Time and time again, I am presented with a situation where an investor client of mine is interested in acquiring a property that is being utilized, in whole or in part, for residential purposes. During their due diligence period, I always recommend that the real estate investor should determine whether the individuals residing in the property are doing so through a lease arrangement.
The reason why it is so important to confirm that a lease arrangement exists is because there is a significant difference in obtaining possession of the property through the eviction as opposed to ejectment proceedings.
In Philadelphia, the Philadelphia Municipal Court and the Philadelphia Court of Common Pleas have concurrent jurisdiction to handle landlord-tenant disputes. While the Municipal Court is technically Philadelphia’s small claims court, for purposes of landlord-tenant disputes, it is a court of unlimited jurisdiction. In other words, the Municipal Court can handle a dispute of any monetary amount between the parties.
Given that a dispositive hearing may be scheduled for an eviction action within a month of the filing of the complaint, most landlords initiate eviction actions in the Municipal Court as compared to the Court of Common Pleas.
Furthermore, while a judgment for possession in an eviction action initiated in the Municipal Court may be appealed to the Court of Common Pleas on a de novo basis, if the tenant wishes to stay the execution of the judgment for possession while the appeal before the Common Pleas Court is pending, the tenant is required under court rules to escrow, without objection, the rent due under the lease arrangement with the prothonotary. As such, if the landlord is ultimately successful at the Court of Common Pleas-level, the landlord will have a proverbial “pot of gold” at the landlord’s disposal to satisfy the money owed to the landlord by the tenant in connection with the underlying eviction action.
Another reason to file an eviction action in Municipal Court is that the case management deadlines for an appeal at the Court of Common Pleas-level is more expedient and streamlined.
In contrast, if no landlord-tenant relationship exists between the parties, then the property owner must initiate an ejectment action in the Court of Common Pleas. Unlike an eviction action, there is no mandatory escrow requirement and the case management for an ejectment action is not as expedient and streamlined as an eviction action.
In Rittenhouse 1603 v. Barbera, 2019 Pa. Super. Unpub. LEXIS 1546 (June 24, 2019), the Pennsylvania Superior Court recently addressed whether the Municipal Court and Court of Common Pleas had subject matter jurisdiction as to the eviction action commenced by the property owner against the occupant of the residential property.
In Barbera, Eugene Barbera owned a condominium unit in a building situated adjacent to Rittenhouse Square in Philadelphia, the opinion said.
When Barbera defaulted upon the mortgage loan encumbering the condominium unit, he lost the condominium unit to the lender in foreclosure proceedings, the opinion said.
After that happened, Barbera and Lewis Katz, Barbera’s longtime friend and business associate, created a limited liability company, Rittenhouse 1603, LLC, that purchased the condominium unit from the lender.
According to Rittenhouse 1603’s operating agreement, Katz was its managing member and Katz contributed $235,000 in return for four Class A voting units and Barbera contributed $1 for one Class B nonvoting unit, the opinion said.
Subsequently, Barbera assigned his Class B nonvoting unit in Rittenhouse 1603 to Katz and, that same day, Rittenhouse 1603 entered into a separate occupancy agreement with Barbera, the opinion said.
According to the opinion, under the occupancy agreement, Barbera had the right to use and occupy the condominium unit for a term commencing on Dec. 23, 2013, and continuing until 30 days after written notice of termination from Rittenhouse 1603.
While the occupancy agreement did not require Barbera to pay rent, he was responsible for paying all utilities, real estate taxes, special assessments, condominium assessments and insurance associated with the condominium unit.
When Katz died in a tragic airplane accident in 2014, his son, Drew Katz, replaced Katz as Rittenhouse 1603’s managing member.
As of the date of Katz’s death, Barbera did not make any payments due under the occupancy agreement to Rittenhouse 1603, the opinion said.
Later that year, Rittenhouse 1603 sent Barbera a written notice to vacate from the condominium unit and terminated the occupancy agreement.
After Barbera refused to willingly vacate from the condominium unit, Rittenhouse 1603 filed an action in the Philadelphia Municipal Court seeking Barbera’s eviction from the condominium unit (but not monetary damages), the opinion said.
After the hearing took place, the Municipal Court entered judgment for possession in favor of Rittenhouse 1603 and against Barbera.
Barbera then appealed the court’s ruling to the Common Pleas Court.
After doing so, Rittenhouse 1603 filed a complaint in the Court of Common Pleas that not only included a count for eviction based upon the alleged breaches of the terms and conditions of the occupancy agreement, but also for ejectment and unjust enrichment.
Unlike the eviction action initiated in the Municipal Court, Rittenhouse 1603 not only sought possession of the condominium unit, but also requested a monetary judgment against Barbera.
After a bench trial, the trial court judge entered a decision in favor of Rittenhouse 1603 and against Barbera on its claims of ejectment, breach of the terms and conditions of the occupancy agreement, and unjust enrichment.
In doing so, the trial court judge “awarded possession of the condominium unit to Rittenhouse 1603 as well as counsel fees of $75,000 (including condominium fees and taxes) in the amount of $16,924.33, and rent in the amount of $50,700, for a total of $142,624.38.”
Barbera filed a timely appeal of the trial court judge’s ruling to the Superior Court.
Of particular note, the Superior Court, sua sponte, addressed whether the lower courts, the Municipal Court and the Court of Common Pleas, had subject matter jurisdiction over the real estate dispute between the parties.
The Superior Court first discussed whether the Municipal Court had subject matter jurisdiction through its landlord-tenant court.
As indicated by the Superior Court in Barbera, 42 Pa. C.S. § 1123(a)(3), the jurisdictional statute for landlord-tenant disputes in Philadelphia, the Municipal Court has jurisdiction over “matters arising under the act of April 6, 1951, (P.L. 69, No. 20), known as The Landlord and Tenant Act of 1951 (68 P.S. Sections 250.101-250.602).”
According to Superior Court, the grounds for removal of a tenant under the Landlord and Tenant Act include: “termination of the term of the lease, breach of its conditions or the tenant’s failure to pay rent.”
The Superior Court then determined whether the occupancy agreement should be recognized as a lease arrangement that could be dealt with under the Landlord and Tenant Act, thus bestowing subject matter jurisdiction as to the eviction action initiated by Rittenhouse 1603 against Barbera in the Municipal Court.
Citing to the eighth edition of Black’s Law Dictionary, the Superior Court in Barbera noted that “a lease may be defined as ‘a contract by which a rightful possessor of real property conveys the right to use and occupy the property in question for exchange of consideration, usu. rent.’”
Quoting the Supreme Court in Morrisville Shopping Center v. Sun Ray Drug, 112 A.2d 183 (Pa. 1955), the Superior Court in Barbera emphasized that “while the parties need not use the term ‘lease’ in describing the occupancy agreement, a lease may be found where it is ‘the intention of one party voluntarily to dispossess himself of the premises, for a consideration, and of the other to assume the possession for a prescribed period.’”
The Superior Court ultimately concluded that “the Municipal Court had jurisdiction over Rittenhouse 1603’s complaint seeking Barbera’s eviction under the Landlord and Tenant Act” because, “although the occupancy agreement did not call for Rittenhouse 1603 to pay ‘rent,’ it constituted a ‘lease’ because it was a contract that permitted Barbera to use the condominium unit in exchange for ‘consideration,’ namely payment of utilities, real estate taxes, special assessments, condominium assessments and insurance.”
The Superior Court in Barbera then dealt with whether the Court of Common Pleas possessed subject matter jurisdiction over Barbera’s appeal of the Municipal Court judgment against him.
Citing to 42 Pa. C.S. Section 1123(a)(3), the Superior Court stated that “the legislature authorizes aggrieved parties to appeal a Municipal Court landlord-tenant judgment to the court of common pleas in accordance with ‘local rules of court established by the administrative judge of the trial division,’” so long as those rules are not inconsistent with statewide rules of procedure established by our Supreme Court.
Unlike the complaint filed in the Municipal Court, Rittenhouse 1603’s complaint filed on appeal to the Court of Common Pleas included counts not only for eviction based upon the alleged breaches committed by Barbera of the terms and conditions of the occupancy agreement, but also for ejectment and unjust enrichment.
The Superior Court stated that, “although Rittenhouse 1603 did not allege these claims in the Municipal Court, Rittenhouse 1603 had the right to allege them in the appeal to the Court of Common Pleas.”
According to the Superior Court, “Philadelphia Local Rule *1001(f)(2)(ii) provides that appeals from Municipal Court landlord-tenant judgments ‘shall be in accordance … with the Rules of Civil Procedure that would be applicable if the action being appealed was initially commenced in the Court of Common Pleas’” and, in turn, Rule 1020(a) of the Pennsylvania Rules of Civil Procedure provides that “‘the plaintiff may state in the complaint more than one cause of action cognizable in a civil action against the same defendant.’” And that “each cause of action and any special damage related thereto shall be stated in a separate count containing a demand for relief.’”
Reprinted with permission from the August 16, 2019 edition of The Legal Intelligencer © 2019 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, firstname.lastname@example.org or visit www.almreprints.com.