that are necessary to keep the property habitable, then the tenant can make the repairs and withhold an amount from their monthly rent that is equal to the costs of the repairs. If a tenant does this and is then sued for non-payment, the court conducts a "Marini hearing" to determine whether the tenant was justified in doing so. 

What made Loiacano unique was that defendants were not claiming that the landlord did anything wrong or failed to make any repairs. Instead, they claimed that they withheld "two months' rent on the basis that their downstairs neighbor was manipulating the heat in their apartment." It wasn't even the downstairs neighbor herself who was allegedly doing this. Instead, it was her boyfriend, "identified only as 'Ray.'" Defendants, who had a "contentious relationship" with Ray, alleged that he would "manipulate[] the heat [in the first-floor apartment] so that there would be no heat in defendants' second floor apartment." 

Continue reading “This Is The Landlord-Tenant Equivalent Of Accusing Your Spouse Of Stealing The Covers”

“[Saint] Cecelia You’re Breaking My Heart” (By Not Paying My Commission)

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

House + money (pd)If you are a realtor and you enter into an exclusive agreement to find tenants for your client's property, but then your client enters into a rent-free lease with a tenant, do you still get a commission? The answer, at least according to the Appellate Division in Century 21-Main Street Realty, Inc. v. St. Cecelia's Church, is no. 

In Century 21, plaintiff entered into an exclusive listing agreement with defendant, a church, under which  plaintiff would list an "inactive school building," which the church owned, for either sale or lease. Under the agreement, plaintiff was entitled to a commission equal to 6% of the sales price, if the property was sold, or one month of rent, if the property was leased. During the term of the agreement, the church entered into a lease with the local school board, which allowed the board to use the building "rent free" for the first 26 months. It also contained two, six-month "hold over terms." If the board continued to occupy the building during either or both of these terms, it would have to pay the church $900,000 per term. The lease also required the board to repave the parking lot, and allowed, but did not require, the board to make any repairs or renovations to the building that it saw fit, at the board's expense.

Two months after the church signed the lease, plaintiff demanded a commission based on the "asserted costs" of the repairs the board intended to make to the building. It asserted that it was entitled to a commission equal to "two month's rent due based on rental, repair evaluation." Apparently, plaintiff assumed the repairs would costs $1.5 million, divided that amount by the 26-month term of the lease to come up with the per-month cost of the repairs, and then claimed that it was entitled to two month's payment as its commission. The church refused to pay any commission and plaintiff sued. 

Continue reading ““[Saint] Cecelia You’re Breaking My Heart” (By Not Paying My Commission)”

When Is Possession Not Really Possession? (And By “Possession” I Mean In The “Mortgagee In Possession” Sense Of The Word)

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

Lenders are often faced with a dilemma when dealing with property that is in foreclosure and has been abandoned by the borrower. A lender must, under New Jersey law, maintain the property "to such standard or specification as may be required by state law or municipal ordinance." Also, the lender has an obvious interest in protecting the value of its collateral. But the lender does not want to take "possession" of the property and be deemed a "mortgagee in possession," because that would impose upon the lender the duty of a "provident owner," which includes the duty to manage and preserve the property, and which subjects the lender to liability for damages to the property and damages arising out of torts that occur on the property. Unfortunately, the point at which a lender takes "possession" of property is not entirely clear. I have written about this before, and the Appellate Division's recent opinion in Woodlands Community Association, Inc. v. Mitchell provides some additional guidance, which should be helpful to lenders.

In Woodlands, defendant was the assignee of a note and mortgage related to a unit in plaintiff's condominium development. The unit owner defaulted on the loan and vacated the unit. At the time, the unit owner was not only delinquent on his loan payments, but also owed "substantial sums" to the association for "unpaid monthly fees and other condominium assessments." After the unit owner vacated the unit, defendant changed the locks and winterized the property. (As the Appellate Division noted, "[w]interizing entails draining the  pipes, turning off the water and setting the thermostat for heat to protect the pipes.") After the unite owner vacated the unit, plaintiff sued him to recover the delinquent fees. It later amended its complaint to include the lender, "alleging that [[the lender] was responsible for the association fees as it was in possession of the property."

Both parties moved for summary judgment. The trial court granted plaintiff's motion, holding that defendant was a mortgagee in possession and therefore was liable for the maintenance fees. On the key of issue of what it meant to be in "possession" of the unit, the trial court held as follows: "[D]efendant held the keys, and no one else [could] gain possession of the property without [defendant's] consent. This constitutes exclusive control, which indicates the status of mortgagee in possession." Defendant appealed. 

Continue reading “When Is Possession Not Really Possession? (And By “Possession” I Mean In The “Mortgagee In Possession” Sense Of The Word)”

Complex Commercial Tenancies Often Test The Limits Of The Summary Eviction Process

Rental Agreement (PD)
I recently co-authored an article, entitled "Commercial Tenancies, Complexities, And The Limits Of the Summary Eviction Process," that discusses, as the title suggests, situations where commercial landlord-tenant matters may be too complicated for the normal, summary eviction process in New Jersey courts. Here are the first few paragraphs:

New Jersey tenants who don't pay, including commercial tenants, may be swiftly dispossessed of their leasehold pursuant to the Summary Dispossess Statute, N.J.S.A.  2A:18-51 to -61 (the "Statute"). The Statute gives landlords the right to seek the removal of tenants who do not pay rent, or who otherwise violate the terms of the lease.  The Statute establishes a summary eviction process, which as its name implies, is "summary" in nature and, among other things, does not provide for formal discovery and typically does not involve issues other than possession.  From the filing of the summary dispossession complaint it is not uncommon for a tenant to be dispossessed within 90 days or less.

However, what happens when a tenant is not paying rent for a valid reason or due to a legitimate dispute with a  landlord? Can that tenant also be summarily dispossessed? Recognizing the limits of a process that by design is "summary" in nature, New Jersey Courts have answered that question "No." The mechanism to stave off the summary dispossession is the motion to transfer to the Law Division, which remedy is exercisable by a court, at its discretion, if the issues are of "sufficient importance" that proceeding in a summary fashion would not do justice. N.J.S.A.  2A:18-60. Typically, matters of "sufficient importance" involve complex issues and/or the need for discovery.

Please check out the full article here

Appellate Division to Foreclosing Lenders: “Do Less” Because If You Do More You Might Make Yourself Liable For Damages

 by:  Peter J. Gallagher (@pjsgallagher)

 

There is a scene in the movie "Forgetting Sarah Marshall" where the main character goes to a surf instructor to teach him how to surf. The lesson is not that helpful because, among other things, the instructor gives the main character advice that is impossible to follow, like: "Don't do anything. Don't try to surf. Don't do it. The less you do the more you do." And, then later: "try less" and "do less."

I was reminded of this decision when I read the Appellate Division's recent opinion in McRoy v. Eskander. In that case, the Appellate Division held that a lender was not a mortgagee in possession and therefore could not be liable for injuries sustained by someone who slipped and fell on the sidewalk in front of the property. The reason the lender could not be deemed a mortgagee in possession was because it had done almost nothing to maintain the property in the 18 months after it obtained a final judgment of foreclosure.

In McRoy, plaintiff slipped and fell on snow and ice in front of a four-unit apartment building that was owned by Defendant Eskander. At the time of plaintiff's fall, however, the building had been vacant for approximately 18 months. Eskander had defaulted on his loan with Bank of America ("BofA"), which led BofA to foreclose on its mortgage on the property. BofA obtained final judgment of foreclosure but had not proceeded to a sheriff's sale at the time of plaintiff's fall. Once final judgment of foreclosure was entered, Eskander stopped maintaining the property. Except for performing yard work once, BofA did not maintain the property either. It did periodically inspect the property to ensure it was vacant and, to protect its collateral, it paid the real estate taxes and a water bill.

 

 

Continue reading “Appellate Division to Foreclosing Lenders: “Do Less” Because If You Do More You Might Make Yourself Liable For Damages”