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Laverty v. AGTO, LLC

A-5321-08T1 and A-5336-08T1 (N.J. Super. App. Div. 2010) (Unpublished)

LEASES; ABANDONMENT — The conduct of a landlord and a tenant can result in a finding that their lease had been abandoned.

A fast food restaurant franchisee had two owners. One of the owners, together with that owner’s wife, owned a piece of land at which the restaurant was operated. The restaurant was operated from a modular building. The modular building installer, not having been paid for its work, sued the restaurant and obtained a default judgment. It sought a judgment against the modular building which would eventually lead to the building’s sale and removal from the land.

The lease between the restaurant and the landowner stated that the modular structure would become “the property of the Landlord herein immediately upon the issuance of a certificate of occupancy to the structure by the [municipality].” This left the lower court, and eventually the Appellate Division, with the need to determine whether the installer’s judgment could be executed against the modular unit and whether the modular unit could be removed from the lot. The lower court, at least because of procedural grounds, did not address “the issue of whether the building was so attached to the realty that became a parcel of [the landlord’s property].” The Appellate Division was comfortable with that decision.

That left the lower court with the need to determine whether, by the terms of the lease, the modular unit belonged to the landlord and therefore could not be subjected to a sale or removal by the judgment creditor. The lower court’s decision, which was subsequently upheld by the Appellate Division, was that the modular unit never became property of the landlord. It reached this conclusion after finding that “the lease between [the landlord] and [the restaurant-tenant] was abandoned ab initio by the conduct of the parties [to the lease] and that the modular building continue[d] to be owned by [the tenant]. This flowed from the conduct of the purported landlord [] and purported tenant [], including – among other things – [the tenant’s] depreciation of the building and its failure to pay rent and, [the landlord’s] failure to collect rent, [the tenant’s] failure to contribute to property taxes, without adverse consequences, and from [the landlord’s] failure to act as if it had an ownership in the building, e.g., having no insurance on the premises while [its tenant] had coverage. Further, [the landlord] did not assert any of the landlord’s rights against its tenant for non-payment of its rent.” For all of those reasons, the lower court held that the tenant continued “as the owner of the modular building and [the judgment creditor had] a valid judgment against [the tenant and could] look to the building to satisfy its debt.” The Appellate Division affirmed.

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