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Illegal Apartments & Contractual Consideration: Is a Tenant Entitled to Refund of Rent Paid?

New Jersey landlord-tenant relationships are controlled by applicable statutes (the Anti-Eviction Act, NJSA 2A:18-61.1 et. seq., or NJSA 2A:18-53) and the terms of the lease. Lease terms are interpreted by typical contractual principles. The most basic contractual principle requires that agreements be supported by consideration (a legal term for something of value given to support a contract). In a landlord-tenant context, the tenant’s payment of rent is consideration for the landlord providing a habitable apartment. For tenants living in illegal apartments, the analysis could be much different. By renting an illegal apartment, the landlord may have failed to provide consideration required by the contract. In these cases, the tenant may be entitled to a refund of all rent paid.

There are two theories that support the refund of rent paid for an illegal apartment. This post addresses the renting of an illegal apartment as a failure of consideration by a landlord under traditional notions of contract law. The first step in this analysis is to define consideration in a landlord-tenant relationship. A useful and basic explanation of consideration comes from Gallicchio v. Jarzla, 18 N.J. Super. 206, 218 (Ch. Div. 1952), an old case, but no less useful:

“It is a principle, almost universally accepted, that an act or forbearance required by a legal duty owing to the promisor that is neither doubtful nor the subject of honest and reasonable debate is not a sufficient consideration.” citing Levine v. Blumenthal, 117 N.J.L. 23, 27 (Sup. Ct. 1936).

The key phrase is an “act or forbearance required by a legal duty.” Landlords have a duty to forbear from renting an apartment that is not legal. Put another way, the law requires that landlord rent only legal and habitable apartments. When a landlord rents an illegal apartment he breaches the legal duty to forbear from renting illegal units. This failure to forbear is not sufficient consideration.

Once the renting of an illegal apartment is characterized as a failure of consideration, the tenant is paying rent without getting anything in exchange. The tenant pays for an apartment to which the landlord lacked the legal right to rent. Accordingly, there is no legal basis for the landlord to retain the benefit of the tenant’s rent payment. Thus, the landlord is unjustly enriched in the amount of rent payments made by the tenant.
This approach to illegal apartments plays out in a civil action for payment of relocation benefits owed under N.J.S.A. ยง2A:18-61.1h and refund of rent paid. While relocation benefits can be part of a landlord-tenant action settlement, the refund of all rent paid is more appropriately brought in an action for money damages. Procedural complexity aside, the result is simple: New Jersey tenants in illegal apartments may be entitled to relocation benefits and a refund of all rent paid.

Since the facts of each circumstance vary, a tenant should consult an attorney with his/her specific circumstances. Offit Kurman practices landlord tenant law throughout New York and New Jersey assisting tenants in avoiding unnecessary and costly delays. The firm’s geographic practice area includes: New York City (Manhattan, New York County, Brooklyn, Kings County, Queens, Queens County, Bronx County, Staten Island, Richmond County) and New Jersey (Jersey City, Hoboken, Bayonne, Hudson County, Newark, Essex County, Woodbridge, Middlesex County). The Firm invites you to visit the “Promises” page for our new way of doing business. Contact us today for a guaranteed free initial consultation.