Real Estate Insights

On June 24, 2021, the New Jersey General Assembly unanimously passed bipartisan legislation to limit liability for planned real estate developments due to the spread of COVID-19, should they decide to reopen amenities like pools and fitness centers, as long as sign requirements at the entrances to the common areas are observed.

“This is a win for those homeowners associations that chose to keep communal areas closed in 2020 due to liability concerns relating to Covid-19,” said Assemblyman Brian Bergen, R-Morris, a sponsor of the Assembly version of the bill.

“My bill will allow them to open those areas at their discretion while protecting them from lawsuits should any residents or guests be exposed to or come down with the disease,” Bergen said. “Condominium and townhome residents can get back into their shared pools and gyms.”

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As technology associated with commercial real estate has evolved, landlords are confronted with conundrum: How to use new technologies to modernize buildings and increase profitability by attracting high quality tenants through maximizing tenant experience, while addressing the cybersecurity threats that accompany these new technologies?

The exact problem will differ based on the type of commercial property being offered by a landlord, but the overriding concern remains the same, namely, how to secure the property from cyber-security breaches.  For instance, whether a landlord owns: (i) a climate controlled industrial property used for housing cloud servers, storing food or pharmaceuticals, (ii) a multi-tenant retail property with an open WIFI network and cloud-based security system, or (iii) a mixed use development with state of the art building systems, should the integrated building systems of these properties be accessed and manipulated by a hacker, it could wreak havoc on the tenants, who will seek relief from the landlord. What can a commercial landlord do today to prevent this disaster from occurring and protect its assets and reputation?

Step 1: Technology Audit

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New Jersey residents are now one month into the statewide shutdown, as the COVID-19 pandemic continues to disrupt nearly every aspect of our daily lives. At this time, property managers and boards have developed practices to provide for social distancing and routine cleaning, however there are a host of potential issues on the horizon that communities should be aware of, and prepared for.

As a primary matter, associations need to stay informed of the ongoing executive orders, as well as state, and federal legislation. Relevant laws are being issued on a rapid and ongoing basis. Although Governor Murphy’s most significant Executive Orders, No. 107 and 108, issuing the directive to stay at home, and invalidating conflicting local ordinances, there are a variety of other orders and laws that present issues unique to community associations.


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In April, 2016, I wrote about the New Jersey Appellate Division’s Opinion in Scannavino v. Walsh, 445 NJ Super 162 (App  Div. 2016), which set forth the law on the liability of property owners whose trees/vegetation encroaches on the neighbor’s property.  In that case, Plaintiff alleged that defendants improperly allowed the roots of trees on their property to cause damage to a retaining wall between the parties’ properties.  Because the defendants did not plant or preserve the trees, they were deemed a natural condition for which the defendants were not liable. The Opinion is very helpful in dealing with many situations involving encroaching trees/vegetation between neighbors.

I concluded in writing about the Scannavino case, with “It will be very interesting to see how the nuisance cases “in the middle” (pure “natural” occurrences versus “artificial” conditions) evolve and are determined.”  Further, it will be interesting to see if the New Jersey Supreme Court (“the Court”) decides to further clarify the issues and/or adopt the more liberal view (simple reasonable care standard) imposing liability set forth in the Restatement (Third) of Torts §54 (2012).

Well, the New Jersey Supreme Court has weighed in, but I am not sure if the Court has really clarified the issues.

“Owning real estate can be a great recruiting tool, and can lure physicians into a larger practice,” says Stephen Timoni in a recent interview with Healthcare Finance News’ Jeff Lagasse.

“They become a partner in the practice, but they also offer them a buy-in into the building,” he said. “That’s very interesting for a young physician because, down the road, what physician groups may be doing is they’ll sell their building for a gain to a real estate investment trust or hospital system, and then they’ll lease the building back from the hospital. So they cash in on their equity.”

Another option for physician groups is to retain the real estate and lease it back to the health system for additional income — providing better overall economics, largely in the form of tax benefits.

Liquor licenses are state-issued licenses that enable your business to legally sell alcohol. The laws around liquor licenses vary by state and New Jersey has some of the most restrictive liquor license laws in the nation (along with being some of the most expensive). In New Jersey, the Division of Alcoholic Beverage Control (“ABC”) regulates the sale of alcoholic beverages and the conduct of licensees through the issuance of licenses. There are three types of licenses: manufacturing, wholesale and retail.  The subject of this article is a “33 License” or a Plenary Retail Consumption license (i.e. the license you need for a restaurant or similar.)

New Jersey law grants individual municipalities substantial discretion in passing ordinances regulating the sale and consumption of alcoholic beverages within their limits. The number of 33 Licenses available is determined by a municipality’s population, and may be further limited by the town’s governing body. As a result, the availability of alcohol and regulations governing it vary significantly from town to town. Retail licenses tend to be difficult to obtain. The market is in high demands and because of this 33 Licenses are subject to exorbitant prices if and when they become available. License holders (“licensees”) resell their license on the private market — subject to limitation. A license may only be used within the municipality that issued it originally. Moreover, any sale must be approved by the issuing authority. Here is how to get a liquor license broken down into four steps.

  1. Find the license, for sale on the private market. You will have to enter into a Purchase and Sale Agreement contingent upon successful application to the municipal ABC Board. You will also want to check to ensure the license is in good standing, has been properly renewed, etc. In order to do this you will want to run lien searches, request documentation of renewals, etc.

Good news is a brew for New Jersey craft beer advocates. In February 2018, the New Jersey Assembly’s Agriculture and Natural Resources Committee paved the way for the introduction of Bill A2196, which would remove a current licensing rule requiring breweries and distilleries to provide a tour of their facilities before serving alcoholic beverages to consumers. Currently, breweries holding a New Jersey Limited Brewery License are prohibited from selling their brews at the brewery, unless patrons first complete a tour of the premises. This requirement applies to every customer, regardless of whether it is their first or fifteenth visit to a particular brewery, and failure to issue a tour can result in a hefty fine. If passed, Bill A2196 would be the latest step in a number of recent legislative changes aimed at easing New Jersey’s complex and stringent liquor laws.

New Jersey craft beer production has exploded over the past four years. As of February 2018, the New Jersey Craft Beer Association has identified ninety-eight breweries and brew pubs in the State of New Jersey, as well as twenty-four “startup” breweries in the process of obtaining licensing or permits. The growth of craft breweries in the State is in no small part due to a trend in Trenton towards loosening the State’s strict liquor laws by steadily expanding the rights for breweries with Limited Brewery Licensees.

Prior to 2013, breweries were limited to selling their products to licensed retailers and wholesalers. If a brewery was interested in establishing a tasting room, it would be required to obtain a special permit—issued by a different regulatory agency—that limited service to 4 oz. samples. Then, in December 2013, a noticeable shift in policy took hold when the Limited Brewery License was amended to consolidate these laws and permit the consumption of full-sized beers on the premises. The amendment permitted breweries to sell their brews on site for consumption, but only if such beverages were offered in connection with a brewery or distillery tour.

The New Jersey Appellate Division’s decision in Greenbriar Oceanaire Community Association, Inc. v. U.S. Home Corporation, issued on November 16, 2017, determined that a Homeowners Association was not required to arbitrate any disputes with a developer, and, when faced with a motion to compel arbitration, was permitted to file an amended complaint separating out those claims that are not subject to the arbitration agreement.

The association involved in the dispute is responsible for the common areas, administration, and management of a 1425-unit residential community in Waretown, New Jersey. The defendant, U.S. Home Corporation d/b/a Lennar Corporation, was the sponsor and developer of the project, who ultimately transferred management to the association. In its June 2015 complaint, which was twice amended, the association, on behalf of itself and its members, being the homeowners bound to arbitration clauses, asserted numerous causes of action, including: design and manufacturing defects that the association claims constituted violations of applicable building codes and warranties, as well as various violations of the Planned Real Estate Development Full Disclosure Act (PREDFDA), and the developer’s breach of its fiduciary duties.

In light of the arbitration agreement contained in the developer’s contracts with the association’s homeowners, the developer moved to compel arbitration. By the time the motion was considered, the parties settled the design and construction claims. As a result, the question for the motion judge was whether the remaining claims, including those arising under the PREDFDA, and the fiduciary duty claims, were asserted on behalf of the homeowners and therefore subject to the homeowners’ promise to arbitrate with the developer, or whether the claims should be viewed as belonging only to the association, which never agreed to arbitrate any disputes with the developer. By way of his oral decision, the motion judge agreed with the developer’s view and entered an order compelling arbitration, and later denied a motion to vacate the order compelling arbitration.

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On March 3, 2017, the Appellate Division of the New Jersey Superior Court upheld a Chancery Court’s determination requiring parties to participate in an investigation of contamination despite the fact that there was no evidence linking any of the parties to the contamination. Matejek v. Watson, et al., Dkt No. A-4683-14T1. In doing so, the appellate court employed principles of equity to expand potential liability under the New Jersey Spill Compensation and Control Act, N.J.S.A. 58:23.11 et seq. (the “Spill Act”). The Matejek decision, which seems inapposite to other Spill Act jurisprudence, greatly expands the reach of the Spill Act and would require parties to expend resources to investigate contamination even when there is no evidence of any nexus to that contamination.

The decision has its genesis in oil contamination discovered in a tributary located in the vicinity of a residential condominium development. The New Jersey Department of Environmental Protection (“NJDEP” or the “Department”) responded to the threat by removing, at state expense, underground storage tanks from each of the adjoining five condominium units. Once the tanks had been removed, the Department determined that there was no further imminent threat to the tributary and terminated further work on the site. However, the Department never closed its administrative file and the site remained on the Department’s active list. Several years later, the owners of one of the condominium units sought to complete the investigation in order to remove what they deemed a cloud on title. They then brought an action against the other four condominium owners to compel them to equally participate in and complete the investigation (and, if necessary, the remediation).

The Chancery Court, after a bench trial, entered judgment requiring the parties to jointly retain a licensed site remediation professional to complete the investigation. The Court held that despite the fact that there was no evidence of the precise source of or responsibility for the contamination, the fact that the Department ordered the removal of all five tanks was enough to require that all of the impacted unit owners share in the steps necessary to further investigate the source of the contamination. More bewildering is the fact that the decision did not discuss or make any findings as to which of these five tanks had leaked or been involved in the discharge. Adjoining unit owners Carlos and Jean Gilmore appealed the Chancery Court’s determination arguing that the Spill Act didn’t require them to participate in a remediation absent evidence that they caused or contributed to the contamination.

The April 13, 2017, decision of the appellate division in Mill Pointe Condominium Association v. Rizvi, sought to address a condominium association’s efforts to obtain rental income, during the pendency of a foreclosure lawsuit involving an empty condominium unit. By way of background, the association had obtained a judgment against the unit owner who had failed to pay both his residential loan mortgage payments and common expense assessments, and then filed a motion before the Law Division seeking the appointment of a rent receiver, during the pendency of the mortgage lender’s foreclosure lawsuit. The association’s proposed remedy would apply the rent payments to the outstanding judgment in its favor leading up to the foreclosure. The Law Division judge denied the association’s motion, which was opposed by the mortgage lender on the basis that the commencement of a leasehold with a third-party tenant would interfere with the completion of the foreclosure suit, and that it would force the lender to become a landlord. Unfortunately, the Appellate Division was unable to rule on this issue, which became moot because the foreclosure judgment was granted before the court could address the issues. It’s important to note, however, that the court found that the association had “raised interesting and novel legal issues that could have widespread importance.” The court went so far as to recommend that future appellants file a motion to accelerate the appeal, advising the court of the time factors involved.

While the guidance from the Appellate Division in Mill Pointe Condominium Association is certainly no guaranty that another appellate panel will favorably view an association’s request for the appointment of a rent receiver in order to obtain rental income from an otherwise vacant condominium unit, it certainly presents an indication that the court is interested in investigating the possibility of a remedy for similarly situated associations facing lengthy foreclosures.

There are positive and negative considerations involved in the appointment of a rent receiver, even without the potential for contested litigation with a mortgage lender, as was the case in Mill Pointe. Generally speaking, the appointment of a rent receiver by a condominium association is more typical in the context of a foreclosure action commenced on the association’s behalf. On the positive side, rent receivers are able to collect income and apply it to monthly assessments, fees, and arrears owed on a condominium unit as set forth in the order of appointment, and they have a responsibility to avoid waste and disrepair. On the negative side, rent receivers are court-appointed professionals who are answerable only to the court, and do not take direction from the association, once appointed. Furthermore, a rent receiver is only permitted to remain in place for a limited amount of time, from the date of appointment, to the conclusion of the foreclosure case. In order to gain the most benefit, smart associations will consider moving for the appointment of a rent receiver in conjunction with initiating foreclosure proceedings.

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