Articles Posted in NJ Landlord-Tenant Law

While the CARES Act imposes an eviction moratorium on landlords of “covered properties” the Act is not without relief to landlords. Landlords/borrowers with “federally backed mortgage loans” or  “federally backed multi-family mortgage loans” are entitled to monthly mortgage payment forbearance for up to 90 days.

Section 4022 (1-4 family mortgage loans) and Section  4023 (5+ family mortgage loans)  of the CARES Act provide some relief to multi-family borrowers. To qualify,  a borrower/landlord must fall into any of the below categories:

  1. Borrowers with “Federally Backed Mortgage Loan” meaning, a 1-4 family property with mortgage bought by Fannie/Freddie (above) or involving FHA, VA or other related federal agency. This is the overwhelming majority of 1-4 family mortgage loans. Or;

On March 27, 2020, President Trump signed the COVID-19/Coronavirus Rescue bill or “CARES Act” into law.  The CARES Act has important implications for borrower/landlords of properties identified as “Covered Properties.” In short,  CARES Act “Covered Properties” are subject to specific eviction restrictions lasting until the end of July 2020. These restrictions are identified in Sections 4022 through 4024 of CARES.

“Covered Properties” are:  (1) properties that participate in a federal housing program or (2)  properties that have a “federally backed mortgage  loan” or “federally backed multi-family mortgage loan”.  The below table identifies the types of covered properties. The bolded terms are more common federal programs or “backed” loans.

Federal Housing Program

Federally Backed Mortgage Loan/Multi-Family Loan

•              Public housing (42 U.S.C. § 1437d)

•              Section 8 Housing Choice Voucher program (42 U.S.C. § 1437f)

•              Section 8 project-based housing (42 U.S.C. § 1437f)

•              Section 202 housing for the elderly (12 U.S.C. § 1701q)3

•              Section 811 housing for people with disabilities (42 U.S.C. § 8013)

•              Section 236 multifamily rental housing (12 U.S.C. § 1715z–1)

•              Section 221(d)(3) Below Market Interest Rate (BMIR) housing (12 U.S.C. § 17151(d))

•              HOME (42 U.S.C. § 12741 et seq.)

•              Housing Opportunities for Persons with AIDS (HOPWA) (42 U.S.C. § 12901, et seq.)

•              McKinney-Vento Act homelessness programs (42 U.S.C. § 11360, et seq.)

•              Section 515 Rural Rental Housing (42 U.S.C. § 1485)

•              Sections 514 and 516 Farm Labor Housing (42 U.S.C. §§ 1484, 1486)

•              Section 533 Housing Preservation Grants (42 U.S.C. § 1490m)

•              Section 538 multifamily rental housing (42 U.S.C. § 1490p-2)

•              Low-Income Housing Tax Credit (LIHTC) (26 U.S.C. § 42)

•              The Rural Housing Voucher Program (42 USC § 1490r)

• Federally Backed Mortgage Loan, 1-4 Family purchased or securitized by Fannie/Freddie (Note: Fannie and Freddie purchase the overwhelming majority of 1-4 family mortgages on the secondary market)

 

• Federally Backed Mortgage Loan, 5+ family  purchased or securitized by Fannie/Freddie

 

• Federally Backed Mortgage Loan or Multi-Family Loan insured, guaranteed, supplemented, or assisted in any way by the Federal Government.

 

 

 

For 120 days, measured from March 27, 2020 (in other words until July 25, 2020), landlords of covered properties cannot:

  1. Initiate/file any non-payment of rent proceedings against Tenants in covered properties;
  2. Charge/collect late fees from tenants.

This federal law preempts any state law or executive action which may have permitted the filing of non-payment cases but stayed the execution of a judgment for possession. Where New Jersey Governor Murphy’s EO106 permitted the filing of a nonpayment case, the CARES Act does not. The CARES Act specifically prohibits “any filing” or “initat[ion] of legal action to recover possession.

In short, if you are a landlord of a “Covered Property” you cannot initiate a nonpayment of rent case against a tenant, nor can you collect late fees for unpaid rent, during the time period March 27, 2020 to July 25, 2020.

If you a landlord of a property which does not meet the definition of a “Covered Property” (in its entirety) but you have tenants who receive Section 8 voucher assistance, those tenants who receive the voucher are protected by the eviction moratorium–even if other tenants are not.

Offit Kurman, P.A., maintains a broad-based landlord and property owner representation practice. In New Jersey, Offit Kurman represents landlords and property managers in maximizing return, resolving disputes and avoiding unnecessary and costly delays. The Firm’s New Jersey geographic practice area includes: Jersey City, Hoboken, Bayonne, Hudson County, Newark, Essex County, Woodbridge, Middlesex County, Paterson, Passaic County, Hackensack, Bergen County and other points across New Jersey.

The Small Business Administration administers the “Economic Injury Disaster Loan” program. This program, recently expanded to address the economic fallout of COVID-19, may be especially useful to NJ landlords, multi-family property owners and other small business suffering dramatic reductions in revenue. This program (just one of many) may aid businesses in search of liquidity.

The Economic Injury Disaster Loan Program is a component of the Small Business Act, 15 USC 636.  An eligible business must be in a “declared disaster area.”  New Jersey is, by Presidential action, a declared disaster area due to COVID-19. To qualify for an EIDL loan, the applicant must be (1) a “small business;” (2) have used/consumed “all reasonably available funds” and (3) “unable to obtain credit elsewhere”.  Importantly, principal owners (those with a 20% or greater interest in the company) and affiliate companies must also have expended “all reasonably available funds.” An approved loan carries an interest rate of 3.75%. The funds can be used for “working capital necessary to carry on…until resumption of normal operations.” The funds cannot be used to refinance debt, pay other agency loans, pay taxes or pay dividends or other non-wage compensation. This is only a summary of the basics. There are additional underwriting criteria and, of course, paperwork.

Important changes may be coming to the EIDL program. Pending federal legislation may relax the “unable to obtain credit elsewhere” requirement. Although the application can be onerous (and requires significant owner financial disclosure)  the program offers important liquidity during uncertain times.

On March 21, 2020, Governor Murphy signed Executive Order 108. The purpose of this Order is to create statewide uniformity of COVID-19/Coronavirus related restrictions. The Order invalidates “all county or municipal restriction imposed in response to COVID-19…” that any in way “will or might conflict” with the statewide restrictions imposed by Executive Order 107.  This is an important, though unfortunately necessary, Order.  During uncertain times, multi-family property owners and managers will benefit from this uniformity.

Unless specifically permitted by the Governor, municipal restrictions imposed in response to COVID-19 are invalidated. Varying curfews and county-specific bans on “worldly employment or business” are not enforceable. The only COVID-19/Coronavirus related restrictions to be followed are those imposed by the federal government and Executive Order 107. A subsequent post will address the specific effects of Executive Order 107 on the multi-family property industry. For now, the takeaway is: Make business decisions according to State-wide guidance, not local authority.

Offit Kurman, P.A., maintains a broad-based landlord and property owner representation practice. In New Jersey, Offit Kurman represents landlords and property managers in maximizing return, resolving disputes and avoiding unnecessary and costly delays. The Firm’s New Jersey geographic practice area includes: Jersey City, Hoboken, Bayonne, Hudson County, Newark, Essex County, Woodbridge, Middlesex County, Paterson, Passaic County, Hackensack, Bergen County and other points across New Jersey.

Major changes are coming to the multi-family property industry today. Governor Phil Murphy is set to sign Assembly Bill A3859. This bill prohibits lockouts during a Governor-declared State of Emergency. Once signed into law, multi-family properties owners can expect the Governor Murphy to immediately impose a lockout moratorium. It is important the landlords and tenants understand what A3859 prohibits and what it does not.

1. Eviction Actions Can Be Still Initiated: A3859 does not prevent landlords from filing eviction actions. Instead, it stays the enforcement of a judgment of possession (no lockout) until the State of Emergency lapses. Technically, A3859 requires that the Governor issue an order triggering the moratorium—but this is a near certainty.

2. The Moratorium is Not Indefinite: A3859 allows the Court to proceed with a lockout “in the interest of justice.” While this term is not defined, we can expect that eviction cases for causes other than nonpayment (damage to apartment, assault on landlord–to name two) may be enforced in the “interest of justice.” Non-payment of rent cases are the most likely to be affected. The overwhelming majority of these cases will not proceed to lockout during the State of Emergency. Unless some exceptional circumstances are present (for example, a large pre-Coronavirus panic balance; a property on the brink of insolvency and similar exceptional consequences), landlords and tenants should expect that any pending or to-be-initiated nonpayment case, will be subject to the moratorium.

On September 9, 2019, changes to Union City Municipal Code §329-32 “Security Funds” became effective. These changes expand the power of the City to require landlords (of buildings with four units or more) to make repairs or improvements to a property with “security funds.” The “security funds” are mandatory transfers of money from a landlord to Union City ostensibly to abate “emergency conditions.” Landlords in Union City, NJ should be aware of the “emergency conditions” which trigger the “security funds” requirement. Today’s requirements are far more expansive than prior law.

329-33 “Depositing of Funds” of the Union City Municipal Code allows the City to require that a landlord deposit money (the amount is based on building size) with the City for the “repair, maintenance, supply or replacement” of “items” “necessary to correct, eliminate or alleviate an emergency condition.” Before September 9, 2019, “emergency conditions” were limited to:

(a) lack of adequate ventilation or light;

Local rent control laws are commonplace in New Jersey’s largest cities. Newark and Jersey City (New Jersey’s most populous cities) both maintain comprehensive rent control laws. The basics of these laws are well known. Rent control ordinances control the rent a landlord can charge and restrict the size of future rent increases. But, basic rent and rent increases are not the only financial obligations of tenancy. Many leases define late fees, attorney’s fees and other costs as “additional rent” to be collected from the tenant in an eviction action. Can these fees be collected from tenants in rent-controlled cities? Under Opex Realty Mgmt., LLC v. Taylor, (Law.Div.2019) the answer is: “No.” After Opex Realty (approved for publication on August 13, 2019), landlord and property managers of rent controlled properties should exercise care in drafting leases and initiating nonpayment evictions.

Opex Realty addressed a common-place but unresolved question. Does a rent control ordinance’s definition of “rent” necessarily preclude the collection of “additional rent” defined costs in a lease, when the collection of those costs exceeds the maximum rent under rent control? Prior to Opex Realty, tenants generally relied on Ivy Hill Park Apts. v. Sidisin, 258 N.J.Super. 19 (App.Div.1992). In Sidisin, the Appellate Division held that a landlord could not evict a tenant for “additional rent” (defined in a lease) when the same costs were not defined as “rent” under a rent control. The Opex decision arrives at the same conclusion of Sidisin, but with a different rationale.

Judge Petrillo’s Opex holding is that additional rent cannot be collected in a nonpayment eviction because the combination of additional rent and base rent exceeds the maximum allowable rent under rent control. Judge Petrillo held: “The court will not allow the landlord to circumvent rent control…and raise the rent beyond the lawful limits by labeling a late fee or legal fee as ‘additional rent…’” Emphasis added. The Opex decision is not that additional rent cannot be collected from rent controlled tenants. Rather, the decision is that additional rent cannot be collected when so doing exceeds the maximum legal rent. This is why, in dicta, Judge Petrillo added: “Were these tenants not already bearing the maximum rent allowed by law, the outcome might have been different.” A future post will address the practical implications of Opex and whether collecting “additional rent” is ever possible under rent control.

In May 2019, the City of Jersey City made a subtle but substantial change to its rent control ordinance. This change directly impacts the profitability of affected property owners. With the passage of Ord. 19-044, Jersey City revised the definition of “Fair Return” under its rent control ordinance from “6% above the maximum…demand deposit savings account interest rate” to “2.5% above…” The new 2.5%+ “Fair Return” applies to the “equity investment in real property.” The “equity investment” is considered only the “actual cash contribution of the purchaser” at closing, plus any additional principal payments.  The Jersey City ordinance follows the “Investment-Based Standard” and is the most restrictive constitutional rent control formula.

To understand the effect of Ord. 19-044,  it is helpful to restate the amended ordinance in plain language. Stated simply, the revised rent control ordinance “guarantees” a landlord a minimum net income of 2.5%+ measured against the landlord’s cash contribution to the purchase.  In its most basic application, the formula works as follows:

Purchase Price: $800,000

The Anti-Eviction Act, N.J.S.A. 2A:18-61.1(c) allows a New Jersey landlord to evict a tenant for “destruction, damage or injury to the [rental] premises” (Section 61.1(c)). Section 61.1(c) requires that a landlord prove two elements. The first can be described as the “mental state” of the tenant. The second is resultant harm from that mental state. The full text of Section 61.1(c) shows this. An eviction under Section 61.1(c) is permissible when: “The [tenant] has willfully or by reason of gross negligence caused or allowed destruction, damage or injury to the premises.” The threshold inquiry is how the damage occurred, whether it occurred willfully or by gross negligence. Proving this element at trial is a difficult task.
Continue Reading ›

A question often posed by New Jersey landlord is: “When should I file a nonpayment of rent case? After how many months?” Answering this question requires balancing the propriety of litigation relative to the amounts involved. Unscrupulous landlords may be tempted to “sit” on the rent for many months, allowing the tenant to accrue a balance that the tenant has no realistic chance of paying. In a case like this, the landlord relies on the tenant’s poor money management skills and hopes that the tenant cannot pay the all of the rent due on the court date. But, landlord-tenant law is too sophisticated for this game; the affirmative defense of “laches” may defeat the landlord’s claim.
Continue Reading ›

Contact Information