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Belmont Yarn Corp. v. Page Realty Corp.

96-1994 (U.S. Dist. Ct. D. N.J. 1998) (Unpublished)

LEASES; LIABILITY; THIRD PARTIES—New Jersey’s public use exception to the rule of non-liability of an absentee landlord will not permit landlords to hide behind impecunious tenants who are unable or unwilling to make repairs required by their lease, but who nonetheless store goods for their own customers.

A yarn company engaged a warehousing firm to store its goods in a commercial building. When its goods were damaged by water, it sued the landlord (as well as the warehouse company). It claimed that the damage was the direct and proximate result of the landlord’s failure to maintain the property and repair the roof. It also claimed that the landlord was liable for the damage because it breached the duty of care owed by a bailee of goods. The property was leased in “as is” condition and the lease provided that the tenant was to make the premises water-tight and structurally sound, but that the cost of those repairs would be credited towards the tenant’s monthly rental. The yarn company argued that the terms of the lease did not preclude its negligence action against the building owner because it was not a party to that lease agreement. It also alleged that the building owner was aware of the faulty roof and had a duty to repair its condition and that the building owner knew that its tenant intended to use the building to warehouse the goods of third parties, which public use provided an exception to the general rule of non-liability of an out-of-possession commercial landlord for property damage resulting from a failure to make necessary repairs. The Court rejected the claim based upon bailment. It found that the tenant was not the agent of the owner. Consequently, the landlord was not a bailee. The lease clearly stated that the landlord was not liable for any damage to goods or wares of the warehouse company’s customers. In addition, the landlord was not required to make repairs under the lease when, in fact, the agreement provides financial incentive for the warehouse company to complete the necessary repairs. Therefore, even if the yarn company were an intended third party beneficiary of the lease, it would not have a claim against the landlord. If such a claim could be maintained at all, it would need to be against the warehouse company, as tenant, because it assumed the responsibility to repair and maintain the premises. Of more serious concern to the landlord, however, was that New Jersey had embraced the public use exception to the general rule of non-liability. That rule, which is stated in Restatement (Second) of Torts sec. 359, provides that a landlord is responsible for physical harm caused by a condition where the landlord: (a) knows or through reasonable care would have discovered that the condition involves an unreasonable risk of harm; (b) knew that its tenant would permit entry into the property before putting the property into safe condition; and (c) failed to exercise reasonable care to discover or remedy the condition. The rationale for this exception is to bar landlords from insulating themselves from liability to property users through the use of impecunious tenants who are unable or unwilling to make necessary repairs, but where the landlord would benefit from the overall transaction in the form of rent. In this application for summary judgment, the Court embraced the public use exception and was willing to allow the yarn company an opportunity to prove facts sufficient to pursue its claim against the landlord under the exception.


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