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Brookchester Inc. v. Ligham

Decided: February 14, 1955.

BROOKCHESTER, INC., SECTION I, A CORPORATION OF THE STATE OF NEW JERSEY, ET AL., PETITIONERS,
v.
CHESTER K. LIGHAM, DIRECTOR OF THE OFFICE OF RENT CONTROL OF THE STATE OF NEW JERSEY, RESPONDENT



For entry of judgment in accordance with majority opinion -- Chief Justice Vanderbilt, and Justices Oliphant, Burling, Jacobs and Brennan. For entry of judgment in accordance with minority opinion -- Justices Heher and Wachenfeld. The opinion of the court was delivered by Burling, J. Heher, J. (dissenting in part). Mr. Justice Wachenfeld concurs in this dissent.

Burling

This is a petition for declaratory judgment, in lieu of prerogative writ, filed in the Superior Court, Appellate Division, pursuant to R.R. 4:88-10, to review administrative rules (designated herein as "Change No. 5" and "Change No. 7") promulgated by the State Rent Control Director, the effect of which was to subject rental housing properties of the petitioners to state rent control under the State Rent Control Act of 1953, L. 1953, c. 216, N.J.S. 2 A:42-14 et seq. Prior to hearing in the Superior Court, Appellate Division, we certified the matter on our own motion for disposition in this court.

The jurisdiction of the court under R.R. 4:88-10 was invoked in this matter in a petition for declaratory judgment filed by Brookchester, Inc., Sections 1 to 10, inclusive, each "Section" being a separate corporation of the State of New Jersey, and each having its principal office in the City of Hackensack, Bergen County, New Jersey. The respondent is Chester K. Ligham, Director of the Office of Rent Control of the State of New Jersey (hereinafter referred to as the State Director).

Petitions for intervention were filed by 16 other New Jersey corporations, namely Stevens Gardens, Inc.; Continental Heights, Inc.; Belle-View Gardens, Inc.; Wright Village, Inc.; The Cambridge, Inc.; Maybrook Gardens, Section Four; Maybrook Gardens, Section Five; Maybrook Gardens, Section Three; Floral Park, Inc.; Floral Park, Section II, Inc.; Woodcliff Gardens, Section I, Inc.; Woodcliff

Gardens, Section II, Inc.; Linden Arms, Inc.; Sandford, Inc.; Craigholm, Inc.; and Stanwyck, Inc. Their petitions to intervene were granted by the Superior Court, Appellate Division, and they filed petitions for declaratory judgment herein. The Superior Court, Appellate Division, also granted a petition to intervene filed by a group of tenants organized under the name of Brookchester Community Association.

After intervention of the parties above named, it was stipulated that all the petitioners' housing projects involved in these actions were erected and constructed under and pursuant to the provisions of the National Housing Act which provided for the insurance of mortgage loans on said housing projects by the Federal Housing Administration, and all of these housing accommodations are subject to the liens of such mortgages; that all of said projects were commenced during the year 1948 and completed in the year 1950, under and pursuant to the provisions of the rules and regulations of the National Housing Act, namely under section 608 of Title VI of the Act of June 27, 1934, c. 847, as added May 26, 1942, c. 319, sec. 11, 56 Stat. 303, and the amendments and supplements thereto (see 12 U.S.C.A., sec. 1743); that under the National Housing Act the Federal Housing Commissioner (also sometimes referred to in the federal legislation as the Administrator) adopted regulations which included, inter alia, the following requirement:

"A corporate mortgagor shall be regulated through the ownership by the Commissioner of certain shares of special stock (or other evidence of beneficial interest in the mortgagor) which stock or interest will acquire majority voting rights in the event of default under the mortgage or violation of provisions of the charter of the mortgagor or the violation of any valid agreement entered into between the mortgagor, the mortgagee and/or the Commissioner, but only for a period co-extensive with the duration of such default or violation. The shares of stock or of beneficial interest issued to the Commissioner, his nominee or nominees and/or the Federal Housing Administration shall be in sufficient amount to constitute under the laws of the particular State a valid special class of stock or interest and shall be issued in consideration of the payment of the Commissioner of not exceeding in the aggregate $100. Such stock shall be

represented by certificates issued in the name of the Commissioner, and/or in the name of his nominee or nominees, and/or in the name of the Federal Housing Administration, as the Commissioner shall require. Upon the termination of all obligations of the Commissioner under his contract of mortgage insurance or any succeeding contract or agreement covering the mortgage obligation, including the obligation upon the Commissioner to issue debentures as a result of such termination, all regulation and restriction of the mortgagor shall cease. When the right of the Commissioner to regulate or restrict the mortgagor shall so terminate, the shares of special stock or other evidence of beneficial interest shall be surrendered by the Commissioner upon reimbursement of his payments therefor plus accrued dividends, if any, thereon. Such regulation and the additional regulation or restriction hereinafter provided in this Section shall be made effective by incorporation of appropriate provisions therefor in the charter or other instrument under which the mortgagor is created, or by agreement. In all cases where the insured mortgage is in excess of $200,000 the mortgagor must be a corporation or a trust." (Emphasis supplied.)

The Federal Housing Commissioner's regulations included in the stipulation also required incorporation in the corporate charter or agreement of the following provisions:

"(a) No charge shall be made by the mortgagor for the accommodations offered by the project in excess of a rental schedule to be filed with the Commissioner and approved by him or his duly constituted representative prior to the opening of the project for rental, which schedule shall be based upon a maximum average rental fixed prior to the insurance of the mortgage, and shall not thereafter be changed except upon application of the mortgagor to, and the written approval of the change by, the Commissioner.

(b) The established maximum rental shall be the maximum authorized charge against any tenant for the accommodations offered and shall include all services, except telephone, gas, electric, and refrigeration facilities. Charges permitted in addition to such maximum rental shall be subject to the approval of the Commissioner.

(c) The regulation and restriction provided for in the above paragraphs (a) and (b) of this subsection shall not apply so long as the maximum rents are regulated by another agency of the United States Government. Such maximum rental as established by such agency of the United States will be accepted by the Commissioner as an approved rent schedule. Upon the expiration of the authority of any such agency to fix maximum rentals, the established maximum rental schedule then in force with respect to the project shall be the established maximum rental schedule within the provisions of (a) and (b) above, and shall not thereafter be changed except upon approval of the Commissioner." (Emphasis supplied.)

It was stipulated that maximum rentals for the petitioners' properties subject to these proceedings have been fixed by the Federal Housing Commissioner, and are in effect; that these properties are located in municipalities which have made the State Rent Control Act of 1953 (N.J.S. 2 A:42-14 et seq.), supra, operative therein; that these housing projects were exempted from the provisions of the Housing and Rent Act of 1947 (50 App. U.S.C.A., secs. 1892-3) by virtue of the fact that they were erected subsequent to February 1, 1947, and that said housing accommodations were also excepted under the original rules and regulations of the State Director, dated July 31, 1953. These rules and regulations were subsequently changed on April 23, 1954, by Change No. 5, and on May 26, 1954, by Change No. 7, copies of the pertinent portions of each of which orders were incorporated in the stipulation. The pertinent portion of Change No. 5 excepted from the operation of the State Rent Control Act of 1953 (N.J.S. 2 A:42-14 et seq.), supra, new housing space completed

"(1) during the period between February 1, 1947 and August 1, 1953, in projects or buildings containing less than 50 units. This exception shall not include housing space in projects or buildings containing 50 units or more; and housing space in such projects or buildings which are located ...


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