World Traditions, Inc. v. Debella

316 N.J. Super. 537, 720 A.2d 671 (Ch. Div. 1998)
  • Opinion Date: June 23, 1998

LEASES; ATTORNMENT—In the absence of any agreement to the contrary, an attorning tenant’s continuing lease is on a month-to-month basis.

A property owner mortgaged its property and subsequently signed a ten year lease with a tenant. After a default, a foreclosure took place and was followed by a sheriff’s sale. The successful bidder at the sale would have owned the property immediately but for an undisclosed bankruptcy petition that had been filed on the day of the auction sale. While the Bankruptcy Court was straightening out the situation, to maintain the status quo, it allowed the buyer at the bankruptcy sale to “collect rents and utilize the monies to pay the tax arrearage on the property.” The buyer’s agent sent a form letter to the tenants stating that it had become the new landlord and that “all contracts shall remain status quo excepting for the location of the payment of [rents].” The tenant involved in this action began paying rent and the foreclosure buyer accepted all payments. When the outcome of the bankruptcy proceeding resulted in the buyer remaining as the owner of the property, the buyer proceeded to clear some procedural defects in the foreclosure action and sought to eject the tenant, declaring that its lease was null and void. There was no dispute that a mortgagee is entitled to foreclose on property and that a lease subsequent to the mortgage is subordinate to that mortgage. Since upon default, a mortgagee can take possession as against the mortgagor, the same right exists against the mortgagor’s tenant. Thus, a mortgagee may also repudiate the lease and consider the tenant a trespasser subject to eviction by an action of ejectment. In response, the tenant alleged that an attornment had occurred and that it could not be ejected. A dispositive issue was therefore whether an attornment between the new owner and the tenant had occurred, and if so, what were the new owner’s rights pursuant to the attornment. “Attornment” is an act by which a tenant acknowledges its obligation to a new landlord. Attornment by a tenant to a new landlord or mortgagee requires an overt act by the tenant. An attornment does not occur until a mortgagee requests the tenant to pay it rent and the tenant does so. The Court construed the contents of the letter from the foreclosure buyer as a request for an attornment from the tenant by advising that “all contracts shall remain status quo” and requesting payment pursuant to the terms of the existing leases. It found that there could not be a more “overt” act or clear intention by the new landlord to enter into an attornment with the tenant. Thus, according to the Court, the only remaining issue was the tenant’s rights pursuant to the attornment. Is the tenant to be held to the original lease or is it to be bound by some form of new tenancy? By the Court’s analysis, absent a specific agreement to assume all of the obligations of the original lease, the parties enter into a new tenancy and thus are not bound by the original lease terms, especially as to the length of the tenancy. Therefore, in the absence of any documents that memorialize terms extending the tenant’s rights, the tenancy was from month-to-month. As a result, in the case of this commercial lease, the new owner was entitled to eject the tenant.