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Miller v. Mojawalla

A-1507-04T1 and A-3336-04T1 (N.J. Super. App. Div. 2006) (Unpublished)

LEASES; RENEWAL OPTIONS—When a lease states that a tenant can extend the term if “not then in default,” that phrase refers to the time of exercise, not when the extended term would begin.

A landlord and tenant entered into a five year lease for commercial space. A dispute arose between them concerning the habitability of the premises, and the tenant withheld rent for three months. The landlord then filed a complaint seeking possession for non-payment of rent. The lower court found the tenant to be in default of the lease and liable for $37,260.82 in rent. When asked if payment of the rent arrears would cure the default, the lower court stated in that circumstance the tenant could remain in possession. The tenant attempted to pay the landlord directly, but the landlord refused to accept the payment, citing that the amount tendered was not the amount set forth by the lower court. Nine days later, the lower court issued a warrant for the tenant’s removal. The tenant obtained a stay of the eviction pending the outcome of its order to show cause why the initial order awarding past rent to the landlord should not be set aside. It based its application for dismissal of the previous order and warrant for eviction and on the fact that, by then, it had deposited $48,719.27 with the clerk of the court to pay for rental arrears and rent for the current month. The lower court vacated the stay of the initial order and warrant for eviction; denied the tenant’s application for a stay pending appeal; and ordered the monies deposited to the clerk of the court be released to the landlord. The tenant appealed. It then sought several stays of the eviction until the Supreme Court resolved the matter by granting a stay of eviction pending disposition of the tenant’s appeal.

The landlord commenced a second action claiming the tenant was unlawfully holding over, seeking possession of the premises in this second action as well. The lower court found that the tenant could not exercise its option to extend the lease because the tenant was in default at the time the initial term expired. It also granted possession to the landlord. The tenant appealed. The Appellate Division consolidated the two appeals.

In the consolidated appeals, the Appellate Division held that a commercial tenant may stop all proceedings for eviction based on non-payment of rent if, prior to the entry of final judgment, the tenant deposits the rental arrears plus the costs of the proceeding with the clerk of the court. In this case, after the lower court entered judgment for the landlord, the tenant attempted to submit checks to the landlord, through the landlord’s attorney, for more than the amount or rental arrears stated in the order. The Appellate Division found that although the tenant did not deposit the funds with the clerk of the court as required by statute, the tenant’s multiple attempts to pay the landlord through its attorney constituted substantial compliance with the law. Holding that the purpose of the relevant statute was to allow a tenant to remain in possession provided the tenant pays the total amount found by a court to be owing, the Court found the tenant had substantially complied with the purpose of the statute when it tendered the money to the landlord’s attorney. Therefore, the action for eviction should have been dismissed once the tenant tendered the payment.

The lease provided that the tenant could extend the lease term if the tenant was “not then in default.” The lower court found this clause to refer to the time of the expiration of the initial term of the lease. The Appellate Division disagreed, finding that the phrase “then in default” referred to the time the tenant exercised it option to renew. The Appellate Division reasoned that other sections of the lease dealing with default by the tenant would allow the landlord to terminate the lease if the tenant was in default at the time the current term expired. Finding that the tenant was not in default at the time it exercised its option to extend the lease, the Appellate Division ruled that the option to extend was validly exercised.

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