The most popular Ruminations blog posting, by far, is the one dealing with holdover tenancies [It can be seen by clicking HERE.] We write, “holdover tenancies” only because that is how people speak about tenants who remain in the leased premises after their right to stay there has ended. Yes, they are some kind of “tenant,” but Ruminations sees them as trespassers, someone who is on another’s land without permission.
Today, we are going to work with a 2014 unpublished decision from the Appellate Division of the New Jersey Supreme Court. It can be seen by clicking HERE. The case covers a couple of interesting points beyond that of “holdover,” and we’ll try to discuss those as well. So, expect to read about oral leases and license agreements as well as about “holdover.” We’ll begin with this court’s comments about holdover tenancies, more accurately called “tenancies at sufferance.” Here they are:
[A] tenant at sufferance is “one who comes into possession of land by lawful title, usually by virtue of a lease for a definite period, and after the expiration of the period of the lease holds over without any fresh leave from the owner.” … “However, if a landlord consents to a holdover on its premises, then that consent creates a periodic tenancy. … The burden is on the holdover tenant to prove the landowner’s consent. … (The mere unbroken silence or inaction of the owner will not improve or enlarge the character of a hold-over tenant’s possession.) … The consent may be express or implied, actual or constructive; by words or some act treating him as a tenant. … There must be a showing of some agreement or recognition of the relation of landlord and tenant, the landlord has assented to a continuation or renewal of the same relation.”
Keep that in mind while we tell a story about a rock crusher and a golf course.
To build a particular golf course (and a neighboring residential project) a lot of crushed rock and clean fill was needed. Rocks were readily available on site, but crushed they weren’t. So, the developer hired a crushing company and, in 1997, that company set-up shop (installed its equipment) near the 10th hole. It located its operations there without any written agreement governing its use of the land.
In 2006, the rock crusher relocated its equipment to a nearby parcel, one that we’ll refer to as “Lot 36.” It needed a governmental recycling permit and to get that, it needed to show that it had a lease for Lot 36 showing that it had the right to crush rock and otherwise operate there.
So, a 6- month lease for Lot 36 was executed with golf course owner (as landlord) wherein the “rent” was to be paid by way of the tenant-rock-crusher placing 18 inches of clean fill on the golf course where and when the golf course owner (its landlord) requested. Yes, “barter.”
Relevant to today’s blog posting was the following “Holding Over” provision of that lease:
Holding Over. If Tenant holds over in possession after the expiration of the term of this Lease, such holding over shall not be deemed to extend the term or renew this Lease, but the tenancy thereafter shall continue as a tenancy at sufferance whereupon Landlord in addition to all other remedies available to it under this Lease or at law shall be entitled to receive as liquidated damages, not as a penalty, an amount equal to [Twelve Thousand Dollars per month], as applied to such holdover period, together with the additional rent required under this Lease. If Tenant holds over for a partial month, then such holding over shall be deemed to be for a full month for the purpose of determining holdover rent pursuant to this Article. In addition to any other liabilities to Landlord accruing from Tenant’s failure to surrender the Property, Tenant shall defend, indemnify and hold Landlord harmless from loss and liability resulting from such failure, including, without limitation, any claims made by any succeeding tenant founded upon such failure.
The brackets around the “money” were actually in the lease.
Why was this relevant? That’s because the lease expired on April 1, 2007 and it took until January of 2011 (nearly 4 years) for the landlord to demand that the tenant leave Lot 36. At the beginning of the following June, the landlord filed a complaint to evict the rock crusher and to get a ruling that about $600,000 was due by reason of the lease’s $12,000 monthly (“holding over”) damages provision.
We interrupt this story to discuss the lease versus license issue, not in excruciating detail, but enough to give our readers some sense of the difference. The reason the whole question came up was because the lower court ruled that from 1997 until a lease was signed in 2006, the rock crusher and the golf course owner had an “oral” lease for the place the rock crusher was working from. Based on that finding, the lower court ruled that the 2006 written lease was a nullity because “no additional consideration” was furnished by the landlord in return for getting the 18 inches of clean fill on the golf course. If the 2006 written lease was invalid, then its holding over provision was of no effect. Before anyone leads a protest in front of the courthouse, be advised that the appellate court rejected the lower court’s nullification of the 2006 agreement. It ruled that the 2006 document was a valid, new lease.
This conflict of viewpoints gives Ruminations the opening to share a few of the appellate court’s thoughts about what make a lease and what makes a license. Where possible, we’ll use that court’s words (some of which came from the New Jersey Supreme Court), starting with the following collection of statements.
Unquestionably agreements respecting the use of land can be made by an owner which fall short of a leasehold. License, permit, privilege and limited custodial use are open to consensual arrangements. The difference between a lease and license or similar limited status, although difficult to distinguish at times, is that a lease gives exclusive possession of the premises against all the world, including the owner, while a license confers a privilege to occupy under the owner.
That’s critical. Pay attention: a lease gives exclusive possession of the premises against the entire world, including the owner. That’s the hallmark of a lease. In exchange for paying rent, a tenant gets “near” ownership of the leased premises for the term of the lease. Its right to occupy the space trumps even that of the owner, its landlord. If a landlord wants to reduce that quantum of near-ownership, it has to reserve that right in the lease. That’s why leases include a provision allowing a landlord to enter the space (generally to do repairs or inspections or to show the premises to others). Without such a reservation, an owner would be a trespasser if it entered the leased space without its tenant’s permission.
A license or similar status is generally revocable at the pleasure of the owner and gives occupancy so far as necessary to engage in the agreed acts or the performance of agreed services and no further; a lease gives the right of exclusive possession for all purposes not prohibited by its terms.
When you buy a ticket for that ball game, you get a license. They can throw you out.
In the final analysis whether a particular agreement is a lease depends upon the intention of the parties as revealed by the language employed in establishing their relationship, and, where doubt exists, by the circumstances surrounding its making as well as by their course of operation under it. And, in situations where the ambiguity or doubt gives rise to a factual question as to the intention of the parties, the burden is on the party asserting it to demonstrate existence of the lessor-lessee relationship. Moreover, in the resolution of ambiguity or doubt, absence of (1) a stipulation for rent as such, or other consideration regarded by the parties as constituting payment for the transfer of possession, and (2) a term; and presence of (1) limitations on exclusive possession and control of the premises, and (2) a right in the owner to revoke the permit to use at any time, are factors militating against the existence of a lease.
Rent is not essential to a lease; for, from favor, or valuable consideration, the tenant may have a lease without any render. Yet that must be in a case where a lease was clearly intended. When, upon construction, it be doubtful whether a lease was intended or not, then it constitutes a very important circumstance, that rent was not reserved, eo nomine [Latin term meaning “by or under that name”] or substantially.
To save you time and to save ourselves work, we won’t tell you what the facts were, just that the appellate division found the 1997 arrangement to be a license, not an oral lease. That made it easy to for it to conclude that the 2006 written lease was valid on its own and that it wasn’t an amendment to a prior (oral) lease. For those unfamiliar with the “buzz” words, for an agreement to be enforceable, there must be “consideration,” something of value given or received, but “past” consideration (i.e., if it had already been given for something else) does not qualify as “consideration” for a later agreement (or amendment). Courts don’t like to find “no consideration,” but it does happen (as the lower court would have found). [As to the signs that determine whether an agreement is a lease or a license, we’ll try to cover that in a future blog posting. Today’s focus, and there really is one, is to say something about “holding over.”]
At the front end of today’s posting, we’ve reprinted some words used by the appellate court about holdover tenancies. So, we’ll now apply those principles to the story we started because it isn’t as simple as most people think. Right up front, we’ll tell readers that merely remaining in the leased space after a lease expires does not make the tenant into a “holdover” tenant. The key is “permission.” Staying beyond the lease’s term with permission just converts a “tenancy for a term” (of the lease) into a periodic tenancy (almost always, a month-to-month tenancy).
Here, both the tenant and its landlord “ignored” the lease. The landlord never asked the tenant to leave and didn’t demand holdover “rent” for nearly four years. Essentially, by its silence, the golf course owner consented to the rock crusher’s use of the land for all of that time. Mere silence or inaction isn’t enough, but when it persists for so long, consent can be implied. The tenant’s presence was well known to the landlord. The rock crusher actively operated there for all of that time, supplying product to third parties and even (one time) to the golf course.
Those who believe that the words of an agreement override common sense will (again) be disappointed to learn that the lease’s “non-waiver” provision did not get the landlord the result it sought. Yes, the lease said: “[T]he failure of the Landlord to enforce strict performance by the Tenant of the conditions and covenants of this Lease or to exercise any election or option or to resort or have recourse to any remedy herein … will not be construed or deemed to be a waiver or a relinquishment for the future by the Landlord of any such conditions and covenants, options, elections or remedies … .” That’s because of a long standing principle”:
Any contract term may be waived if there is clear proof of the intent to waive by the party against whom the waiver is asserted, and if the waiver is voluntary.
Now, a waiver of a right or remedy is not the same as an abandonment of that right or remedy. So, once the golf course owner demanded that the rock crusher vacate Lot 36, the “holding over” began,” as did the $12,000 monthly damages set forth in the lease.
All of that is a long way of saying that: (a) facts matter; (b) a holdover tenancy does not exist when a tenant remains with the consent of its landlord; and (c) there are more ways to show consent than by presenting a written lease.