This landlord-tenant case examines the rule of law first announced in Montgomery Gateway E. I. v. Herrera, 261 N.J. Super. 235 (App. Div. 1992). In that case, the Appellate Division held that when a landlord renews a tenant's lease and accepts rent under that new lease, it waives its right to terminate the tenancy based on the tenant's prior nonpayment of rent.
In the present matter, the court reaffirms and applies the Montgomery Gateway rationale, rejecting the plaintiff-landlord's contention that its renewal of the lease and acceptance of rent could not have operated as a waiver of its eviction right because the lease renewal was compelled by federal statutes and regulations governing Section 8 subsidized housing. The court rejects the premise of that argument, holding that federal statutory law, regulations, and a handbook issued by the U.S. Department of Housing and Urban Development (HUD) all make clear that plaintiff was not compelled to renew the lease and had the ability to terminate defendant's tenancy or allow the lease to become a month-to-month tenancy. Furthermore, plaintiff's lease with defendant, which was based on a HUD model lease, explicitly states that plaintiff may decline to execute a renewal lease at the end of the term.
The court also rejects plaintiff's contention that because the tenant made payments toward rent arrears, thereby acknowledging her debt, she came to the court with unclean hands and should not have been allowed to secure a waiver of plaintiff's right to evict based on those past arrears. The court holds that defendant's efforts to avoid eviction while simultaneously making payments toward the arrears do not constitute the sort of wrongdoing contemplated by the unclean hands doctrine.
Nor is the court persuaded by plaintiff's contention that the Montgomery Gateway waiver rule should not apply because it renewed the lease to preserve its Low-Income Housing Tax Credit. The court concludes that any economic incentives associated with the Low-Income Housing Tax Credit have no bearing on the rationale that undergirds the Montgomery Gateway rule.
Finally, the court addresses the argument plaintiff raised for the first time on appeal that even if renewal was not actually required by law, plaintiff reasonably believed it was compelled to renew the lease. The court is not persuaded by this novel argument, noting that even were it to assume for the sake of argument that a landlord's subjective belief matters, plaintiff's claimed belief that it had no choice but to renew its lease with defendant is not reasonable in light of the federal statutory law, regulations, the HUD Handbook, and the terms of the lease itself.