In today’s article, we will discuss the importance of two separate documents required for landlords of residential real estate.
Certificates of Occupancy
The first document is the Certificate of Occupancy. The vast majority of municipalities in the State of New Jersey require that the landlord obtain a new Certificate of Occupancy each time a new tenant moves in. Inspections that accompany the application for a certificate of occupancy vary by municipality. All towns will check the smoke detectors, and if there is gas heating, there will also be a check of the carbon monoxide detector. Some towns will also conduct much more thorough examinations in an attempt to increase the quality of housing throughout the town. It should be noted that it is no longer permissible for a municipality to require a new certificate of occupancy inspection when a family expands by natural means (e.g.; the birth of a new child).
While most landlords are vaguely familiar with the fines which the municipality may impose upon them for failing to obtain a certificate of occupancy, few are familiar with the far more severe consequences which can result from such failure. Where certificates of occupancy are required, a home rented without a certificate of occupancy constitutes an illegal contract. Hence, in the matter of Khoudary v. Salem Board of Social Services, 260 N.J.S. 79 (App. Div. 1992), the Court determined that a landlord who rents without a certificate of occupancy is without authority to file a suit for rents.
In essence, what the Khoudary Court said was that it would not help the landlord enforce an illegal contract. In the event that the tenant vacates the premises owing rents, either for prior months or months that may become due under the unexpired lease, the landlord may not file an action to collect the rents, and furthermore, may not apply any of the tenant’s security deposit toward these rents. The landlord can still bring an action or withhold security for tort damages, such as destruction of the apartment. It remains uncertain whether a Court should allow a tenant to file an action for return of all rents previously paid under the illegal contract; however, most Courts will rule that the tenant should pay for the quantum meruit benefit of the use of the apartment.
For nearly a decade, Courts interpreted the ruling in Khoudary to mean that failure to obtain a Certificate of Occupancy was a bar to eviction. However, this issue has been since clarified. In the matter of McQueen v. Brown and Cook, 342 NJS 120 (App. Div. 2001), the Court ruled that while failure to obtain a certificate of occupancy rendered the contract illegal, the landlord still maintained the right to evict the tenant. Essentially, the Court’s decision holds that a tenant should not be able to benefit from the illegal contract, and furthermore, it is clear that leaving the tenant in the illegal rental would be contrary to public policy.
Landlord Registration Statement
While failure to obtain a certificate of occupancy is not a bar to eviction, the failure to obtain a landlord registration statement (a/k/a Landlord Identity Statement) will prevent an eviction. All non-owner occupied residential dwellings in the State of New Jersey must be registered as rentals. Unlike Certificates of Occupancy, the registration statement does not require an inspection and does not need to be repeated upon the arrival of new tenants. In most cases, a single registration statement will be effective into perpetuity.
In the event that the rental is a one or two family home, the registration may be filed with the clerk of the municipality. In some cases, the municipality will charge a nominal fee for the registration of the property and an additional fee upon renewals. In the event that the property consists of three or more residential dwellings, the property must be registered with the New Jersey Division of Community Affairs. The Landlord Registration Statement should set forth the names of the owners and their emergency contact numbers.
Failure to comply with the registration requirement may have severe consequences for landlords. Most notably, N.J.S.A. 46:8-33 states that “no judgment for possession may be entered until there has been compliance [with the Act]…” While the Statute goes on to state that the Court may continue the case (up to 90 days) until the non-compliance is corrected, some landlords may be caught off guard. Some New Jersey counties even require the landlord to produce proof of registration at the time of the tenancy hearing.
Another consequence of failure to obtain a registration statement is the imposition of fines. This firm has been retained to represent several landlords who have failed to obtain registration statements. As with failure to obtain a certificate of occupancy, the fines for failure to register can be rather hefty, and towns will usually impose a separate penalty for each individual dwelling within the building.
In conclusion, it is best to make sure that you obtain both a Certificate of Occupancy and a Landlord Registration Statement prior to renting your property. Should you forget to file one of these two documents, you may find yourself subject to substantial penalties from both the municipality and in a civil action with your tenants.