Tenant Abandonment of Property at Leased Premises in New Jersey

What Rights and Remedies Does a Landlord Have Against the Tenant or Secured Creditors?

Although not ideal, most every landlord has experienced a commercial tenants to sometimes ceasing business operations and handing over the keys However, after regaining possession of the space, what if you discover that the tenant abandoned thousands of dollars of valuable fixtures, furniture, equipment, and/or other property? What are your rights and obligations as a commercial landlord with respect to the tenant’s abandoned property – before you do anything with it.  Following is a checklist for commercial landlords when handling abandoned property in New Jersey.

First and foremost, a landlord must secure legal possession of the premises before disposing of any of the tenant’s personal property. In most states, legal possession may be obtained either through eviction proceedings, the tenant signing a written document voluntarily relinquishing possession of the leased premises, or even sometimes the tenant just handing over the keys. It’s important to check with counsel to ensure you have legal possession.

Second, once possession of the leased premises is received, a landlord must carefully consult the terms of the lease to determine what additional steps should be taken to dispose of the tenant’s property. Where the applicable lease contains specific terms and conditions for the disposal of any remaining tenant property, landlords must follow the lease terms. However, where the lease does not specify, the disposition of the tenant’s abandoned property may be governed by applicable state law. In New Jersey, that law is the Abandoned Tenant Property Act, N.J.S.A. § 2A:18-72 et seq. (the “Act”).

Third, the landlord should prepare an inventory of all tenant property left behind after taking possession of the leased premises. Note important details such as the make, model, and serial number of items that have this type of identifying information. The landlord should also document the existing condition of all personal property as it was found by taking photographs or video recordings. These steps may protect the landlord from future claims of damage by the tenant or a third party.

Fourth, because a third party, such as a bank or financing company, may also have rights to some or all of the tenant’s property, it is important for the landlord to conduct a search for any Uniform Commercial Code (UCC) financing statements at the statewide level. A UCC financing statement is a notice that informs interested parties that a creditor has a security interest in a debtor’s property. This statement can be used to establish priority over other creditors that claim rights to a debtor’s assets. Identifying all secured lienholders that may have lien interests in the tenant’s abandoned property is a critical step in the process of disposing of the property.

Fifth, where the Act controls how the tenant’s property can be handled, the landlord is required to make a threshold determination before sending the written notice required under the Act. Specifically, the Act permits a landlord to dispose of the tenant’s property at the leased premises after giving written notice only if the landlord reasonably believes that the tenant has left the property with no intention of asserting any further claim to the premises or the property. The landlord must make this determination based on all of the available facts and circumstances. For example, if the tenant notifies the landlord that it intends to retrieve its property, a factual issue arises as to whether the landlord may rely on the provisions of the Act to dispose of the property.

Sixth, the Act contains very specific requirements as to the form and content of the notice the landlord must send. The landlord’s failure to adhere to the strict requirements of the Act will render the notice null and void. It is important to consult legal counsel about the form and content of the notice since compliance in good faith with all the requirements of the Act constitutes a complete defense in any action brought by the tenant against a landlord for loss or damage to personal property.

Seventh, the Act states that after a tenant is provided the required written notice, a landlord shall store all tenant property in a “place of safekeeping” and the landlord shall exercise reasonable care for the property. The Act provides that a landlord shall be entitled to reasonable storage charges and related costs and requires the tenant to reimburse the landlord for the reasonable cost of storage for the period the property was in the landlord’s safekeeping, including the reasonable cost of moving the property into storage. The Act also holds the landlord harmless from any property losses incurred during storage of the tenant’s property unless the loss was caused by the landlord’s “deliberate or negligent act or omission”.

Eighth, after the expiration of the time periods set forth in the landlord’s written notice sent under the Act, the tenant’s property will be considered legally abandoned under the Act. Once the tenant’s property is deemed conclusively abandoned, a landlord may sell some or all of the property at a public or private sale and/or destroy some or all of the property. Under the UCC, the landlord must always act in a commercially reasonable manner in the disposition of the tenant’s property. The failure to do so could subject the landlord to claims for damages by the tenant or third parties. Again, it is critical that the landlord identify and provide notice to all creditors with interests in the tenant’s property whether the creditor is a lessor of the tenant’s property or financed the purchase and sale of the property in exchange for a perfected security interest evidenced by a UCC financing statement.

Navigating the process of disposing of tenant property can be a daunting task for any landlord and requires in-depth knowledge and understanding of applicable New Jersey law. If you are a landlord facing this situation, Stark & Stark can help you evaluate the situation and create a plan of action to properly dispose of abandoned tenant property so you are not exposed to liability for claims by the tenant and/or third parties.