Opinion
DOCKET NO. A-2179-13T2
08-19-2015
CLARA NALLY, Plaintiff-Appellant, v. MARY A. SHYSHKA, Defendant-Respondent, and CITY OF BAYONNE, Defendant.
Patrick G. Patel argued the cause for appellant (The Law Offices of Patrick G. Patel, attorneys; Joseph A. Siclari, on the brief). John R. Knodel argued the cause for respondent (Methfessel & Werbel, attorneys; Mr. Knodel, of counsel and on the brief; Amanda J. Sawyer, on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Fuentes, Ashrafi and O'Connor. On appeal from Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-2826-12. Patrick G. Patel argued the cause for appellant (The Law Offices of Patrick G. Patel, attorneys; Joseph A. Siclari, on the brief). John R. Knodel argued the cause for respondent (Methfessel & Werbel, attorneys; Mr. Knodel, of counsel and on the brief; Amanda J. Sawyer, on the brief). PER CURIAM
Plaintiff Clara Nally appeals an October 25, 2013 Law Division order granting defendant Mary A. Shyshka's motion for summary judgment and dismissing the complaint against her. Plaintiff also appeals the December 6, 2013 order denying her motion for reconsideration of the October 25, 2013 order. After a review of the facts and applicable legal principles, we reverse and remand for further proceedings.
Defendant City of Bayonne was also granted summary judgment and the complaint against it was dismissed.
I
On November 5, 2011, plaintiff fractured her ankle when she tripped and fell on an elevated section of a public sidewalk abutting defendant's property, a three-family home. Defendant has owned the premises since her mother gifted her the property in 1989. Defendant moved into one of the units permanently in 1995 and has been renting out the other two units.
When defendant acquired the property, there were no liens or loans encumbering the premises. Over the years, however, defendant obtained loans against the equity of the property totaling approximately $233,000. In a certification filed in support of her summary judgment motion, defendant claimed she used some of the loan proceeds to renovate the three bathrooms in the house, but did not disclose the amount spent. She used $2450 of the proceeds to replace a boiler, partially insulate the house and replace some windows. Defendant claimed she needed a new roof but did not actually certify that she replaced it. Defendant also spent $10,000 of the proceeds for her mother's medical care. The balance of the proceeds were used to pay her personal expenses.
Defendant further certified she filed for and was discharged in bankruptcy in 2009. The record does not show to what extent her debts were extinguished but, at the time of the summary judgment motion, she was paying $1369 per month toward a mortgage.
When plaintiff was injured, defendant had tenants in both units. One paid $1000 and the other $875 per month in rent. Defendant's monthly expenses for the property were $1139. These expenses were $155 for "insurance"; $742 for property taxes; $229 for electricity; and $13 for water and sewer. It is unclear if these expenses were for all three units or just the two rental units. The record also does not reveal the extent to which the mortgage and other expenses were offset by deductions defendant took on her income tax returns.
We assume defendant was referring to homeowner's insurance.
After discovery concluded, defendant moved for summary judgment and contended that, because her property was residential, she was immune from liability. See Norris v. Borough of Leonia, 160 N.J. 427, 434 (1999) (citing Stewart v. 104 Wallace Street, Inc., 87 N.J. 146, 159 (1981)).
In our Supreme Court's very recent decision in Cuiyun Qian v. Toll Brothers Inc., ___ N.J. ___, ___ (No. A-95-13 Aug 12, 2015), our Court clarified that, although residential property owners do not have a common-law duty to clear snow or ice from a public sidewalk, immunity from liability does not apply where one is injured on a sidewalk privately owned by a common-interest community. Here, the sidewalk was a public one and, therefore, if defendant's property is residential, she will be immune from liability.
Specifically, defendant argued that because the mortgage and other expenses, which in the aggregate were $2508 per month, exceeded the monthly rental income of $1875, she was not making a profit from renting out her property. She contended her failure to make a profit indicated her property was residential and not commercial. See Stewart, supra, 87 N.J. at 157 ("[C]ommercial landowners are responsible for maintaining in reasonably good condition the sidewalks abutting their property and are liable to pedestrians injured as a result of their negligent failure to do so."). The trial court agreed, stating:
I'm finding it's a residential property based on the proofs that have been submitted to the court . . . . [Defendant has] lived there continuously [since] 1995. There's no — I have the certification relative to there not being any net profit on the rental income of this property.
With respect to this whole issue about refinancing a property and . . . there's discovery [that] indicated that the proceeds of that refinance was paid to pay for clearly personal expenses, medical expenses of a parent. There's no evidence, as I indicated before to show that these proceeds of a refinance in the house which she received as a gift, okay, were used for business purposes, commercial investments. No evidence whatsoever. It's acknowledged they were use[d] for personal expenses.
Defendant had — had financial problems. She eventually filed bankruptcy under Chapter 13. These are all indicias of noncommercial, residential ownership.
II
In reviewing a grant of summary judgment, we apply the same standard under Rule 4:46-2(c) that governs the trial court. Wilson ex rel. Manzano v. City of Jersey City, 209 N.J. 558, 564 (2012). We must "consider whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party." Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995).
In Grijalba v. Floro, 431 N.J. Super. 57 (App. Div. 2013), we addressed whether a three-family home was a commercial or residential property. In that matter, plaintiff was injured when he slipped and fell on ice on a sidewalk abutting defendants' property. Id. at 60. The issue was whether the property was "'commercial' or 'residential' for purposes of establishing sidewalk liability pursuant to Stewart." Id. at 59. After canvassing sidewalk liability law since Stewart, we identified six themes that have emerged from those cases that have grappled with the residential-commercial distinction. These themes are:
The house was ostensibly a two-family home, but one of the defendants created a third living space in the basement of the house, transforming the property into a three-family home.
(1) the [Supreme] Court has acknowledged repeatedly that residential property owners are generally not liable for sidewalk injuries; (2) the [Supreme] Court has maintained the fundamental notion that commercial property owners are better prepared to spread the risk of loss to innocent third parties than residential homeowners; (3) the residential-commercial distinction requires a case-by-case, fact-sensitive analysis; (4) we continue to use commonly accepted definitions of "commercial" and "residential" to resolve the residential-commercial distinction; (5) in determining whether an owner-occupied two- or three-family home is deemed "residential" or "commercial," courts have considered the nature of the ownership of property and the predominant use of that property; and (6) the commercial-residential framework, even in the gray area of owner-occupied two- and three-family structures, continues to provide guidance and predictability for property owners.Further, predominant use is measured by the capacity of the property "to generate income, regardless of whether an actual profit is obtained through the use." Id. at 65 (quoting Luchejko v. City of Hoboken, 207 N.J. 191, 206 (2011)).
[Id. at 66-67.]
We concluded that, at a minimum, the following four factors must be considered to determine if property is commercial or residential:
(1) the nature of the ownership of the property, including whether the property is owned for investment or business purposes; (2) the predominant use of the property, including the amount of space occupied by the owner on a steady or temporary basis to determine whether the property is utilized in whole or in substantial part as a place of residence; (3) whether the property has the capacity to generate income, including a comparison between the carrying costs with the amount of rent charged to determine if the owner is realizing a profit; and (4) any other relevant factor when applying "commonly accepted definitions of 'commercial' and 'residential' property."
[Id. at 73].
Here, we are constrained to remand this matter so that the four factors above can be further explored and specific findings made. Although the court acknowledged defendant's claim she was not making a profit, it failed to make its own finding about whether or not she was realizing a net profit and relate that finding to its analysis on the issue whether the property was residential or commercial.
Second, there was no finding on whether the mortgage was a true carrying cost of the rental property. Although defendant used the property as collateral for her loans, the mortgage was not used to purchase the property and what little evidence there was indicated the loans were predominantly used to pay personal expenses. The cost of renting out a portion of defendant's premises may not actually include the mortgage payment or, if it does, may only include a small fraction of the payment. If the cost to rent out the premises does not include the mortgage payments, then clearly defendant is making a profit, a factor that is relevant when determining if a property is commercial or not. She may still be making a net profit if only a small portion of the mortgage payment originates from a loan to improve the property. Also, there was no evidence whether the discharge in bankruptcy eradicated the loan or loans that were utilized to make the improvements to the property.
In addition, it is not known whether the other expenses are for all three or just the two rental units. Further, the tax deductions defendant took for these expenses and the mortgage may have reduced the income taxes she would have otherwise paid on the rental income, thus enhancing her net profit. Finally, there was no evidence about the dimensions of defendant's unit vis-à-vis the tenants' units. Accordingly, due to a lack of sufficient evidence to determine whether the property was commercial or residential, we reverse and remand so that the record can be more fully developed.
Reversed and remanded for further proceedings in accordance with this opinion. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION
ASHRAFI, J.A.D., concurring.
I concur in our decision today to remand for further fact-findings because of the law that has developed in our courts on whether an owner of a small multi-family home has a tort law duty to repair and maintain a sidewalk on the property. The public would be better-served, however, by an adjustment of the law so that it is more predictable and simpler for our courts to apply to small residential rental properties.
Historically, New Jersey property owners did not have a duty under the law applicable to personal injury lawsuits to repair naturally damaged public sidewalks on their lands or to prevent naturally-caused risks of fall and injury, such as the accumulation of snow or ice. Yanhko v. Fane, 70 N.J. 528, 536-37 (1976); Brown v. Kelly, 42 N.J. 362, 363 (1964). Over the years, the State Supreme Court revised the common law and imposed a duty only upon commercial property owners to maintain public sidewalks adjacent to their business properties in a "reasonably good condition." Stewart v. 104 Wallace Street, Inc., 87 N.J. 146, 157 (1981); see also Mirza v. Filmore Corp., 92 N.J. 390, 400 (1983) (duty imposed upon commercial properties by Stewart includes removal of hazardous snow and ice); Davis v. Pecorino, 69 N.J. 1, 7-9 (1975) (commercial property owner had a duty to maintain a safe sidewalk because of its "special use" for the owner's commercial purposes). The Court expressly excluded residential properties from its holdings imposing a tort law duty. Stewart, supra, 87 N.J. at 159 n.6. Over the years and through its most recent decisions in Cuiyun Qian v. Toll Brothers Inc., ___ N.J. ___, ___ (No. A-95-13 Aug 12, 2015) (slip op. at 15-16), and Luchejko v. City of Hoboken, 207 N.J. 191, 211 (2011), the Court has maintained the residential/commercial distinction.
Two years ago, another panel of this court in Grijalba v. Floro, 431 N.J. Super. 57, 61-67 (App. Div. 2013), outlined the history of sidewalk liability law as it developed in New Jersey after Stewart. Despite the Supreme Court's suggestion "that the law of sidewalk liability is an appropriate subject for reconsideration by the Legislature[,]" Stewart, supra, 87 N.J. at 159 n.6, the Legislature has not acted in the thirty-four years since Stewart to modify or clarify the law. Consequently, the Court's holdings in Yanhko, supra, 70 N.J. at 537, and Brown, supra, 42 N.J. at 363, still apply to residential properties.
The "commercial/residential dichotomy," Luchejko, supra, 207 N.J. at 208, has sprouted a "gray area," id. at 210, where the courts have grappled with determining into which category a defendant's property fits. As in this case, the issue often arises where the plaintiff's claim pertains to an owner-occupied property with a small number of rental units. The question is whether such a property is considered residential because the owner lives there or commercial because it produces income for the owner. See Smith v. Young, 300 N.J. Super. 82, 97 (App. Div. 1997) (two-family home, one unit of which was owner-occupied and the other rented to a tenant by the estate of a deceased sister, was "unquestionably residential in use"); Avallone v. Mortimer, 252 N.J. Super. 434, 438 (App. Div. 1991) (where residential property was partially owner-occupied and partially rented, the issue was its "predominant use," and the trial court would have to consider such questions as the owner's "ability to pass along cost" of liability); Borges v. Hamed, 247 N.J. Super. 295, 296 (App. Div. 1991) (multi-family home partially occupied by owner and partially rented to relatives was not "commercial"); see also Briglia v. Mondrian Mortg. Corp., 304 N.J. Super. 77, 79 (App. Div.) (home was not commercial property merely because the mortgagee had taken possession at the time of the accident), certif. denied, 152 N.J. 13 (1997); Wasserman v. W.R. Grace & Co., 281 N.J. Super. 34, 37, 39 (App. Div. 1995) (owner who used one room in his home as a telecommuting office was not a commercial owner). We have in the past commented on the difficulty of applying the commercial/residential distinction to such properties. See Smith, supra, 300 N.J. Super. at 92 ("The quest for definition reveals how unedifying the . . . commercial-residential classification distinction is.").
In Grijalba, supra, 431 N.J. Super. at 62, we stated that courts "employ[] a case-by-case, fact-sensitive analysis to resolve the commercial-residential distinction." We listed the following factors as relevant in determining whether the property was primarily residential or commercial:
(1) the nature of the ownership of the property, including whether the property is owned for investment or business purposes; (2) the predominant use of the property, including the amount of space occupied by the owner on a steady or temporary basis to determine whether the property is utilized in whole or in substantial part as a place of residence; (3) whether the property has the capacity to generate income, including a comparison between the carrying costs with the amount of rent charged to determine if the owner is realizing a profit; and (4) any other relevant factor when applying "commonly accepted definitions of 'commercial' and 'residential' property."
[Id. at 73.]
In this case, we are remanding to the trial court to make additional fact-findings relevant to these factors before deciding whether defendant had a tort law duty to maintain the sidewalk in front of her three-unit home in Bayonne. As the matter has developed, the questions the trial court will have to address include how defendant used the proceeds of mortgage loans that she obtained after becoming the owner of the property and an accounting of the expenses and profits of renting two units to tenants.
I view the task we are imposing upon the trial court and the parties to be inefficient, collateral to the personal injury issues of the case, burdensome, and unnecessary if the law could be adjusted for clarification. The uncertain state of the law renders sidewalk liability unpredictable for homeowners such as defendant and carries a cost that may not benefit the public. Ultimately, only insurers and those who profit from litigation of personal injury cases are the beneficiaries of this pliable rule of civil law.
The relevant question should be the bona fide primary use of the property, not the manner in which income is derived from the property and used by defendant. We stated in Smith, supra, 300 N.J. Super. at 99-100:
An owner-occupier of a single-family home can also obtain mortgage loans and use the proceeds for personal expenses unrelated to the property, or use part of the property for an income-producing occupation, see Wasserman, supra, 281 N.J. Super. at 36-37. Yet, such factors do not change the essential nature and status of the property as the owner's residence. --------
[W]hile the Supreme Court may have intended to include property solely held for investment purposes within the Stewart
rationale, it had no intention to subsume small owner-occupied dwellings, such as two-or three-family homes, within the classification of commercial property. Such uses are clearly in a category of their own, for they are residential both "in the nature of their ownership" as well as in "the use to which the property is put."
[(quoting Hambright v. Yglesias, 200 N.J. Super. 392, 395 (App. Div. 1985)).]
Without knowing the specific numbers, I can safely assume there are many residential property owners in this State who occupy a unit on their property and rent other units to tenants. Our cities and densely-populated suburbs contain thousands of such properties. If the question of whether the law imposes a duty to maintain and repair abutting public sidewalks is left to case-by-case determination based on such factors as whether the property can generate income, what its carrying costs are, and the relationship of the square footage used by the resident-owner to that used by tenants, many owners of such small residential properties will not know whether the tort duty applies to them or not. Our civil courts will also be diverted to making preliminary determinations of whether a property should be designated residential or commercial. Settlement positions will be less certain. The litigation will likely be prolonged.
One result may be that all such owner-occupied, small rental properties will require insurance coverage to protect the owners against the possibility of being held liable in a sidewalk personal injury case. Insurers may treat all residential rental properties as commercial properties with additional potential liability to the public and, consequently, additional cost to the property-owner. At the same time, the insurers will have the opportunity to challenge liability in the courts on the ground that the owner of a small rental residence had no duty to repair or maintain the sidewalk. The extra cost of coverage and litigation will be borne by the property owner and, in turn, the tenants who rent units in such properties, but the extra insurance coverage will not necessarily compensate the injured person.
If the commercial/residential distinction is to be retained by the Court and the Legislature, a more efficient and predictable alternative would specify which owner-occupied residential properties are immune from sidewalk tort liability and which have a tort law duty to repair and maintain abutting sidewalks.
With respect to an analogous area of the law where the nature of the residential property is significant, the Legislature designated specifically those rental properties to which the Anti-Eviction Act does not apply. A provision of that Act, N.J.S.A. 2A:18-61.1, states that it applies to rental properties "other than . . . owner-occupied premises with not more than two rental units . . . ." So long as an owner of property with one or two rental units can demonstrate he or she is a bona fide owner and resident of the property, the Anti-Eviction Act does not apply. See McQueen v. Brown, 342 N.J. Super. 120, 134 (App. Div. 2001), aff'd o.b., 175 N.J. 200 (2002); Dempsey v. Mastropasqua, 242 N.J. Super. 234, 238 (App. Div. 1990), certif. denied, 126 N.J. 330 (1991).
The same or a similar dividing line could clarify the law of sidewalk tort liability for owners of residential properties with no more than two units available for rent. If the owner is a bona fide resident, the property would be categorized as residential.
Here, the case would be easily resolved because there is no question that defendant was a bona fide resident of the three-unit property. There would be no need to delve into the specifics of defendant's financial records on the property, what mortgages she obtained, and how she spent the proceeds of the mortgage loans. There would be no need to litigate over an accounting of her income and expenses of operating two rental units. There would be no need for the court to determine whether the property should be categorized as essentially commercial or residential if defendant derived net income in some years but operated in the red or without significant income in others.
Because our law is not so clear, our precedents require that I concur in the court's judgment and remand for further fact-findings on the subject of the nature and predominant use of defendant's property. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION