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Nutley Tenant Hangs On Through Ownership Shuffle
by Ron Davis

A tenant has gained the edge in his fight to retain possession of the New Jersey shopping center space from which the center's new owners are trying to evict him.

The shopping center, located in Nutley, has suffered financial problems since its construction 12 years ago. Not only has the developer defaulted on his mortgage loan, but the lender itself has declared insolvency. More recently, a bank that ended up with the property transferred its interest to two investors and the company they head.

During all this, a prospective tenant, unaware of the financial situation, was making substantial improvements to space at the shopping center to operate a bagel shop. The improvements involved, among other things, the installation of fixtures and equipment and the expenditure of an estimated $125,000. In all, he required some four months to complete the project.

The new owners were obviously aware of that project. But they had not yet signed a lease with him, nor did they inform him of their intentions. Only when the new owners assumed control of the shopping center did they tell him that he was being evicted. The tenant appealed, arguing that no one had advised him either of the shopping center's financial difficulties or that new owners would be taking possession of the center.

In response, the new owners claimed that since there was no landlord and tenant relationship between the two parties, they had a right to evict the tenant.

In fact, the new mortgage giving the new owners possession did exist prior to the execution of a lease between the tenant and the former owner of the shopping center. So the new owners were entitled by law to evict the tenant.

On appeal, however, a New Jersey court refused to allow the eviction of the tenant. Explained the judges, "The tenant presented sufficient evidence to conclude that [the new owners] were aware that he was making substantial expenditures to make the premises ready for occupancy, while at the same time they were having the bank foreclose the mortgage so that they could obtain title for their own benefit and ultimately eject the tenant.... The rent receiver even collected three months rent from all the tenants. Alternatively, the tenant should have the opportunity to develop a claim for damages against his new landlords."

(Davin, L.L.C. v. Daham, 746 A.2d 1034 [N.J.Super. A.D. 2000])

Decision: March 2000
Published: April 2000



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