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Leone Management Corp. v. Board of Commissioners

Decided: October 17, 1974.

LEONE MANAGEMENT CORP., A NEW JERSEY CORPORATION, ET AL., PLAINTIFFS,
v.
BOARD OF COMMISSIONERS OF THE TOWN OF WEST NEW YORK, ET AL., DEFENDANTS. LEONE MANAGEMENT CORP., A NEW JERSEY CORPORATION, ET AL., PLAINTIFFS, V. BOARD OF COMMISSIONERS OF THE TOWNSHIP OF NORTH BERGEN, ET AL., DEFENDANTS. KEEN REALTY INC., A NEW JERSEY CORPORATION, PLAINTIFF, V. MAYOR AND BOARD OF COMMISSIONERS OF THE TOWN OF WEST NEW YORK, ET AL., DEFENDANTS. JUSTIN C. HARRIS, ET AL., PLAINTIFFS, V. MAYOR AND BOARD OF COMMISSIONERS OF THE TOWNSHIP OF NORTH BERGEN, ET AL., DEFENDANTS. BELFER REALTY ASSOCIATES, A LIMITED PARTNERSHIP OF NEW JERSEY, PLAINTIFF, V. MAYOR AND BOARD OF COMMISSIONERS OF THE TOWNSHIP OF NORTH BERGEN, DEFENDANTS. SAMO HOLDING CORP., PLAINTIFF, V. MAYOR AND BOARD OF COMMISSIONERS OF THE TOWNSHIP OF NORTH BERGEN, ET AL., DEFENDANTS



Larner, A.j.s.c.

Larner

These cases involve an attack by owners of many multiple-family dwellings upon certain provisions of amendments to the rent stabilization ordinances of the municipalities of West New York and North Bergen. Since the ordinance provisions are similar and the legal issues are common, the cases were consolidated for the purpose of hearing the motions addressed to the validity of the sections under attack.

The matters were heard on plaintiffs' motion for summary judgment by which they contend that the ordinances are facially unconstitutional in several respects and should therefore be set aside as a matter of law.

West New York and North Bergen, as many other municipalities in this State, adopted rent stabilization ordinances shortly after the termination of federal rent controls on January 11, 1973. These ordinances were based upon a finding of a housing emergency and pursuant to local police power approved in Inganamort v. Ft. Lee, 62 N.J. 521 (1973). The pattern of these ordinances involved a freezing of rents in occupied dwelling units at the level which obtained on January 11, 1973, with provisos for increases because of the impact of inflation upon the economy and increased costs of building operations.

In addition to provision for upward rental modification based upon tax increases, capital improvements and hardship pleas, the municipal ordinances authorized an automatic annual increase equal to the difference between the Consumer Price Index (C.P.I.) as of the time of the commencement of the tenancy and the termination of the tenancy.

The use of the C.P.I. as the criterion for permissible rent increases was initially attacked by landlords in other litigation as an arbitrary and unreasonable measure of increased costs. In contrast, municipalities urged in the context of

that litigation that the C.P.I. was a reasonable yardstick to measure the effect of inflation and a reasonable means of rent adjustment in recognition of the competing interests of the tenant and landlord in this economic era.

In any event, the use of the C.P.I. was sustained in Albigese v. Jersey City, 127 N.J. Super. 101 (Law Div. 1974), aff'd 129 N.J. Super. 567 (App. Div. 1974), as a reasonable means of regulation within the ambit of the legislative discretion vested in local government.

The facts of economic history in this country and in this area in 1973 and 1974 produced a reversal of position on the part of landlords and municipal governing bodies which has led to the current litigation. The C.P.I. as of March 1974 showed an increase of 10.5% over the index figure of March 1973. Under the existing ordinances this produced an automatic increase of 10.5% in rentals subject to the ordinance. As a consequence there resulted a wave of protest from tenants to their elected local officials. And in response thereto, each municipality proceeded to adopt amendments which sought to cut back the size of rental increases permitted by the underlying ordinances through the adoption of a percentage ceiling on the C.P.I. increase and a percentage ceiling on all other increases. In addition, there were other modifications in an effort to control the rent increases available to the landlord. (These amendments and the flood of problems and litigation in this area stem from the delegation of power to municipalities to legislate in this area. See Judge Conford's dissent in Inganamort at 545 of 62 N.J.)

The experience over the past year has thus induced the landlords to reverse their position and opt for the fairness and reasonableness of the C.P.I. standard while the tenants and municipal fathers urge that the C.P.I. is excessive and inappropriate as a guide to measure permissible rent increases.

As in all litigation involving municipal ordinances in this field of regulation, there are presented attacks upon

many of the legislative provisions. For the purpose of clarity each of them will be treated separately.

Limitation of C.P.I. increase to 5%, hardship and major improvement increase to 10%, and overall rent increases to 15%

The amendatory ordinance of North Bergen adopted on May 28, 1974 (§ 1(a) and § 3(c)) and the parallel amendment of the ordinance of West New York adopted on March 30, 1974 (§ 2(d) (e) and § 4) authorize a cost of living increase based upon the percentage of annual C.P.I. increase with a proviso that the maximum permissible increase on this score shall be 5%. In addition, the ordinances authorize application to the Rent Leveling Board for increases based on hardship and/or major capital improvements with a ceiling limitation of 10% in each category. They also provide that the combined rent increases allowable in all three categories shall not exceed 15% in any one year.

The major thrust of the property owners in their attack on the legal validity of the ordinances centers on the aforesaid percentage limitations on allowable increases. They assert that the creation of these ceilings are arbitrary and unreasonable in that they fail to guarantee a fair return on investment. This objection is not founded upon a factual basis applicable to any particular property or any particular owner. It is bottomed rather on the contention that any percentage limitation on permissible rent increases is unconstitutional on its face and beyond the power of valid regulation by municipal government.

In approaching the question of the validity of municipal legislation the court is constrained to accord the legislation the presumption that it is reasonable, valid and constitutional. And the burden therefore of rebutting this presumption and establishing arbitrariness and unreasonableness rests with those who assert it. Shell Oil v. Bd. of Adjustment, Hanover Tp., 38 N.J. 403, 413 (1962); Moyant

v. Paramus, 30 N.J. 528, 547 (1959); Guill v. Mayor, 21 N.J. 574 (1956); Kozesnik v. Montgomery Tp., 24 N.J. 154, 167 (1957).

Assuming this burden, plaintiffs urge that a flat percentage limitation on rent increases per se invades the basic tenet of constitutional validity, namely that the legislation must "allow landlords a fair and equitable return upon their investment," citing Foti v. Heller, 48 N.J. Super. 57, 65-66 (App. Div. 1957), and Friedman v. Podell, 21 N.J. 100, 104 (1956). See also: Jamouneau v. Harner, 16 N.J. 500, 527 (1954), cert. den. 349 U.S. 904, 75 S. Ct. 580, 99 L. Ed. 1241 (1955); dissent of Judge Conford in Inganamort, supra at 544-546 of 62 N.J.

This argument is made not upon a factual underpinning reflecting an unconstitutional deprivation of property of the landlord but upon an anticipatory fear that conditions may arise in the future where the respective limitations may deprive a landlord of a fair return. As a corollary, plaintiffs contend that the use of the C.P.I. in the basic rent control ordinances as a means of measuring increases ...


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