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Elm Realty Investment Company v. Matlack, Inc.

A-7440-97T1 (N.J. Super. App. Div. 1999) (Unpublished)

LEASES; HOLDOVERS—The enhanced rent charged by statute to tenants who holdover in their occupancy only applies where the holdover is “willful.”

An industrial tenant’s lease was for a 25 year term with two options to renew for 10-year periods. It contained a right of first refusal to purchase its premises and included a provision for binding arbitration. Two years into the first renewal option, the landlord demanded arbitration, alleging that its tenant had engaged in a continuing pattern of environmental law violations. The arbitrator terminated the lease, whereupon the landlord gave written notice to its tenant demanding that it vacate and deliver possession of the premises. When the landlord sought to have the lower court confirm the award, the tenant cross-moved to vacate the award. The lower court confirmed the arbitration award but stayed the judgment for thirty days. The tenant filed a notice of appeal, arguing, among other things, that the arbitrator exceeded his authority by terminating the lease. The Appellate Division granted a stay but provided that if the landlord “prevails on this appeal, it may claim the fair market rental of the subject premises from” the date the tenant was to have vacated the premises to the date the landlord received good possession of the property. For fifteen months, the tenant paid rent and real estate taxes due under the terms of the lease, and the landlord accepted those payments. During the pendency of the appeal, the parties attempted to resolve the dispute by negotiating the sale of the property and the tenant also attempted to find an alternate site. Ultimately, no deal was reached and the tenant closed its facility and vacated the premises. It then withdrew its appeal. The landlord then moved in the lower court for an order declaring the tenant to be a holdover tenant pursuant to N.J.S. 2A:42-6, and requiring it to pay double the fair market rental value for the fifteen month period of its holdover. The lower court entered an order in the landlord’s favor and rejected the tenant’s request for discovery on the holdover issue without conducting a plenary hearing. It also fixed the holdover rent at double the landlord’s appraiser’s value.

On this appeal, the tenant argued that the question of holdover status should have been submitted to arbitration. However, the Court decided that the question of holdover status emanated from the arbitration award, not from the terms of the lease. As a result, judicial review was appropriate. Nonetheless, the Court had a problem both with the way in which the lower court ultimately disposed of the holdover status issue without discovery, and the way it had it handled the discrete issues raised by the landlord’s demand for double recovery. The Court pointed out a tenant must “willfully” hold over beyond the lease term in order to be subject to rent at twice the yearly value of the real estate. “A tenant’s retention of possession may not constitute a willful hold over, notwithstanding the demand for possession, provided that the tenant’s belief that it does not have to surrender possession is ‘an honest, bona fide one, based upon facts from which such an inference can be drawn.’” Consequently, the tenant was entitled to produce evidence that it had a right to remain in possession. Here, the tenant certified that it had negotiated with its landlord during the pendency of the appeal in a good-faith attempt to purchase the subject property. Also, eviction had been stayed pending appeal. Lastly, the Court believed that the lower court should have held a hearing as to the appraised value of the property.


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