This article examines the process and basic issues that arise in commercial tenancy litigation involving the non-payment of rent. For example, assume a commercial landlord has a tenant that has stopped paying rent but is still in possession of the leased space. The landlord has sent appropriate demand letters and, while reluctant to commence litigation, the landlord wants to either recover the outstanding rent, recover possession of the space from the tenant, or both.
To recover possession of the space, the landlord must sue the tenant in the Landlord Tenant Section of the Superior Court under the Summary Dispossess Act. To recover money damages, the landlord will usually sue the tenant in the Law Division of the Superior Court. Both options can be pursued independently, and simultaneously. In many instances, by simply filing a lawsuit for possession, a tenant that wants to remain in business will either pay the unpaid rent, attempt to work out a payment plan to become current, or agree to vacate the space in an orderly manner.
The procedure for commencing a lawsuit for possession is fairly straightforward. First, the landlord’s attorney must review the lease to confirm that the landlord properly complied with any notice requirements provided in the lease. After confirming that any required notices have been served, the landlord’s attorney will prepare a summons and a complaint, and file the complaint in the Special Civil Part of the county where the property is located. Service of the summons and complaint is handled by the Court.
The tenant is provided with a copy of the complaint and notified in the summons of the time and place to appear for a trial. No answers, counterclaims or discovery is permitted. By law, the case must be listed for trial within 30 days. Therefore, the Summary Dispossess Act provides the landlord with an expeditious means of getting its case heard by the Court.
If a tenant disputing the complaint can demonstrate that the case is complex or requires discovery, it may file a motion to transfer the action from the Landlord Tenant Section of the Special Civil Part, to the Law Division of the Superior Court. If that motion is granted, the tenant will be permitted to file an answer and counterclaim, engage in discovery and, if permitted under the lease, obtain a jury trial. Many commercial tenants confronted with an eviction action file a motion to transfer simply to gain additional time or leverage in negotiating with the landlord. For a complete discussion of motions to transfer, the reader is referred to Gary Wolinetz’s article “Motions to Transfer Eviction Actions,” available on the firm’s website.
On to Trial
If the case is not transferred and remains in the Special Civil Part, and cannot otherwise be resolved, the case will proceed to trial. For those who have never been in landlord tenant court, it can be quite an experience, depending upon the county. The commercial cases are listed for trial along with all the residential cases. Generally there are few attorneys involved in the residential cases. Most of the residential tenants, as well as some of the residential landlords, are representing themselves, or pro se. It is not uncommon for over 100 cases to be listed for trial before one judge on one day.
Generally, one of three things will happen in a typical commercial case listed for trial: (1) the tenant does not appear, (2) the tenant appears and is prepared to pay some or all of the rent that is owed; or, (3) the tenant appears, has no money or refuses to pay the unpaid rent, and the matter proceeds to a trial as a contested case.
If the tenant does not appear, a judgment by default can be entered. The landlord and its attorney will need to prepare and submit certifications to the court to effectuate the judgment the same day. If the Court is satisfied with the certifications, a default judgment will be entered, which will give the landlord the legal right to recover possession of the leased space from the tenant upon obtaining a Warrant of Removal which will be discussed in more detail.
The second scenario is that the tenant appears and is prepared to pay some or all of the rent that is due. If all the unpaid rent is paid before the time the Court closes at 4:30, the case will be dismissed. However, if the tenant is able to pay only some, but not all the unpaid rent, the Court will encourage a settlement. Typically, if the landlord is willing to accept a partial payment with a reasonable plan for the tenant to become current, the landlord’s counsel can draft a simple settlement agreement that will provide for a consent judgment for possession if the tenant defaults in making the additional payments. Both the landlord and the tenant will sign the settlement agreement, which is then filed with the Court and can be enforced without additional court appearances.
Finally, the third scenario is when the tenant appears in court, is unable or unwilling to settle, and the case must proceed to a trial. After waiting to appear before a judge, the landlord will proceed with presenting its case. The landlord, as the plaintiff, has the burden of proof.
The landlord’s proofs consist of evidence of a landlord tenant relationship; evidence of the tenant’s breach of its obligation to pay rent; and evidence of providing any required notices. Typically, the property manager, as the landlord’s agent, will testify and present the necessary documents to prove the existence of a landlord-tenant relationship, the tenant’s defaults, and the service of any required notices.
Commercial Tenant Defenses
In response to an eviction action, a commercial tenant may assert a variety of common defenses. Some of those defenses include: (1) challenges to the calculation of rent and/or additional rent charges such as common area maintenance; (2) the landlord’s failure to properly maintain the condition of the premises; (3) claims that the landlord waived its right to evict the tenant, i.e. the landlord has a pattern of accepting rent late or not enforcing other defaults without protest; and (4) failure to provide the appropriate notices, if required.
Assuming, however, that the landlord has met its burden of proof, and the tenant’s defenses are without merit, the court will enter a judgment for possession at the end of the trial. Thereafter, the landlord can enforce the judgment by applying to the court for the issuance of a Warrant of Removal.
Removal of the Tenant
The Warrant of Removal allows a court officer, a/k/a constable, to remove any persons from the leased premises, allow the landlord to change the locks, and take back possession. Typically, it takes several weeks from the time that a Judgment for Possession is entered, the Court issues a Warrant, the Warrant is served by the constable, before a lock out takes place.
Once the lockout is performed, the landlord can legally re-enter the leased space and do whatever is necessary to re-let the space to a new tenant. If the prior tenant tries to reenter the space, it will be deemed a trespasser and can be subject to criminal prosecution.
Landlord’s Recovery of Money Damages
A landlord may also seek money damages from a tenant by filing a separate lawsuit in the Law Division of the Superior Court. Issues that often arise are the landlord’s obligation to mitigate damages and desire to accelerate the rent. For example, assume the tenant defaults in the second year of a five year lease and is evicted. Pursuant to the lease, the landlord accelerates the rent and claims that the tenant owes all the rent through the end of the lease term.
The landlord is not likely to recover the accelerated rent because of its obligation to mitigate its damages by making reasonable efforts to re-let the premises. The landlord has the burden of proving that its efforts to mitigate damages were reasonable. This often leads to a situation where the landlord may need to try and re-let the premises, wait a sufficient amount of time, and then file suit to recover damages from the prior tenant. The landlord will likely only be permitted to obtain the rent due at the time of trial, but not to the end of the lease term because of its on-going obligation to mitigate its damages.
This article covered the basics of bringing actions to recover possession of a leased property and rent when there has been a default in a commercial tenancy. There are a host of other issues that are beyond its scope. For example, what happens when a tenant files for bankruptcy, what happens when a property goes into foreclosure, and how to deal with a tenant’s abandoned property.