Hanlon Niemann Blog | A Freehold, New Jersey Law Firm

By Christopher J. Hanlon, Esq. an attorney protecting the rights of the landlord

Don’t assume knowledge of a violation of a lease provision will allow you to avoid eviction.  A recent NJ decision involving a commercial landlord and tenant is significant, in part, because it originates from the Appellate Division and therefore it is binding statewide.   The Court considered a judgment entered by the lower court for possession in favor of the landlord.   The lease specifically prohibited the tenant from assigning or subletting any portion of its space and the adjacent exterior parking space without the written consent of the landlord.   The landlord alleged that the tenant subleased part of its space to an unrelated third party business without its knowledge or consent.   The tenant alleged that the landlord knew that the third party was an unrelated business co-occupying the space since the beginning of the lease and therefore, was chargeable with knowledge of the lease and thereby waived the enforceability of the “no-subleasing or assignment” provision in the lease.  The Court ruled (based on the facts of the case), that the landlord was entitled to evict the tenant for a material breach of the lease by failing to get his permission to sublease or assign this space.  

This case stands for the proposition that if a lease requires that the tenant or landlord give notice or perform an affirmative obligation in writing, each side better be able to prove that written notice was given to other.

For more information on this decision, contact Christopher Hanlon toll free at (888) 800-7442 or e-mail him at chanlon@hnlawfirm.com.

By Christopher J. Hanlon, Esq. an experienced attorney for Landlords.

Commercial Landlords: Four Important Questions to Ask When a Tenant Files for Bankruptcy

With the downturn in the residential and commercial real estate market, a number of commercial tenants are experiencing financial difficulties. In turn, this can lead to problems for commercial landlords, most importantly, the tenant staying current with lease payments. This may then lead to the tenant filing for bankruptcy protection. If your commercial tenant files for bankruptcy, it is wise to have a strategy in place to not only minimize the time of non-payment, but also maximize the ability to receive rents and damages allowed under the Bankruptcy Code. 

Following are four (4) questions for a commercial landlord to consider whenever a commercial tenant files for bankruptcy protection:
1.    Have You Filed a Proof of Claim(s)?  As soon as the tenant/debtor files for bankruptcy protection, commercial landlords should ensure their rights to payment(s) by filing appropriate proofs of claim.  It is advisable to review with your attorney the current account history and lease to ensure all fees are being accounted. Landlords may be able to file up to three (3) different types of claims:
    a.    Pre-petition Claim. Section 502 of the Bankruptcy Code provides that creditors are permitted to file a proof of claim for all pre-petition charges and assessments owed.  If a tenant files for bankruptcy, the landlord is permitted to file a proof of claim for all fees and charges incurred prior to the filing date;
    b.    Post-Petition Administrative Claim.  Section 503(b)(1) of the Bankruptcy Code provides a creditor a priority claim for all “actual, necessary costs and expenses of preserving the estate”.  If the tenant remains in the premises after the bankruptcy and does not reject the lease, the commercial landlord may be allowed payment  ahead of other creditors for amounts incurred during this period; and
     c.    Post-Rejection Damage Claim. Section 503(b)(7) of the Bankruptcy Code provides a commercial landlord the right to be paid for “post bankruptcy rejection” damages. If the tenant rejects the lease, certain damages incurred and the remainder of the lease may be permitted priority before payment of certain claims.
 2.    Is the Debtor/Tenant Assuming or Rejecting the Lease?  Landlords should inquire whether the debtor/tenant intends to assume or reject the lease.  Bankruptcy Code Section 365 provides that tenants are permitted to assume a commercial lease, as long as they cure all post-petition defaults. If they reject the lease, then the landlord may be able to proceed with an eviction action to remove the tenant. However, landlords should know that the Bankruptcy Code permits the debtor 120 days to decide whether to assume or reject the lease, with an additional 90 day extension.  All told, this can leave the landlord sitting around for more than 7 months without payment.  If you’re not being paid, it may be advisable to have the Bankruptcy Court allow you to proceed with an eviction action. 
 

3.    Should you File a Motion for Stay Relief to Proceed with an Eviction?   The debtor/tenant may not advise their intent to assume or reject the lease.  As noted, during this time, the debtor/tenant can use the premises without paying anything.  The landlord is permitted to file a motion for “Relief from the Automatic Stay”.  This Motion, if granted, permits the landlord to resume or commence with a state court eviction action.

4.    What to Do with Items Left by a Tenant?  If the debtor/tenant leaves equipment, inventory or equipment at the premises, can you just throw it away? Does anyone have an interest in the left over items, like the debtor/tenants’ bank?   Can you recover storage fees? When a tenant/debtor files for bankruptcy, these left over items may be part of the bankruptcy estate. Gaining proper approval from the Bankruptcy Court, before disposing of the left over “junk” is essential to limiting liability.  For instance, the left over property may be secured by a bank, financial institution or creditor. You may want to have a UCC Search conducted to ascertain whether any security interest exists.  If security interests are discovered, it is advisable to give notice to those entities, possibly through a motion with the Bankruptcy Court.

These are just a few of the questions a New Jersey landlord should ask when a debtor files for bankruptcy.  By asking these questions at the start of the bankruptcy, landlords can limit the loss or liability; as well ensure their right to payment through the Bankruptcy Code. For more information and assistance contact Christopher J. Hanlon, Esq. toll-free at (888)800-7442 or e-mail him chanlon@hnlawfirm.com.  Act today!

The New Jersey Appellate Division in an unpublished decision, Cesar S. Arredondo v. Nersy Pujols, Docket No. A-5459-05T25459-05T2, ruled that breaches of both of a lease provision and a New Jersey statute for failing to obtain municipal permits before commencing construction work were NOT grounds for evicting a commercial tenant.  Although very fact specific to a landlord with apparently “unclean hands”, this decision highlights pitfalls that can beset a landlord in the New Jersey eviction process.

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. 

Concerns for Landlords When Instituting Eviction Action Payment Defaults

This unpublished decision raises a number of pitfalls for commercial landlords. In this case, the landlord clearly failed to submit the proper proofs.  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 alleged breach of the lease 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, 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 Christopher J. Hanlon at chanlon@hnlawfirm.com, Phone (732) 863-9900 Ext. 109.

The New Jersey Appellate Division in an unpublished decision, Cesar S. Arredondo v. Nersy Pujols, Docket No. A-5459-05T25459-05T2, ruled that breaches of both of a lease provision and a New Jersey statute for failing to obtain municipal permits before commencing construction work were NOT grounds for evicting a commercial tenant.  Although very fact specific to a landlord with apparently “unclean hands”, this decision highlights pitfalls that can beset a landlord in the New Jersey eviction process.

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. 

Concerns for Landlords When Instituting Eviction Action Payment Defaults

This unpublished decision raises a number of pitfalls for commercial landlords. In this case, the landlord clearly failed to submit the proper proofs.  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 alleged breach of the lease 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, 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 Christopher J. Hanlon at chanlon@hnlawfirm.com.