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Crewe Corp. v. Feiler

Decided: December 1, 1958.


On appeal from the Superior Court, Appellate Division.

For reversal -- Chief Justice Weintraub, and Justices Heher, Burling, Jacobs, Francis and Proctor. For affirmance -- Justice Wachenfeld. The opinion of the court was delivered by Weintraub, C.J. Wachenfeld, J. (dissenting).


[28 NJ Page 318] Plaintiff lessor sued to recover from the lessees the amount of increase in municipal taxes allegedly due to improvements made by the lessees. On motion before answer, defendants obtained summary judgment. The Appellate Division affirmed by a divided court, 49 N.J. Super. 532 (App. Div. 1958), and plaintiff accordingly prosecuted this appeal as of right. Const. of 1947, Art. VI, § V, par. (1)(b); R.R. 1:2-1(b). The appeal concerns only defendant Feiler. Defendant West prevailed on additional

grounds not presently pertinent, and plaintiff does not seek a review as to him. Upon our initiative, there was a reargument with respect to the lessees' right to make the improvements under the terms of the lease or under principles of law applicable in the absence of an express agreement.

The uncontradicted affidavit filed on behalf of plaintiff reveals the following:

Plaintiff had conducted a general family laundry business upon the premises. It sought to sell the property. Defendants were interested in purchasing but lacked the required cash. A deal was made for a lease for 15 years with an option to buy for $60,000. Defendants said they were not interested in the laundry business as theretofore conducted by plaintiff, but rather intended to operate a "quick service laundry business" on the first floor of the main building and to sub-lease the second floor to "a tenant like a dress manufacturer."

The lease was executed on October 30, 1953, the term to begin on January 1, 1954. In consonance with their contemplated operation, defendants purchased certain equipment from plaintiff, moved in other laundry equipment, formed a firm known as "Three Hour Cleaning and Laundry Company," erected an appropriate sign, and proceeded to make alterations for the laundry business. The affidavit continues:

"8. In all events, the defendants before completing the alterations to the building for a quick service laundry above mentioned, abandoned such alterations and instead turned the building into an office building. To make such changes required a complete renovation of the building. All the laundry equipment and fixtures were removed as well as the old plumbing and heating system, light fixtures, partitions and sky-lights. New metal windows and light fixtures were installed, the floors, walls, ceilings and roof refinished, and new wash rooms and toilet facilities were installed on the 1st and 2nd floors. An open driveway was enclosed and added to the 1st floor, the front and side of the building was refaced with brick and a new front entrance and 2nd floor stairway were erected. The building was completely air conditioned. The defendant Feiler told me that the costs of these improvements amounted to $75,000.00.

Later the frame garage building was demolished and all the open area of the property was covered with black top for the parking of vehicles.

9. It was my understanding then, as it is now, that these improvements were made by the defendants having regard to my intention to sell the property and their intention to buy. In fact, they proceeded to treat the property as if it was their own. They went ahead with the improvements without advising me about them although I lived nearby and knew that they were being made and from time to time met the defendants and talked to them about the improvements. They did not ask my consent to making the improvements except in a few instances when the municipal authorities required it and in each instance I gave my consent promptly.

10. Not only did the defendants proceed with the improvements as above stated but also they removed without advising me the heating furnace, hot water system, water softener and elevator mentioned in Paragraph 6 herein. I had only recently installed an electric panel board at a cost of several hundred dollars which they also removed and the water softener and hot water tank which cost me approximately $4,000.00. This equipment was, I believe, sold by the defendants and they retained the proceeds. Later the defendants removed the frame garage building as above mentioned. Considerable new timber had been put into the garage building in recent years but the defendant Feiler told me that he did not get anything for the building but had to pay to have it removed."

The complaint alleges that on September 21, 1955 defendants leased the second floor to an insurance company for an annual rent of $13,500 and on October 17, 1955 leased the first floor for an annual rent of $11,350.

The monthly rental under the lease here involved is $625 for an annual total of $7,500. Plaintiff charges the improvements or alterations led to an increase in tax dollars payable upon the buildings from $2,000 to $4,700 per year, thus reducing the yearly rental yield by $2,700, a reduction of 36%. Taxes being assessed against the fee and a lien thereon, Becker v. Little Ferry, 126 N.J.L. 338 (E. & A. 1941), plaintiff was compelled to pay, and accordingly here seeks to recover the portion it claims defendants should bear.

The lease does not authorize alterations or improvements in express terms. The sole reference to the subject appears in a provision permitting immediate entry by the lessees "for the purpose only of completing plans and making

measurements in connection with the alterations which they contemplate." The complaint alleges "the alterations contemplated * * * related only to the modernizing of said laundry processing plant." On the oral argument before us, defendant conceded the alterations thus referred to did not embrace those in fact made to convert the industrial structure into an office building.

The covenant upon which the majority of the Appellate Division deemed the case to turn reads:

"Landlord agrees to pay promptly municipal real estate taxes and fire insurance premiums and upon demand of the tenant to submit for inspection receipted bills for the same or adequate proof of payment."

This provision was held to be an agreement to pay taxes attributable to the improvements the lessees made. We cannot agree. The covenant of course applies to taxes upon the premises as they existed when leased, but we cannot find therein an undertaking to pay taxes resulting from the improvements. We so conclude because the improvements were not authorized either by the lease or by applicable principles of law and hence could not have been within the contemplation of the parties when they agreed upon the tax covenant.

Preliminarily, certain rules may be noted with respect to liability for taxes on authorized improvements made by a lessee in the absence of an express agreement providing for their payment. It is usually said that as between himself and his lessor the lessee must bear the burden if he has the right to remove the improvement, the landlord being otherwise chargeable. 32 Am. Jur., Landlord and Tenant, § 288, p. 268; Miller v. Buck Creek Oil Co., 38 Wyo. 505, 269 P. 43, 73 A.L.R. 824 (1931). Perhaps the ultimate test is whether the lessee erected the improvement for his sole benefit. 1 American Law of Property (1952), § 3.77, p. 345. Under that approach, the ...

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