CONSTRUCTION & REAL ESTATE BLOG

In 1561 Irving, LLC v. Francisca Lopez, No. A-1150-10T3, 2012 WL 3115043 (N.J. Super. Ct. App. Div. Aug. 2, 2012), the Appellate Division of the Superior Court of New Jersey was presented with the following question: if a landlord makes renovations to commercial property that it leases, preventing its tenant from conducting business and the tenant stops paying rent, will the tenant still owe the landlord rent for that period?

In that case, defendant Francisca Lopez (defendant) appealed from a judgment by the Superior Court of New Jersey, Law Division, that awarded plaintiff 1561 Irving, LLC (plaintiff) $1155.31 for unpaid rent, late fees and court costs.  The Law Division court also dismissed defendant’s counterclaim.

Defendant signed a commercial lease with plaintiff for a term of just under two years.  As owner of the business that was a party to the contract, defendant personally guaranteed payment of all sums due and owing to plaintiff in accordance with the lease. See id. at 2.  The terms of the lease were as follows:

[defendant] was to pay $500 per month for the first year of the lease and $525 per month for the second year of the lease, together with a late charge of five percent, as additional rent, for each payment that was more than ten days late; 1561 Irving was entitled to reasonable attorney’s fees incurred to enforce the terms of the lease; and if [defendant] remained in possession of the property past the end of the lease term, the monthly rent would be 250% of the last month’s rent under the lease.

Id. at 1.

During the same month that the lease was set to terminate, plaintiff began making renovations to an apartment located above defendant’s store. In response to plaintiff’s allegation that defendant breached the lease agreement by failing to pay the rent, defendant alleged that the renovations caused her to suffer business losses in the amount of ten thousand dollars ($10,000.00) because she was constructively evicted from the premises.

During the bench trial, an employee of the property management company (employee) hired by plaintiff testified that defendant owed twenty-five dollars ($25.00) for rent because its five hundred ($500.00) security deposit was applied to the unpaid rent amount of five hundred and twenty-five dollars ($525.00).  The employee also testified that the renovations only took approximately six (6) weeks to complete and plaintiff only entered defendant’s space three different times to do plumbing work. Ibid.

Although defendant’s investor testified on defendant’s behalf, claiming that defendant was unable to conduct business during the renovations, the Superior Court of New Jersey, Law Division, ultimately decided in favor of the plaintiff.  Defendant was ordered to pay plaintiff the monies that was owed pursuant to the guarantor provision of the lease, and pay five hundred and fifty dollars ($550.00) in back rent, together with late fees.  The Trial Court found that the employee’s version of what happened was the accurate version, but gave defendant a three day credit for the time when the renovations interfered with defendant’s premises.

The Appellate Division found that the Trial Court carefully reviewed the evidence and made detailed findings of fact . . . [and] correctly calculated that 1561 Irving was entitled to a judgment in the amount of $1155.31, [and] correctly determined that [defendant] was personally liable as guarantor. Id. at 2.  Ultimately, the Appellate Court upheld the Trial Court’s findings.

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In an unpublished opinion, the Appellate Division of the Superior Court of New Jersey addressed the difficult issues surrounding inverse condemnation. Inverse condemnation is when a property owner is deprived of all or substantially all of the beneficial use of the totality of his property by an action of the government. The reason that this is called an inverse condemnation is that it usually involves action by the government that indirectly, but effectively takes the property, rather than a formal proceeding by the government to openly and directly condemn particular property.

The inverse condemnation concept leaves a number of unanswered questions. One of them is whether a purchaser of land that was not inversely condemned can then seek a determination of inverse condemnation based upon the same circumstances as existed when the previous purchaser owned it. This question was addressed in the context of a situation in which the first owner of the property brought a claim for a hardship variance that was denied, and the new owner brought a claim for inverse condemnation regarding the same property. Was the new owner allowed to bring such a claim, or was it too late to do so?

Ciaglia v. West Long Branch Zoning Bd. of Adjustment, No. L-4484-06, 2011 WL 5041329 (N.J. Sup. App. Div. Oct. 25, 2011) the plaintiff, Ciaglia, was the owner of a vacant lot located on De Forrest Plane in West Long Branch. This lot was a part of a larger tract of land prior to its subdivision in 1957. The subdivision placed the lot in a residential district whose zoning ordinance required each lot to have lot frontage of not less than 100 feet and a depth of not less than 150 feet. Id. at 1. Even though the lot did not comply with these zoning requirements, the West Long Branch Planning Board approved the subdivision and certified that the subdivision map conforms with all the laws of the state and municipal ordinances and requirements applicable thereto. Ibid. At some point in future, the lot was subjected to even more restrictive regulations, which required minimum lot areas of 22,500 square feet and 150 feet of street frontage. Ibid

Borst, Ciaglia’s immediate predecessor in title, obtained the title to the lot through a tax foreclosure in 1988. In 1994, Borst applied for a variance for the lot which was denied by the Board of Adjustment (Board). Borst appealed the denial, and in 1997, the Board once again denied Borst’s application. In response to this, Borst asserted a claim for inverse condemnation against the Board. Finally, in 1998, Borst dismissed the Board from the action with prejudice and six months later, the court dismissed the remainder of the action with prejudice. This is when Ciaglia entered into a contingent contract to purchase the lot from Borst, and submitted a variance application seeking permission to construct a single-family home on the lot.  The Board denied the application on the grounds that Ciaglia’s proposal was the same or substantially the same as Borst’s application of 1994. Id. at 3. Ciaglia then submitted amended plans which the Board found to be “substantially different from the Borst [a]pplication.” Ibid. In spite of the differences, the Board denied the variances and indicated the possibility of approval of a smaller dwelling. Ciaglia responded by filing a complaint that sought damages for wrongful inverse condemnation from the Borough. The trial court rejected the Boards finding that Ciaglia’s hardship was self-created on the grounds that Ciaglia had met his burden of proving undue hardship and had also attempted to contact the neighboring lot owners regarding the purchase of their lots. However, the trial court affirmed the Board’s denial of Ciaglia’s amended variance application on the grounds that the Board did not act arbitrarily, capriciously or unreasonably in reaching their decision.

Following this ruling, Ciaglia submitted another application based upon the Board’s earlier indication of the possibility of approval of a smaller dwelling. But the Board denied the variance application. In spite of this denial, Ciaglia purchased the land from Borst and then moved for summary judgment on his claim for inverse condemnation. The Borough filed a cross-motion for summary judgment asserting that:

(1)   Ciaglias hardship was self-imposed; and