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Peraino v. Capizzi

A-3732-05T1 (N.J. Super. App. Div. 2007) (Unpublished)

LEASES; EQUITABLE OWNERSHIP —Even though an agreement may be prepared in the form of a written lease, where the agreement substantively functions in a very different way, a court may find that the purported tenant actually has an equity interest in the subject property.

A married couple moved into a house owned by the wife’s mother and occupied the first floor and basement. The couple had signed a lease with the wife’s mother who claimed that the rent was at a reduced rate so that the couple could buy the house. The husband and his mother-in-law discussed necessary improvements to the house that he would make. The work on the improvements began one week after the couple moved in and continued for four years. The improvements included repairs to a hole in the floor, replacement of a deck, renovation of the kitchen and basement, and the leveling of the yard, at a cost of $60,000 to the husband.

The couple eventually got divorced and since the husband had no equity interest in the house, he brought an action seeking payment from his mother-in-law for his labor and investments. The husband claimed that his mother-in-law made the down payment on the home with the agreed-upon expectation that the rent payments would go towards the mortgage, and that the couple would build equity in the home and later take ownership from his mother-in-law. He also contended that the improvements he made were in reliance on that agreement. The wife’s mother argued that the lease specifically stated that any improvements made by the tenant were at the tenant’s own expense unless the landlord approved the expenses.

The lower court found that the leasing arrangement was a non-traditional one and took account of the parties’ actions and respective credibility in its decision in favor of the husband by finding that he made the improvements with the expectation of eventual ownership. According to the lower court, the husband’s extensive improvements to the house indicated, and lent credibility to his argument, that he anticipated an increase in the house’s equity, which he would later own, and not that he was making such improvements in the landlord’s interest. In contrast, the lower court found the wife’s testimony that she would have intentionally spent the $60,000 on improvements in a house that was not owned by her or her mother to be incredulous and contrary to human nature. The lower court also found the mother’s testimony lacked credibility since notations in her check ledger indicated that the rent payments were for the mortgage. It dismissed her testimony that she considered the payments to be rent and that she just wrote “mortgage” anyway.

The wife’s mother appealed, arguing that the lower court’s decision deviated from the terms of the lease, that the doctrine of unjust enrichment was wrongly applied, and that the lower court had no jurisdiction over her since she wasn’t a party to the dispute between the couple. The Court upheld the lower court’s award to the husband, holding that the lower court’s findings were evidentially sound. It also agreed with the lower court’s finding that while the agreement between the parties was in the form of a written lease, that agreement substantively functioned in a very different way and that the husband was entitled to be paid for his services in the absence of receiving his equity interest in the house.

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