Posts Tagged ‘landlord’
Judge Mahlon Fast, J.S.C., a recognized expert in Landlord/Tenant law in New Jersey, recently issued an opinion in Gardens at Maplewood v. Fowlin, stating that a tenant whose apartment was damaged in the “Sandy Superstorm” was not entitled to a rent abatement for the period of time the dwelling is rendered less than habitable as a result of the disaster.
In an unpublished decision, issued on November 7, 2011, by New Jersey’s Appellate Division, the importance of drafting a notice to quit in accordance with the law is highlighted. In Sanguiliano v. Walker, 27-2-4205 App. Div., Plaintiff’s summary dispossession action was based on her alleged disorderly conduct and violations of the landlord’s rules and regulations. The dispossession action was governed by the requirements of the Anti-Eviction Act. According to the Appellate Division, the “notice to quit” did not identify any “continued” disorderly conduct or violation of the landlord’s rules and regulations committed by defendant after her initial receipt of the “notice to cease.” Because the notice to quit was defective, the Appellate Division ruled the trial court should have granted defendant’s motion to vacate the default judgment for possession and dismissed plaintiff’s complaint. It reversed the judgment for possession.
I previously wrote in this blog about the distraint process available to commercial landlords in New Jersey – a sometimes cumbersome process the purpose of which is to put into the landlord’s pocket at least some of the back rent due from a defaulting tenant (see The Distress of Distraint). In addition to the distraint statutes, there are other means available by way of statutes and contract provisions to protect a commercial landlord’s entitlement to unpaid back rent.
On July 7, 2011, the New Jersey Appellate Division affirmed a trial court ruling that where a lease requires a tenant to operate a “quality jewelry store” in a “first class and reputable manner,” the landlord has an implied obligation to maintain the shopping center in a good condition.
In Wallington Plaza LLC v. Taher, the trial court concluded that while the lease obligated tenant to sell only quality jewelry, it also imposed a responsibility on the landlord to keep the premises in a reasonable condition as a tenant would expect if he had to operate a first-class business to make prospective customers welcome. According to the tenant, during the years immediately preceding tenant vacating the premises, the shopping center’s parking lot fell into disrepair. More importantly, many key tenants closed and vacated the shopping center. The tenant, faced with considerably reduced traffic and an unattractive setting, vacated his store. The landlord sued for 6 months rent.
The New Jersey Supreme Court Requires Municipality to Negotiate With Commercial Tenant Who is Sole Condemnee in Eminent Domain Proceeding
On Wednesday of last week, St. Patrick’s Day, the luck of the Irish was with a commercial tenant who happened to be a defendant in a condemnation action in which the owner’s interest in the property was not being condemned. In Town of Kearny v. Discount City, the New Jersey Supreme Court dismissed a condemnation action filed by the Town of Kearny, because its designated developer, who was also the landlord, failed to engage in bona fide negotiations with the only remaining holdout tenant, even though the lease between the landlord and tenant contained a standard condemnation clause in which it bargained away its right to receive compensation in a taking. Under such circumstances, the Court ruled that the condemning authority has an obligation to engage in bona fide negotiations with the tenant in order to arrive at “just compensation” for the taking of the tenant’s leasehold interest in the property. In doing so, a condemning authority must provide the tenant with appraisals or an explanation of the value placed on the tenant’s interest. The Court’s pronouncement was reported in the Star Ledger, ”N.J. Supreme Court gives commercial leaseholders more clout in negotiating eminent domain cases.”
A copy of the opinion may be found here.
Guest Blogger: Andrew Linden
As we discussed in our prior entry, How a Commercial Landlord Can Avoid Spoiling a Potentially Good Damage Claim, a landlord/owner has a duty to preserve evidence of alleged damages to its premises in order to avoid a claim of spoliation. Shortly after we posted that entry, the Supreme Court of New Jersey addressed the issue of spoliation in a dispute between a building owner and its contractors. Robertet Flavors, Inc. v. TriForm Constr., Inc., 203 N.J. 252 (2010), described below, provides a real-world example of how a potentially good damage claim can quickly go bad as a result of spoliation.
In good times and in not so good times, a well drafted and negotiated commercial lease will contain various exit strategies available to the landlord and tenant. These strategies will come in handy in situations where a tenant’s business is booming causing it to grow out of its current space (good times) or where the space is too big or expensive for the tenant to continue because business has dropped off considerably (not so good times).
Exit strategies can include the following:
- Contraction rights
- Right to go dark
- Right to expand
Below is a very brief overview of how each of the foregoing strategies operates.
When entering into a commercial lease, one of the more important terms negotiated between the parties pertains to the manner in which the landlord will recoup its operating expenses. After all, commercial landlords are in business to make money. Without addressing its operating expenses, a landlord’s return on investment would be whittled away to nothing. While the more sophisticated players in the industry are thoroughly familiar with the various techniques available, many tenants – and some landlords – are not so well informed. What follows is a brief primer on some of the various methods utilized to protect the landlord’s return on its investment.
The most common form of commercial lease is the triple net lease. In a triple net lease, the tenant is responsible for its proportionate share (i.e. tenant’s square footage divided by the total building square footage) of property taxes, insurance, common area maintenance and utilities. These charges, commonly knows as “CAM, tax, and insurance” expenses, are in addition to the tenant’s base rent and any other expenses associated with the tenant’s occupancy (i.e. utilities, garbage collection, cleaning services and the like). Many leases will estimate these charges for a particular year, and then reconcile the amounts with the actual charges incurred for the year. If the tenant paid too much in a particular year, the tenant will get a credit toward rent. If the tenant paid too little, it will receive an invoice from the landlord for the difference – usually payable as additional rent.
Another common form of commercial lease is what is known as a “base year lease.” A base year lease is often employed in office leases where the landlord is cognizant of his return on investment in the building taking into account current income and expenses. The “base year” is typically the calendar year in which a tenancy commences. Unlike the triple net lease, the tenant in a base year lease reimburses the landlord for its share of the landlord’s operating expenses only to the extent they exceed the amount of those expenses for the base year. While the concept of a base year is relatively simple to understand, it is critical for any tenant entering into a base year lease to gain an understanding of the history of the landlord’s operating expenses so that it may plan its budget accordingly. Also, a tenant should consider negotiating that the base year be projected a period of time in advance in order to protect itself from having to experience a rent increase shortly after commencing its term in those instances where the term commences relatively shortly before the base year ends.
Another type of lease used most often in multi-tenant and single tenant office buildings, as well as industrial and retail properties is the “gross lease.” In the gross lease, the landlord pays for taxes, insurance, and maintenance. The landlord collects a fixed base rent and pays the operating expenses out of them. Many of these types of leases will, however, contain an “escalation clause”, which typically requires the tenant to pay increases in operating expenses and tax increases over a base year figure or expense stop.
It is important that a tenant shopping for space have a basic understanding of how operating expenses are to be handled in their lease so as to avoid any unpleasant surprises down the road with regard to rent increases.
Commercial landlords are occasionally confronted with a situation where one of their tenants is not abiding by the lease. Some commercial landlords feel that they can simply lock the tenant out of its space as result of any breach under the lease. This is not the case under New Jersey law. Any landlord who resorts to self help risks being sued by a tenant for any number of causes of action, including, but not limited to, wrongful eviction, trespass, and breach of contract.
Many landlords and tenants, when negotiating a commercial lease, fail to appreciate the implications of incorporating certain “standard” provisions into the lease. Many unfortunately take comfort in boilerplate language that either of the parties (usually the landlord) used in prior leases. While such an approach may make for an uncomplicated lease drafting process (assuming the tenant is of the same mind), it could prove ultimately to be a rather expensive approach to managing the leasing process once the term ends and disputes arise over the condition in which the tenant has left the premises.
One very good example can be found in the usual wear and tear provision contained in most off-the-shelf commercial leases. These clauses usually provide that the tenant will return the premises in good repair, excepting normal wear and tear. While that is all well and good, the language does not come close to articulating either party’s respective rights or responsibilities as they relate to the wear and tear of the leased premises. Because of the lack of detail contained in many “wear and tear” clauses, the landlord and tenant may very well end up investing a lot of time and money to address issues that could have been more efficiently (i.e. cheaply) addressed at the lease negotiation stage.