Articles Tagged with landlord tenant

Our clients often ask us about the benefits of transferring their rental properties into a Limited Liability Company (L.L.C.).  While LLCs and other corporate entities offer some degree of protection from the personal liability, there are a myriad of factors that must be considered in making the decision to transfer your properties into one of those entities.

Due on Sale Clause

We will start our discussion with a familiar concept that owners often overlook when deciding to transfer their properties to an LLC.  In cases where the property is encumbered by a mortgage or loan, it is extremely likely that the loan document contains a “Due on Sale” clause.  This provision, contained in nearly all loan agreements, sets forth that, upon the sale of the property, the lender may require the borrower to pay the full balance of the loan.  While this clause is clearly intended to protect the lender in the vast majority of sales, where the property is sold to a completely unrelated party, it can also be invoked in cases where the owner is merely trying to deed the property to corporate entity in which the owner remains a member or shareholder.   Accordingly, in all cases where the owner intends to deed a mortgaged property to an L.L.C., the owner should first consult with the lender to get a decision in writing whether the deed transfer would trigger the due on sale clause.

In a previous article, we discussed the premise that acceptance of rent, following the termination date set forth in a Notice to Quit, would constitute a “waiver” of that Notice, hence requiring the Court to disregard that Notice and dismiss any subsequent eviction action based upon that Notice. To support this theory, Courts often rely upon the famous case of Carteret Properties v. Variety Donuts, Inc.49 NJ 116 (1967)

By way of New Jersey statutory background, all evictions except those based upon non-payment of rent require the service of a Notice to Quit upon the tenant prior to the filing of an eviction action.  In the context of a residential rental, evictions based on lease violations also require the service of a Notice to Cease in advance of the Notice to Quit.  For residential evictions, it is the Anti-Eviction Act that determines which claims require a Notice to Cease, as well as determining the length of the Notice period for the Notice to Quit.  However, for commercial tenants, it is the lease that determines the nature and length of any notice of default that must be served upon the tenant in advance of the Notice to Quit.

Unlike residential tenants, who can only be evicted for good cause, as defined by the Anti-Eviction Act, a commercial tenant can be evicted upon the expiration of a lease, without the necessity of the landlord showing any good cause. However, in these cases, the Landlord must still serve the tenant with a Notice to Quit prior to the commencement of the eviction action.  The Carteret Properties matter involved a commercial tenant, who was alleged to have violated a lease covenant.   The landlord had served the tenant with a Notice of Default, and subsequently filed a Notice to Quit.  Much of the Court’s decision in Carteret Properties was based on the Court’s determination that the landlord’s Notice to Quit was defective.