1

Suppose that a tenant, T, has been renting an apartment for several years in NJ. The initial term of the lease was for 1 year and then converted into a month to month tenancy after the first year.

The home was sold to a new owner, N and N moved to terminate the tenancy immediately after purchasing the home by sending out a Notice to Quit that terminated the tenancy after 1 month. Even though N terminated the tenancy, N continued to accept rent from T for two months after the termination date on the Notice to Quit.

T wants to dispute both the underlying grounds for termination as well as the validity of the Notice to Quit.

T's original lease from the previous owner, O contains an arbitration agreement. Can T legally force N to arbitrate both the underlying grounds for termination and the validity of the Notice via arbitration, not in court?

According to @ David Siegel, the arbitration agreement is binding on N just as it is on the original owner.

Can the new owner, N, argue that s/he isn't bound by the arbitration agreement since T is in a month to month tenancy and s/he moved to terminate the tenancy as soon as s/he purchased the home?

Whether or not N is bound by the arbitration agreement depends on two factors:

  1. analysis of the underlying contract - whether it is binding only during the first year or also during the month to month

Paragraph Term states that:

the term of this lease is for 1 year

and that:

the parties are bound to this lease for the entire initial term, and any additional term as per Section "Renewal"

Section Renewal states that:

After expiration of the term, this lease shall continue as a month to month tenancy until terminated by either party

Is the month to month tenancy considered an "additional term"?

  1. whether he is bound by the terms of the lease by law once he accepts rent

Can T legally force N to arbitrate the validity of the Notice to Quit & the underlying cause for eviction during the month to month tenancy?

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  • I'm confused by your reference to "underlying grounds for termination". Does the lease specify that it can only be terminated for specific reasons? If not then surely "I don't want to continue with this lease" would be all that's required? Very confused here ...
    – brhans
    Nov 23 at 14:36
  • @brhans Does the lease specify that it can only be terminated for specific reasons? Yes it does
    – S.O.S
    Nov 23 at 16:15
  • That seems exceptionally unusual. Would you care to quote the relevant part?
    – brhans
    Nov 23 at 16:17
  • @brhans I prefer not to go into too much detail but I can assure you that the lease contains such a clause. Whether or not the clause will be enforced and to what degree should be the decision of the arbitration panel, not the court. That's the main point.
    – S.O.S
    Nov 23 at 16:19
  • It's probably not relevant to this particular question, but I can't help wondering if you've read it as "the lease may only be terminated for [specific reasons]", when in fact it should actually be read as "the lease may also be terminated for [specific reasons]". ¯\_(ツ)_/¯
    – brhans
    Nov 23 at 16:23

1 Answer 1

2

The arbitration agreement is probably binding to arbitrate the validity of the notice to quit. Once the leases and ended and the original tenants are gone, those leases are probably spent, however, and at that point the arbitration agreement lapses.

Courts tend to err very generously on the side of enforcing arbitration agreements which there is a plausible connection of contactual ties to the original agreement signed by both sides.

The Federal Arbitration Act (FAA) is probably the governing law, so the analysis is fairly uniform nationally.

The "Renewal" language states that the lease survives into the month to month period after the initial term. Consider, for example, that the terms related to the security deposit, maximum occupancy, pets, and who pays for which utilities would remain in force. If the lease still has effect so does the arbitration clause.

The Colorado Supreme Court surveys the circumstances under which someone other than an actual signatory of an arbitration agreement can be bound by it in In re N.A. Rugby Union v. U.S. Rugby Football Union, 2019 CO 56, starting its general overview of the law at ¶ 19 (on page 8), after reviewing the facts of the particular case and its procedural posture. While it is less than obvious, it is piecing together FAA cases rather than merely applying Colorado law, so its analysis has potentially broad applicability as a persuasive precedent in other jurisdictions. The core holding, at ¶ 21 (citations omitted), is that:

[C]ourts have observed that ordinary principles of contract and agency law may apply to bind a nonsignatory to an arbitration agreement. Specifically, these courts have recognized the following theories for binding a nonsignatory to an arbitration agreement: (1) incorporation of an arbitration provision by reference in another agreement; (2) assumption of the arbitration obligation by the nonsignatory; (3) agency; (4) veil-piercing/alter ego; (5) estoppel; (6) successor-in-interest; and (7) third-party beneficiary.

In this case, theories (2) and (6) are particularly relevant to reaching the same result in the month-to-month period with a new owner that it would have reached with the same landlord and same tenant who signed the original lease.

These theories are spelled out in more detail in a review article here.

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  • Does the language of the lease lend itself to the interpretation that arbitration is also required during the month to month tenancy and not just during the first year? Or are you suggesting that since courts tend to favor arbitration they will interpret it in a way that favors arbitration even though the language that compels arbitration vis-à-vis month to month is ambiguous?
    – S.O.S
    Nov 21 at 23:16
  • Also in a recent descions the US Supreme Court held that the Federal Arbitration Act (“FAA”) policy favoring arbitration “is about treating arbitration contracts like all others” rather than “fostering arbitration,”
    – S.O.S
    Nov 21 at 23:19
  • 1
    @S.O.S. The lease's terms contemplate that they have force beyond the initial fixed term and into the month to month to which it defaults after that. Consider, for example, that the terms related to the security deposit, maximum occupancy, pets, and who pays for which utilities would remain in force. If the lease still has effect so does the arbitration clause. And the case law does make clear that the standard to apply the arbitration clause is relatively modest especially where one party has signed the agreement and another is a direct contractual successor to a signatory party.
    – ohwilleke
    Nov 22 at 5:58
  • @ ohwilleke Thanks for your response. Upvoted. Do you have any references / case precedents to support this point: the standard to apply the arbitration clause is relatively modest especially where one party has signed the agreement. Perhaps you are referring to the concept of "meeting of minds" (as we already know the two parties agreed to arbitrate the only question is for how long..)
    – S.O.S
    Nov 22 at 17:35

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