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Didon Enterprises, LLC v. Osborne

A-3819-09T4 (N.J. Super. App. Div. 2011) (Unpublished)

LEASES; WARRANTIES — Even though the implied warranty of habitability is not applicable to a commercial tenancy, a landlord and its commercial tenant may agree that the tenant’s obligation to pay rent is conditioned upon the landlord performing certain repairs.

The owner of a part-time automobile repair business rented a single automobile. The tenant and the landlord’s principal had a friendly and very informal relationship, which included the tenant repairing the principal’s automobiles. Instead of payment, the value of these repairs was deducted from the rent.

The principal then informed the tenant that the bay was going to be rented to another person and that the tenant could relocate to another bay in a different part of the garage for the same rent. The new bay did not have heat, electricity, or water, but the principal told the tenant that he could make improvements and deduct the cost from the rent. The tenant claimed that his agreement to move into the new bay was conditioned upon completion of those improvements.

Then, another of the landlord’s principals assumed the garage’s management. The new manager rescinded the tenant’s authorization to do the work required to extend utility services and said she would have the repairs performed by her contractor. The improvements were never performed. As a result, the tenant could not use the new bay for repairs and, thus, stopped paying rent and vacated.

The landlord sued the tenant for unpaid rent. The tenant counterclaimed for breach of the agreement to make the improvements. At trial, the lower court found that neither party had presented satisfactory evidence to establish their respective claims primarily because of the informality of their relationship and the absence of any written records. Also, the lower court found that the parties’ understanding at the time of the move from one bay to the other was that the tenant would have a replacement unit that was substantially the same as the prior location. Additionally, the lower court found that the landlord failed to effectuate repairs to the premises and that the tenant was entitled to a rent abatement which, together with the auto repairs performed, would totally offset any rental obligation to the landlord.

On appeal, the Appellate Division affirmed for substantially the reasons outlined by the lower court. It added that even though the implied warranty of habitability is not applicable to a commercial tenancy, as the lower court had ruled, a landlord and commercial tenant may agree that the tenant’s obligation to pay rent is conditioned upon the landlord performing certain repairs. Because the tenant and landlord entered into such an agreement, and the repairs were not performed, the tenant was entitled to a reduction in rent which provided an alternative basis for a decision in the tenant’s favor.


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