Often a tenant’s failure to pay rent is a signal that the landlord will never recover monies owed. Most landlords don’t know that there’s a New Jersey law that says a landlord can have a lien on the assets of a tenant that are located on the rented property. Fast action may give a landlord assets to satisfy unpaid rent.
For 200 plus years this state has had a law giving landlords a lien on tenants’ property. This law, called the right of “Distraint,” says:
A landlord or his duly authorized agent may, for arrears of rent, distrain “the goods … of his tenant, found upon the … premises … The property subject to distraint shall be appraised, sold and disposed of.”
But there’s a limit to this. A landlord can’t distrain for more than 1 year’s past due rent and must act within 6 months of the rent becoming due, or, if the rent is payable in installments, within 6 months after the entire year’s rent has become due.
At first glance, no formal notice or court hearing is required before distraint, but a landlord risks being liable for money damages to the tenant for an “unreasonable, excessive or wrongful distraint.” In one case, a distraint was found to be wrongful when the landlord sold for only $50 goods worth $ 450 and the tenant had offered to pay the rent that was due.
It’s better for a landlord to go to Court and ask a Judge’s permission for a distraint. What’s unreasonable or wrongful can be “in the eye of the beholder” and having a neutral judge supervise the process can eliminate a tenant’s claim of “excessive” action, while protecting the landlord’s right to the tenant’s property to satisfy a claim for unpaid rent.
The truth is that this ancient law has been overtaken by modern ides of fairness and “due process.” In extreme circumstances, though, a landlord doesn’t need a Judge’s permission and can act on his own, like when he sees his tenant loading his furniture onto a truck, never to be seen again.
Gary Stern, a colleague of Mike Farhi, collaborated with him on this article. For over 40 year, Mr. Stern has been a commercial law practitioner in New Jersey and has handled business matters running the gamut from antitrust problems to zoning. He’s consummated over 50 sales/mergers of businesses, over 500 loan workouts and 100’s of complex loans. He has tried dozens of cases in state and federal court and prides himself on using creative solutions for solving commercial problems.