## Facts

- Tenants entered a five-year residential lease in a Passaic apartment building owned by the original lessor.
- The lease stated a monthly rent, and the tenants paid one month at signing and then paid the remaining rent for the lease term in a single advance payment pursuant to an oral arrangement with the lessor.
- The parties later agreed the tenants would move to a larger unit at a higher monthly rent; a new written lease set rent at $150 per month for a new five-year term but did not reflect the prior full prepayment.
- The tenants paid additional security and agreed to pay the rent difference in annual installments; the lessor’s agent sent a letter acknowledging the earlier rent prepayment and the annual adjustment arrangement.
- The property interests were later transferred: the original lessor conveyed title to a new owner and retained a leasehold interest, then assigned that leasehold interest to the plaintiff.
- A covenant in the leaseback between the original lessor and the new owner purported to restrict acceptance of more than one month’s rent prepayment from subtenants.
- After the plaintiff acquired the leasehold interest, the tenants—who remained in possession—refused to pay monthly rent to the plaintiff, asserting that rent for the term had already been paid in advance (subject to the agreed annual adjustments).
- The plaintiff sued the tenants for unpaid rent under the written lease; the tenants asserted payment as a complete defense.

## Issues

1. Whether an assignee of a landlord’s leasehold interest takes subject to tenants’ defenses against the original lessor, including a defense that rent was prepaid for the lease term.
2. Whether tenants’ open possession imposes inquiry notice on a purchaser/assignee of the landlord’s interest as to the tenants’ existing rights regarding rent payment.
3. Whether a rent-prepayment restriction in a leaseback between prior parties can defeat tenants’ prepaid-rent defense against a successor in interest.

## Decision

- The Appellate Division affirmed summary judgment for the tenants.
- The court held that the plaintiff-assignee took subject to defenses available against the original lessor, including the defense of prior payment of rent.
- The tenants’ possession charged the plaintiff with notice of the tenants’ rights and imposed a duty to inquire into the terms and incidents of the tenancy, including payment arrangements.
- The rent-prepayment restriction in the leaseback was treated as a matter between the contracting parties and did not eliminate the tenants’ defense based on their payment arrangement with the original lessor.

## Legal Principles

- An assignee of a lessor’s interest generally stands in the assignor’s position and takes subject to the tenant’s rights and defenses that could have been asserted against the original lessor.
- A tenant’s open and notorious possession provides constructive notice to purchasers and assigns of the landlord’s interest and creates a duty to inquire into the tenant’s existing rights.
- Rent paid in advance pursuant to the landlord-tenant arrangement is a defense to a later rent claim by a successor landlord who takes with actual or constructive notice.
- Contractual covenants restricting rent prepayment in a separate transfer instrument do not, by themselves, negate tenants’ defenses based on payments made to the prior lessor.

## Conclusion

The court held that the successor to the landlord’s leasehold interest could not collect rent already prepaid to the original lessor because the tenants’ possession placed the successor on inquiry notice of the tenants’ payment rights, and the assignee took subject to the tenants’ defense of payment.


Martinique Realty Corp. v. Hull, 64 N.J. Super. 599, 166 A.2d 803 (N.J. Super. Ct. App. Div. 1960)