Craig S. Hilliard, Shareholder and member of Stark & Stark's Litigation group was quoted in the article Case Questions Retroactivity of Change to Offer-of-Judgment Rule in the May 12, 2008 edition of the New Jersey Law Journal.

Mr. Hilliard believes that courts typically resist the retroactive application of new legislation and applying new laws to past acts is disfavored, either on constitutional grounds -- such as due process or, in the criminal context, ex post facto constraints -- or under a "manifest injustice" test.

Mr. Hilliard states, "The New Jersey Supreme Court historically has tested the fairness of applying new legislation to past acts by asking whether it is manifestly unjust to apply the law. But the Offer of Judgment rule in New Jersey is a court rule of procedure. In evaluating procedural rules, courts usually apply the "time of decision" rule, which means that the rule in effect at the time of the court's decision applies, even if it has some retroactive effect. No court in New Jersey has ever evaluated a court rule's retroactive effect under constitutional or "manifest injustice" standards, and we argued that it should not do so in this case, primarily because procedural rules usually do not implicate any substantive rights and therefore are not deserving of the same scrutiny applied to legislation."

You can read the full article here.

New Jersey has always protected to some extent the rights of a married person in and to New Jersey real estate owned by his/her spouse. Prior to May 28, 1980, protection was provided by means of an interest in the real estate called dower for the wife and curtesy (and not courtesy) for the husband. Effective May 28, 1980, the Legislature created an elective share for a spouse to share in the estate of a decedent spouse and a right of joint possession in the principal marital residence.

Dower and curtesy were abolished by the New Jersey Legislature as of May 28, 1980. (N.J.S.A. 3B:28-2). In New Jersey, the statutory rights of dower and curtesy gave the non-owning spouse a right to a life estate in one-half of the real property owned by the other spouse at the time of that spouse’s death. N.J.S.A. 3B:28-1. Dower and curtesy interests were created upon the acquisition of the property by a spouse in that spouse’s name only - or upon the date of the marriage between the two spouses, whichever date was later - until May 28, 1980. Property acquired on or after May 28, 1980 is not subject to dower or curtesy, nor is property acquired before that date by an unmarried person who later married on or after May 28, 1980.

In the situations where dower and curtesy interests still exist, the non-owning spouse must sign the deed conveying the property for the owning spouse to be able to convey clear title to a purchaser. For that reason a purchaser will want the non-owning spouse the sign the contract of sale along with the owning spouse. It is immaterial whether the real estate which is subject to a dower or curtesy interest is the marital residence or not.

In part to eliminate the ability of a decedent to disinherit his/her surviving spouse, the Legislature reformed our probate laws and created a right for the surviving spouse to seek an elective share of the decedent’s estate under certain circumstances (which this article does not address). N.J.S.A. 3B:8-1 et seq. As part of the probate reform legislation effective May 28, 1980, dower and curtesy were abolished, but a right of “joint possession” in the principal marital residence was created. N.J.S.A. 3B:28-3. This right provides that every married person shall be entitled to joint possession with his or her spouse during the marriage of real property occupied by them jointly as their principal residence if acquired by only one spouse on or after May 28, 1980. The effect is that title to property acquired on or after May 28, 1980 and occupied by spouses as a principal marital residence cannot be transferred without the consent of both spouses. All other real property owned by either spouse which is not the principal marital residence may be transferred without the consent of both spouses.

While there still remain instances where dower and curtesy may still exist, the protection provided to spouses since May 28, 1980 is now by means of the “right of joint possession.”

Jonathan H. Katz and Elysa D. Bergenfeld, members of Stark & Stark's Community Associations group, authored the article Can Community Associations Restrict Sex Offenders? for the April 2008 issue of Community Trends.

The article discusses the steps New Jersey municipalities have taken over the past several years in an attempt to increase the safety of their residents, specifically for the children's safety in these areas. The article addresses "Pedophile-Free Zones" ordinances which prohibits sex-offenders from residing in or loitering within 500 feet of schools, parks or playgrounds.

You can read the full article here.

Local ordinances requiring the disclosure of political contributions in connection with applications for land use approvals under the Municipal Land Use Law (“MLUL”) have popped up in one form or another in numerous New Jersey municipalities. Enacted ostensibly for the purpose of fostering good government and reducing corruption and appearances of impropriety, such laws can be unduly burdensome on landowners and developers. On April 17, 2008, in a case of first impression captioned Greenridge Estates, L.L.C. v. The Mayor and Township Council, et al. the New Jersey Superior Court, Law Division, reviewed an ordinance enacted in Monroe Township, Middlesex County, which required applicants for land use approvals and their professionals to disclose certain political contributions and business relationships and found it to be unconstitutional and contrary to the dictates of the MLUL.

In Greenridge Estates, a developer filed an application for preliminary major subdivision approval with the local planning board and, two days later, the municipal governing body adopted an ordinance requiring certain disclosures by applicants for land use approvals. For example, the said ordinance provided that an applicant must “[d]isclose all political donations made by the applicant, and any professionals of the applicant, within the past two (2) years, and any business relationship of the applicant or any of the applicant’s professionals with a board member, and list all consultants, facilitators or other professionals used in connection with the pending application.” All such disclosures “shall be a required checklist item for any land development application requiring a variance, waiver or exception,” and any “knowing failure” on the part of an applicant to comply with this mandate “shall be punishable by a two thousand dollar[-f]ine and/or remanding of the application to the board for reconsideration.”

When the planning board had deemed the developer’s application incomplete for failing to make the aforesaid disclosures, the developer filed suit against the municipality. In evaluating the merits of the developer’s challenge, the trial court described the controversy as impinging upon the developer’s constitutionally protected right to freedom of association and right to privacy and invalidated the Monroe Township ordinance on both grounds. The trial court based this ruling principally on the lack of a rational connection between the disclosures required by the subject ordinance and the stated purpose of the ordinance, that being the elimination of appearances of impropriety, and due to its being both over-inclusive and under-inclusive. In this regard, the trial court opined that “[t]here cannot be an appearance of favorable treatment due to political contributions since none of the members of the Zoning Board of Adjustment are elected, and only two of the nine Planning Board members may be elected officials.” In addition, “the Ordinance cannot be upheld because it is overly-broad[,]” since it requires the disclosure of all political contributions irrespective of the amount or the person to whom they were made requiring, hypothetically, “the disclosure of a $10 political contribution made by an applicant to the governor of Hawaii[.]” By the same token, “the Ordinance is under-inclusive[,] . . . because it does not apply to objectors to an application.”

In addition to constitutional infirmities, the trial court struck the “remand remedy” in the ordinance due to the lack of legislative authority in the MLUL to enact such provisions and “without such authority in the MLUL, the governing body cannot confer upon itself or anyone else the authority to remand an application for reconsideration once rights have vested.”

In the face of mounting regulations at every level of government, the Greenridge Estates decision is a breath of fresh air for beleaguered landowners and developers in Monroe Township. Although not precedential, the Greenridge Estates decision is well-reasoned and could serve as a springboard for positive rulings in other cases and the eventual elimination of local disclosure laws in the land use application process.

Cotswold vs. Renaud, et al.

On April 30, 2008, the Appellate Division in Cotswold v. Renaud, et al. evaluated whether an historic fountain, although not affixed to the real estate, was protected under a local preservation of historic landmarks ordinance.  In this case, a dispute arose when a property owner sought to remove from the grounds of an historic estate a six-foot high fountain after converting the property into condominiums without first obtaining a certificate of appropriateness from the municipality under the ordinance.  The fountain / statue, which consisted of four figures around an urn and weighed over 1,000 pounds, was designed by sculptor, Enid Yandell, and had been located at the historic estate since 1925.  The property owner maintained that the fountain was not attached to the land, and, therefore it was not a fixture was not within the historic site designation. After being instructed by the municipality to return the fountain, the property owner instituted a declaratory action for a court order finding the fountain to be outside the ambit of the municipality’s regulatory authority under the ordinance.  The municipality brought a counterclaim requesting the return of the fountain and the imposition of penalties.  The trial court ruled that the fountain was a part of the historic estate and ordered the property owner to return it until and unless the property owner is able to obtain a certificate of appropriates for its removal and relocation.  The trial court denied the municipality’s request for penalties.

On appeal, the property owner reiterated its position that the fountain is not properly governed by the local preservation of historic landmarks ordinance and also raised, for the first time, the contention that the subject ordinance is unconstitutional, as applied, because it effects a taking of the fountain.  The Appellate Division affirmed the trial court’s ruling in all respects and rejected the property owner’s constitutional argument stating, among other things, that “the Ordinance does nothing more than require that the fountain remain on the property where it has been for more than eighty years unless a Certificate of Appropriateness is obtained.”  Under these circumstances, which neither establish a physical taking nor deprive the property owner of all economic or beneficial use of the fountain, there is no governmental taking.

Mon Cheri Bridals, Inc. v. Wen Wu et al, Civil Action No. 04-1739 (AET)

Mon Cheri Bridals, a large wholesale manufacturer of wedding dresses and social occasion dresses, brought suit in U.S. District Court in Trenton, New Jersey against a competitor, Wen Wu and various companies he owned and controlled, alleging that Mr. Wu and his companies infringed on Mon Cheri’s copyrights in its dress designs, and breached a 1999 contract between the companies.

The initial dispute arose in August of 1998 between Mon Cheri and Wu concerning dress designs. Mon Cheri discovered that Wu was marketing his dresses using photographs of more expensive versions that Mon Cheri manufactured and sold.

Wu signed an affidavit swearing that he, and the other companies he owned and controlled, would not infringe upon Mon Cheri’s rights in the future. Mon Cheri later learned that Wu continued to sell dresses that infringed upon Mon Cheri’s copyright and trade dress rights.

 
The case went to trial before the Hon. Anne E. Thompson, U.S.D.J.  After two weeks of trial, on April 4th the jury returned a verdict in favor of Mon Cheri Bridals on its claims for copyright infringement, unfair competition and breach of contract.  The jury awarded Mon Cheri compensatory damages of $324,000 and punitive damages of $375,000, for a total verdict of $699,000. 

Mon Cheri Bridals, Inc. was represented by Craig S. Hilliard, Esq. and Martin P. Schrama, Esq., Shareholders of Stark & Stark’s Litigation Group.

Adam J. Siegelheim, member of Stark & Stark's Franchise Group, was quoted in the article On Franchising in the May 6, 2008 edition of the Wall Street Journal. The article addresses some of the most common issues facing new franchisors and some new concerns franchisors need to be aware of before starting a franchise of their own. Mr. Siegelheim comments on some of the factors that franchisors need to take into consideration when starting a new franchise, and some tips to ensure the longevity of your franchise concept.

You can read the full article on the Wall Street Journal Online (registration required).

Three Critical Issues for Suppliers
On May 2, 2008, Linens-N-Things and its affiliated entities filed for Chapter 11 bankruptcy protection in the District of Delaware. Linens-N-Things has a number of different suppliers that are effected by this bankruptcy filing. Following are three (3) very important issues that suppliers should know about to ensure their rights in the bankruptcy proceeding.

RECLAMATION
Certain suppliers have the right to reclaim goods that they have shipped a bankrupt debtor. A creditor may attempt reclamation of their goods sold in the ordinary course under Bankruptcy Code § 546 (c). However a supplier must move quickly on their right to reclaim any of these goods that are lost. The supplier must make a demand in writing for reclamation of the goods no later than 45 days after delivery. If the 45 day period has not expired as of the date of the filing of the bankruptcy petition, the supplier will be provided an additional 20 days to demand reclamation of the goods sold.

ADMINISTRATIVE EXPENSE
In addition to reclamation, suppliers also have the ability to seek a priority administrative expense under Bankruptcy Code §503 (b). This claim is for the “value of any goods” received in the ordinary course of business by a debtor within 20 days prior to the bankruptcy filing. To obtain this expense, the supplier must make a request, often by motion. A supplier who exercises their rights, can be in a better position than unsecured creditors since the Chapter 11 Plan of Reorganization cannot be confirmed unless all administrative expense claims are paid in cash on the effective date of the bankruptcy plan.

PROOF OF CLAIM
In addition to the other rights mentioned, suppliers should also file a Proof of Claim for any amounts due and owing prior to the petition date. The Bankruptcy Code allows creditors to be paid with other similar situated creditors through the Bankruptcy Plan. The Proof of Claim deadline is usually provided at the beginning of the case and will allow creditors to exercise these rights. It is important to file a Proof of Claim properly and prior to the deadline.

For my information on supplier’s rights in the Linens-N-Things bankruptcy case or any other bankruptcy matters, please feel free to contact either Tom Onder or Jeff Posta in the Bankruptcy &  Creditor’s Rights Group at (609) 219-7458 or tonder@stark-stark.com, and (609) 791-7021 or jposta@stark-stark.com.

With the recent downturn in the market, a number of commercial tenants are experiencing financial difficulties. In turn, this can lead to problems for commercial landlords, most importantly, the tenant staying current with lease payments. This may then lead to the tenant filing for bankruptcy protection. If your commercial tenant files for bankruptcy, it is wise to have a strategy in place to not only minimize the time of non-payment, but also maximize the ability to receive rents and damages allowed under the Bankruptcy Code. 

Following are four (4) questions for commercial landlords to review with an attorney  whenever a commercial tenant files for bankruptcy protection:

1.    Have You Filed a Proof of Claim(s)?  As soon as the tenant/debtor files for bankruptcy protection, commercial landlords should ensure their rights to payment(s) by filing appropriate proofs of claim.  It is advisable to review with your attorney the current account history and lease to ensure all fees are being accounted. Landlords may be able to file upto three (3) different types of claims:

    a.    Pre-petition Claim. Section 502 of the Bankruptcy Code provides that creditors are permitted to file a proof of claim for all pre-petition charges and assessments owed.  If a tenant files for bankruptcy, the landlord is permitted to file a proof of claim for all fees and charges incurred prior to the filing date;

 

    b.    Post-Petition Administrative Claim.  Section 503(b)(1) of the Bankruptcy Code provides a creditor a priority claim for all “actual, necessary costs and expenses of preserving the estate”.  If the tenant remains in the premises after the bankruptcy and does not reject the lease, the commercial landlord may be allowed payment  ahead of other creditors for amounts incurred during this period; and

 

    c.    Post-Rejection Damage Claim. Section 503(b)(7) of the Bankruptcy Code provides a commercial landlord the right to be paid for “post bankruptcy rejection” damages. If the tenant rejects the lease, certain damages incurred and the remainder of the lease may be permitted priority before payment of certain claims.

2.    Is the Debtor/Tenant Assuming or Rejecting the Lease?  Landlords should inquire whether the debtor/tenant intends to assume or reject the lease.  Bankruptcy Code Section 365 provides that tenants are permitted to assume a commercial lease, as long as they cure all post-petition defaults. If they reject the lease, then the landlord may be able to proceed with an eviction action to remove the tenant. However, landlords should know that the Bankruptcy Code permits the debtor 120 days to decide whether to assume or reject the lease, with an additional 90 day extension.  All told, this can leave the landlord sitting around for more than 7 months without payment.  If your not being paid, it may be advisable to have the Bankruptcy Court allow you to proceed with an eviction action. 

3.    Should you File a Motion for Stay Relief to Proceed with an Eviction?   The debtor/tenant may not advise their intent to assume or reject the lease.  As noted, during this time, the debtor/tenant can use the premises without paying anything.  The landlord is permitted to file a motion for “Relief from the Automatic Stay”.  This Motion, if granted,  permits the landlord to resume or commence with a state court eviction action.

4.    What to Do with Items Left by a Tenant?  If the debtor/tenant leaves equipment, inventory or equipment at the premises, can you just throw it away? Does anyone have an interest in the left over items, like the debtor/tenants’ bank?   Can you recover storage fees? When a tenant/debtor files for bankruptcy, these left over items may be part of the bankruptcy estate. Gaining proper approval from the Bankruptcy Court, before disposing of the left over “junk” is essential to limiting liability.  For instance, the left over property may be secured by a bank, financial institution or creditor. You may want to have a UCC Search conducted to ascertain whether any security interest exists.  If security interests are discovered, it is advisable to give notice to those entities, possibly through a motion with the Bankruptcy Court.

These are just a few of the questions a landlord should ask when a debtor files for bankruptcy.  By asking these questions at the start of the bankruptcy, landlords can limit the loss or liability, as well ensure their right to payment through the Bankruptcy Code.

Myth 2: Divorced or unmarried parents do not have a financial obligation to provide post-secondary education support to their unemancipated children.

As a family law practitioner, I often find that one of the “hot button” issues for my clients is the forced contribution to the post-secondary (college) costs of their children. New Jersey is in the minority of states that require divorced and unmarried parents to contribute to at least a portion of their children’s educational expenses. Many scholarly articles and oral arguments have been made concerning the unfairness of this requirement because married parents have no legal obligation to support their children through college. However, the notion of a divorced or unmarried parent’s contribution seems heavily embedded in our law and a change does not seem to be on the horizon. As a parent of a college-aged child, it is important that you understand the law surrounding this obligation.

Our Supreme Court, in Newburgh v. Arrigo, 88 N.J. 529 (1982) addressed this issue directly and delineated the specific criteria to be considered in determining whether parents are legally obligated to fund higher education expenses:

1 - Whether the parent, if still living with the child, would have contributed toward the costs of the requested higher education;
2 - The effect of the background, values and goals of the parent on the reasonableness of the expectation of the child for higher education;
3 - The amount of the contribution sought by the child for higher education;
4 - The ability of the parent to pay that cost;
5 - The relationship of the requested contribution to the kind of school or course of study sought by the child;
6 - The financial resources of both parents;
7 - The commitment to and aptitude of the child for the requested education;
8 - The financial resources of the child, including assets owned individually or held in custodianship or trust;
9 - The ability of the child to earn income during the school year or on vacation;
10 - The availability of financial aid in the form of college grants and loans;
11 - The child’s relationship to the paying parent, including mutual affection and shared goals as well as responsiveness to parental advice and guidance;
12 - The relationship of the education requested to any prior training and to the overall long-range goals of the child; and
13 - Contribution made to household expenses by the current spouse of either parent [Hudson v. Hudson, 315 N.J. Super. 577 (App. Div. 1998)].

One could write volumes of articles regarding each of the above factors. However, for purposes of this forum, I will offer some practical tips when preparing for a court hearing regarding college contribution.

Get Your Financial Records In Order

As seen in factors 4 and 6, the financial resources of both parties is an important consideration. The Court will not force parents that are struggling financially to take an additional obligation that may place them at a serious risk of bankruptcy. The Court is going to want to review your previous 3-5 years worth of Tax Returns, W-2 Forms, Social Security Earning Statements, Bonus Information and Bank Records. This financial snapshot will allow the Court to determine each party’s ability to contribute to college expenses. Often times, Courts will set each parent’s financial obligation based off a respected percentage of their total combined incomes. For example, if the mother earns $100,000.00 per year and the father earns $50,000.00 per year, they would be required to contribute 66% and 33% respectively to the college tuition of their child.

Your accountant should have file copies of your previous tax returns and W-2 information. With regard to social security earning statements, you can contact the Social Security Department directly to receive this document. Make sure to allow yourself substantial time to retrieve these documents. I would suggest that you begin this process 30-45 days prior to meeting with an attorney or filing your motion Pro Se.

Do Your Homework Regarding Financial Aid Options

As evidenced in factor 10, the availability of grants, loans and scholarships is an important part to the contributing parent’s total. In my experience, judges often apply the amount of financial aid the student received “off the top” of the total college contribution amount attributed to the parents. It is important to understand the various types of loans (subsidized vs unsubsidized..etc) and the available financial aid packages available to your child. Also, make sure to fill out a complete FAFSA (Free Application For Federal Student Aid). This form will determine the student’s eligibility for state/federal grants and financial aid. Once this process is complete, you will get a clearer picture of what remaining portion of tuition will be the parents’ responsibility and you can set forward the appropriate financial strategies to satisfy this obligation.

Involve The Other Parent In The Decision-Making Process

Factor 11 deals with the child’s relationship with each parent and their responsiveness to parental guidance. Many parents learn of their children’s plans for college when they are served with a Court Motion regarding financial contribution. While this may not necessary block the moving party’s application for financial support, it certainly does not help your case when the other parent is not informed or involved in the college selection process. Even if your relationship with the other parent is strained, I recommend that you officially put him/her on notice that your child has plans to attend college. This can be accomplished by writing a letter and sending it through certified mail. At a minimum, this notice should be given to the other party when the child enters their Junior year in high school. This advance notice will give the parents plenty of time to discuss a possible agreement regarding contribution or alternately, a chance for the issue to resolved through the Court system before the child’s first tuition bill is due to the college.

In conclusion, it is very important to understand the law in New Jersey regarding each parent’s financial responsibility to support their children through college. People who leave themselves in the dark and believe that their financial obligation for their children ceases at high school graduation are placing themselves in a vulnerable position when their children attend college. If you are not married and have children that are approaching college age, it is my advice to talk to a financial planner to develop a payment strategy for this expense and consult with an experienced family law practitioner to review your legal rights.

David J. Byrne, Shareholder and member of Stark & Stark's Community Associations group presented a seminar at the 21st Annual Cooperator's Co-Op & Condo Expo which was held April April 28 - 29, 2008 in New York. New York.

The seminar focused on avoiding litigation and stopping lawsuits before they start. Mr. Byrne discussed strategies for avoiding litigation related to everything from unpaid fees to disputes between neighbors, and discussed and analyzed laws and regulations governing administrative documents.

You can view a copy of the seminar materials here. A full recording of the seminar will be available online next week.

A unit owner in a top floor of a Union City condominium recently decided to pay his monthly assessments into an escrow account, alleging that the condominium association had failed to maintain the roof, proximately causing damage to the unit, and personal injury to the owners living inside. In this matter, the owners filed a suit against the condominium, its board members and its managing agent, seeking damages associated with what they contend is a breach of duty on the condominium's part. The owners vacated their unit, and now claim that the condominium must restore the unit's interior and there after pay money to plaintiffs to compensate them for the loss of use of the unit and for disease and other maladies from which they contend to be suffering. In response, the condominium recorded a lien and filed a counterclaim seeking a judgment for all unpaid assessments, late fees and attorney fees. With the case still in its early stages, Megan Christensen and I filed a motion for partial summary judgment, on the condominium's behalf, seeking a judgment against the owners for all unpaid assessments and late fees. We argued that it is clear and fundamental under New Jersey law that a condominium owner must pay assessments regardless of what condition the unit may or may not be in. We asserted, basically, that there is no lawful reason why a condominium owner can ever fail and/or refuse to pay assessments. In response, the owners argued that the alleged, subjective, condition of their unit excused their nonpayment and/or that they should be freed from paying assessments until those conditions are remedied.

Fortunately, for the good of all members of this condominium, the court agreed with us, ruling that these owners are forbidden from withholding payment of assessments, and entering a judgment against the owners. The court also awarded late fees to the condominium. While the owners are still permitted to continue their suit against the Association, they have a judgment against them for all unpaid assessments and late fees. The condominium can execute on that judgment and, also, base a foreclosure action on this decision.

In the end, this case is another decision in a long line of decisions that reiterate the following basic principle under New Jersey law: a condominium owner is absolutely forbidden from withholding, or refusing to pay, assessments, for any reason. Condominiums should continue to hold the line against owners that try to hold their neighbors hostage by withholding the payment of assessments. While condominiums can always try to negotiate or otherwise discuss the dispute with owners, and reach an agreement or not, they should enter such a process from a position of strength, as they can always get the court to force the offending owner to pay his assessments, despite whatever else may be happening.

Martin P. Schrama and Melissa D. Doogan authored the article Recent Revisions to the Trademark Trial and Appeal Board Rules for the New Jersey Law Journal's April 14, 2008 Intellectual Property & Life Sciences Supplement.

The article discusses the impacts the substantial rule changes set forth by the Trademark Trial and Appeal Board and the United States Patent and Trademark Office will have on trademark opposition and cancellation actions.

You can read the full article here.

What is a short sale?  This a term which is being used with increasing frequency in today’s real estate market.

A short sale is when the proceeds from the sale of a home are not sufficient to fully pay off all outstanding debts which are secured by the property (mortgages) after first deducting the homeowner’s costs of selling the property.  In such instances, the selling homeowner can either bring funds to closing to make up the difference, or obtain approval from his mortgage holders to accept a reduced amount to satisfy his outstanding loans. 

Unless a homeowner is able to pay off all of the mortgages which are secured by his property, the homeowner will not be able to convey good title to a buyer.  If the homeowner is unable to obtain a sales price which enables him to pay off all loans and closing costs, and he does not have the funds to make up the difference, then he may want to try to obtain approval from his current lender(s) to accept an amount less than the full amount due on its mortgage.  For a lender, this may be acceptable to obtain repayment of a substantial amount of its loan and to avoid the costs and delay of foreclosing on the loan.  This will generally mean that the Seller will not receive any funds from the sale of his home.

In order to obtain such approval from a lender - which may or may not be granted - the homeowner needs to contact his lender(s) to determine what information they will need to make their decision.  This usually includes a financial statement of the homeowner, copy of a contract of sale, appraisal, and other pertinent documents.  Generally, a lender will not consider approving a short sale without a clear economic hardship on the part of the homeowner and an existing default or pending foreclosure.

Until recently, forgiveness of a debt under these circumstances, could trigger a taxable event according to the IRS.  This means that if a lender forgave a part of the mortgage debt by accepting a reduced amount in full satisfaction of the loan, then the amount forgiven could be deemed taxable income to the homeowner.  This was so even though the homeowner received nothing from the sale.  However, in December 2007 Congress passed the Mortgage Forgiveness Debt Relief Act of 2007.  This Act amends the Internal Revenue Code to exclude from gross income amounts attributed to a discharge of indebtedness incurred to acquire a homeowner’s principle residence.  The amount of the debt forgiveness can be up to $2.0 million.  Thus, a homeowner is now able to sell his home for less than what is owed on it without incurring an additional tax liability.   This exemption for forgiven debt, however, is only temporary and expires within three years.

House Bill 2491 and Senate Bill 1539 of the New Jersey Legislature seek to expand the type of franchises, which are subject to the New Jersey Franchise Practices Act. In general, the New Jersey Franchise Practices Act currently applies to franchises where: 1) the franchisor has granted the franchisee a license, mark, trade name, etc.; 2) there is a “community of interest” in the marketing of goods and services; 3) where the franchisee has established or maintains a “place of business” in New Jersey; 4) where the gross sales between franchisor and franchisee are more than $35,000 in the prior year; and 5) more than 20% of the franchisee’s sales are derived from the franchise. The proposed change in the statute would apply the provisions of the Franchise Practices Act to “mobile” franchises, in other words, franchises that do not have a brick and mortar location. Under the proposed Bill, a “place of business” would include a location where the franchisee “displays for sale or at which or from which the franchisee sells the franchisor goods.” This would include an office or warehouse from which franchisee personnel visit or call upon customers or, perhaps more importantly from which the franchisor’s goods are delivered to customers.

Potentially more significant than the proposed changes to the definition of “place of business” is the additional language that the Bill would tack on to the “general purpose” section of the Franchise Practices Act. The proposed Bill would add the following language:

“…and to protect franchisees from unreasonable termination by franchisors that may result from a disparity of bargaining power between national and regional franchisors and small franchisees. The legislature finds that these protections are necessary to protect not only retail businesses, but also wholesale distribution franchisees that “through their efforts” enhance the reputation and goodwill of franchisors in this State. Further, the legislature declares that the courts have in some cases more narrowly construed the Franchise Practices Act then was intended by the legislature”.

This additional language should concern franchisors doing business in New Jersey, since it is unnecessary to achieve the expansion to the “place of business” definition that is the focus of the Bill. This tougher language may indicate that there are further changes to the statute being considered. Certainly, the inclusion of the proposed language would be used as a justification by judges to give much broader application to the Act than has been the case in years past.

The two Bills are currently in the initial stage of the legislative process, and will probably not be acted upon until May or June of this year. The current sponsors of the two Bills are Assemblyman Joseph Cryan – District 20 (Union County) and Senator Bob Smith – District 17 (Middlesex and Somerset Counties). The legislation was introduced in the House on March 10, 2008, and in the Senate of March 17, 2008.

David J. Byrne, Shareholder in Stark & Stark's Community Associations group will present at the 2009 Cooperator Co-Op & Condo in New York, New York. The expo will take place Tuesday April 29th from 9AM - 5PM.

Mr. Byrne will present  on avoiding litigation.  During the seminar Mr. Byrne and an experienced property manager will discuss strategies, ideas and ways for cooperatives, condominiums and homeowners associations to avoid litigation.  The speakers will discuss ways unpaid maintenance fees and assessments can be collected, ways regular payments can be assured, without necessarily resorting to counsel. 

They will discuss alternative dispute resolution and conflicts among shareholders, owners, neighbors, boards and others.  Strategies, both practical and legal, to deal with difficult and objectionable shareholder and/or owner conduct will be provided.  Laws and regulations applicable to document retention, and the inspection of records by shareholders and owners, will be reviewed and analyzed."

You can find additional information and ways to register here.

On March 31, 2008, the New Jersey Supreme Court decided Toll Bros. v. Board of Chosen Freeholders, which principally held that a developer may seek to modify or reform an off-tract improvements obligation in a developer’s agreement when the project to which such obligation relates has changed.  By ruling in this fashion, the Supreme Court took a practical and equitable stand in resolving the problems that developers and property owners face when things just don’t work out as planned.

The facts of Toll Bros, like all cases, are of importance to understanding fully the context of the instant controversy and the breadth of the Supreme Court’s decision.  Briefly, the developer in this case - Toll Brothers, Inc. - acquired a parcel of land in foreclosure with municipal and county approvals and, thereafter, entered into developer’s agreements with Burlington County and Moorestown Township to memorialize its agreement to complete certain off-tract roadway improvements, which the local planning board and the county planning board had required as a condition of the approvals applicable to the Toll Brothers property and a smaller, adjacent parcel owned by another corporate entity.  Over time, Toll Brothers substantially decreased the scope of the original development plan for its property while the approximate cost of the required off-tract improvements had risen from $2,100,000 to $5,000,000.  However, notwithstanding these circumstances, neither the County nor the Township were willing to adjust Toll Brothers’ obligations and, consequently, a multitude of lawsuits were commenced.

The trial court consolidated all of the aforesaid actions and found, among other things, that unlike the conditions of approval contained in a resolution Toll Brothers had no right to seek a modification or reformation of a developer’s agreement based upon a change in circumstances.  In a reported decision, 388 N.J.Super. 103 (2006), the Appellate Division affirmed the trial court with respect to its rulings on the County’s right to enforce its developer’s agreement, but reversed the trial court’s decision regarding the Township’s developer’s agreement.  The reason for the Appellate Division’s distinction in this regard resided in the specific text of each contract.

Under the County’s developer’s agreement, Toll Brothers had to construct all the off-tract improvements when the number of buildings for which it had received permits generated more than 18% of the traffic projected for development under the original plan.  As such, according to the Appellate Division, Toll Brothers’ downsizing was largely irrelevant to the County’s developer’s agreement, because its obligation to build out the improvements was not tied to the completion of development under the original plan but, rather, accrued upon the 18% trigger. 388 N.J.Super. at 129.  Although the Appellate Division acknowledged that the Municipal Land Use Law prohibited the County from requiring Toll Brothers to build the off-tract improvements identified in the developer’s agreement as a condition of approval for Toll Brothers’ downsized development plan, it ruled that such limitations are inapplicable to a voluntary agreement. Ibid. at 123-124.  Contrarily, under the Township’s developer’s agreement, the contractual language required staged improvements that were directly linked to the original development plan and, therefore, could not be enforced once the scope of such plan had been reduced. Ibid. at 130-131.

On appeal, the Supreme Court began its analysis by recognizing that “[u]nder the MLUL, a planning board may only impose off-tract improvements on a developer if they are necessitated by the development.”  As such, “[a] developer cannot be compelled to shoulder more than its pro rata share of the cost of such improvements. . . . [This] is so even if the developer is a willing participant in a separate developer’s agreement.” – A.2d –, 2008 WL 833160 (N.J.) at *1.  To hold otherwise, would be contrary not only to the letter and spirit of the MLUL, but also sound public policy. Ibid. at *14.

Furthermore, even if disproportionate public benefits and improvements could be obtained from developers on a truly voluntary basis, such arrangements would “[p]lainly violate the nexus and proportionality requirements in the MLUL that serve as the Legislature’s check on a municipality’s limited planning power[,]” and thereby would be unenforceable.  A municipality’s exercise of this “limited planning power” must comply with the dictates of the MLUL even if the same is expressed in a contract rather than a resolution of approval.  Indeed, “[a] developer and a municipality cannot do by contract what the statute prohibits.” Ibid. at *15.  On the contrary, “[a] developer’s agreement is an ancillary instrument, tethered to the conditions of approval, and exists solely as a tool for the implementation of the resolution establishing the conditions.  Accordingly, if the resolution . . . changes, the developer’s agreement enjoys no independent status and must be renegotiated.”  As such, “[w]e do not view the ancillary developer’s agreement as a bar to Toll Brothers’ application for modification of the resolution setting the conditions of approval.” Ibid. at *13.

The Court also rejected the County’s alternative arguments, namely, that “[e]ven if Toll Brothers is not barred from advancing a changed circumstances challenge to the conditions of approval,” it is not entitled to relief, because the project was not completely abandoned and “[b]ecause the County relied to its detriment on what it considered the binding developer’s agreement in its later dealings with other developers.”  As to the first alternative point, the Court stated that limiting a developer’s right to seek a modification of a condition of approval only to instances where a project is abandoned “would offend the nexus and proportionality requirements reflected in the MLUL.”  Respecting the County’s detrimental reliance claim, the Court likened this to promissory estoppel and given that “[b]oth Toll Brothers and the County knew or should have known that the conditions of approval were subject to change if the facts in the case changed and that the developer’s agreement was not a stand-alone obligation[,]” the County’s reliance was not reasonable and, therefore, “this argument too must fail.” Ibid. at *15-16.

In light of the Court’s determinations, it reversed the Appellate Division and remanded the matter to the trial court for further proceedings.

The foregoing summary of Toll Bros. v. Board of Chosen Freeholders shows how the Supreme Court in this case was determined not to let local and county government reap a windfall of public benefits at the expense of a single developer, who for one reason or another was unable to complete a particular project as originally approved and, instead, send a firm message that such situations call for flexibility and accommodation.  The common sense approach taken by the Supreme Court will have positive implications for developers and the building industry, especially now, in the current financial climate where flexibility is unquestionably at a premium.

Recently, the Appellate Division of the State of New Jersey in Patel v. 323 Central Avenue Corp., et. al., declared that a tenant’s exercise of his option to purchase certain commercial property was barred.  The court found that the contract was never signed, no enforceable oral agreement was ever intended, the tenant did not make a valid election to exercise his option under lease, and the tenant did not extend his option under the lease.  See Patel v. 323 Central Ave. Corp., et al. A-3724-06T2 (App. Div. 2008).

This decision is very helpful to commercial landlords as it supports basic contract law maxims, which requires commercial tenants who wish to exercise certain options to exercise those options with particularity and pursuant to the terms of the contract.

Background
The tenant was a physician who entered into a lease agreement for commercial property in Orange, New Jersey.  The landlord was wholly owned by Ocean Mountain Healthcare Incorporated.  In addition, Cathedral Healthcare Systems (the “Affiliate”) had an affiliation agreement with the hospital.  The tenant’s lease for the commercial space was to terminate on March 19, 2005.  The lease provided the tenant with an opportunity to extend the term of the lease and the right to purchase the commercial property.  The tenant sent a letter to the Chairman of the Affiliate (not the landlord)  in February 2004 expressing a desire to exercise the option - almost a year prior to the expiration of the contract.  Although not specifically noticed by the tenant, the landlord sent back an unsigned  written contract to sell the property.  The tenant then forwarded a deposit check to the landlord with the signed contract.  After the lease term ended, the landlord forwarded to the tenant a letter advising that it was no longer in the position to sell the commercial space, later returning the tenant’s deposit check.

The tenant filed suit claiming specific performance, breach of contract, breach of implied covenant of good faith and fair dealings, fraud, consumer fraud, successor liability.  The lower court dismissed all counts of his complaint.  The Appellate Division affirmed that ruling.  

Appellate Division Upholds Landlord’s Rights
The Appellate Division, upon review of the case, noted that the tenant failed to present clear and convincing proof of the contract.  Noting in the record, that although that the landlord had forwarded a contract to the tenant to sign and the tenant had executed the contract, as well as provided the deposit, at no point had the landlord actually signed the contract.  Further, the Court noted that when the tenant exercised its option to purchase the lease term failed to request an extension of the term.  As such, when the landlord advised the tenant that it no longer wanted to sell the building, the tenant was outside his contractual period.  The Court also noted that the tenant had failed to strictly comply with the terms of exercising his option.  For instance, the contract provided that the tenant was to provide notice to the landlord via certified mail, return receipt.  Rather than sending to the landlord, the tenant sent this option to the Affiliate.

Practical Implications for Commercial Landlords
This opinion is very beneficial to commercial landlords providing a tenant the option to purchase the commercial property.  The contractual obligations of both parties will not be over ridden simply by one party’s assumption that it has complied with specific provisions of the contract.
    
Following are some issues that commercial landlords should review with their attorney before providing an option to purchase.  

1. Review the notice provisions of the option.  For an option to be exercised correctly, it should be noticed pursuant to the terms of the contract.  If the notice requires for certified mail, return receipt then the notice should be sent via that method. .
2. Be sure to correctly exercise the option.  When an option is exercised, it is important for the party exercising that option to ensure that all portions are exercised.  In this case, the tenant only attempting to exercise his option to purchase the property.  He did not exercise any option to extend the lease term.  Due to the tenants failure to exercise his option to extend the lease period, when the landlord rejected his offer to purchase the property, the tenant had no recourse.
3. Is this the final version of the lease?  In this case, the landlord’s counsel was acute to note to send a “draft” contract without any signatures.  The landlord did not agree to these terms but rather put a “draft” contract out for the tenant’s review.  As such, when the tenant signed it, the contract was still in flux at this point.

On March 31, 2008, the New Jersey Superior Court, Appellate Division, decided Viecelli et al. v. Planning Board of the Borough of Point Pleasant, et al., an unpublished decision. In this case, the plaintiffs constructed improvements on land for an ice cream shop after receiving site plan approvals from the planning board. After numerous inspections, the planning board’s engineers advised the municipality by letter that the plaintiffs had satisfactorily completed the project in accordance with the planning board’s resolution of approval and in reliance upon these representations the municipality issued a certificate of occupancy.

Some time later, the planning board discovered that the completed improvements differed from the approved site plans and demanded that the plaintiffs remedy all such deficiencies.The plaintiffs filed suit challenging the planning board’s decision. In addition to requests for declaratory and injunctive relief, the plaintiffs brought claims for damages under the Tort Claims Act and the Civil Rights Act of 1871. In response the planning board filed a claim against the plaintiffs under the Frivolous Litigation Statute and one of its members, who the plaintiffs were suing personally, brought a counterclaim alleging the plaintiffs’ facilities constituted a nuisance.

The chancery judge found, among other things, that the planning board was not estopped from requiring the plaintiffs to comply with the approved site plan despite the issuance of a certificate of occupancy and, as such, required the plaintiffs to either submit to the planning board an amended site plan application or comply with the site plan, as approved. Additionally, the chancery judge dismissed without prejudice the Tort Claims Act causes of action for failing to comply with the statute and dismissed with prejudice the Civil Rights Act claim on grounds of immunity.The chancery judge also dismissed the nuisance counterclaim and denied the planning board’s request for counsel fees under the Frivolous Litigation Statute.

The plaintiffs appealed from the judgment of the trial court, which the Appellate Division affirmed. In upholding the trial court’s ruling on the estoppel issue, the Court found that the plaintiffs had no grounds for reliance upon the certificate of occupancy.

Although the CO was issued by the Planning Board on their engineer’s apparently erroneous recommendation, plaintiffs did not fulfill their obligations either.  The authorizing resolution and the application for the CO specifically required plaintiffs to bring any deviations to the Planning Board’s attention, and they chose not to do so. . . . [P]laintiff’s knowledge and failure to act in accord with the resolution and the application for a CO defeats their claim of equitable estoppel.

In light of this determination, the Court concluded that the planning board “[w]ill not be barred from compelling plaintiffs to modify their completed site, or seek approval of a modified site plan, despite the issuance of a CO.” 

For more information on landlord tenant issues, for residential or commercial leases, please feel free to contact Tom Onder, Stark & Stark’s Commercial Litigation and Creditor’s Rights Group at (609) 219-7458 or via email a tonder@Stark-Stark.com.