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Hutton Park Gardens v. Town Council of Town of West Orange

Decided: December 11, 1975.

HUTTON PARK GARDENS, A PARTNERSHIP, PLAINTIFF-RESPONDENT, AND HUTTON LAFAYETTE APARTMENTS COMPANY AND ROCKLEDGE REALTY COMPANY, PLAINTIFFS-INTERVENORS,
v.
TOWN COUNCIL OF THE TOWN OF WEST ORANGE AND THE TOWN OF WEST ORANGE, A MUNICIPAL CORPORATION, DEFENDANTS-APPELLANTS. HARVEY J. COSDEN AND JACOB SCHNEIDER, SOLE TRUSTEES, TRADING AS WAYNE TERRACE APARTMENTS; WILSON R. KAPLAN, TRADING AS WAYNE VILLAGE; ESQUIRE ESTATES, INC., A NEW JERSEY CORPORATION; POVERSHON CONSTRUCTION COMPANY, A NEW JERSEY CORPORATION, AND SOUTHFIELD HOMES, INC., A NEW JERSEY CORPORATION, ALL TRADING AS MANCHESTER VILLAGE, PLAINTIFFS-APPELLANTS, V. TOWNSHIP OF WAYNE, A MUNICIPAL CORPORATION AND MUNICIPAL COUNCIL OF THE TOWNSHIP OF WAYNE, DEFENDANTS-RESPONDENTS



For reversal and remandment in Hutton Park Gardens -- Chief Justice Hughes, Justices Mountain, Sullivan, Pashman, Clifford and Schreiber and Judge Conford. For affirmance -- None. For affirmance and remandment in Cosden -- Chief Justice Hughes, Justices Mountain, Sullivan, Pashman, Clifford and Schreiber and Judge Conford. For reversal -- None. The opinion of the Court was delivered by Pashman, J. Conford, P.J.A.D., Temporarily Assigned (concurring). Justice Clifford joins in this concurring opinion. Clifford, J., and Conford, P.J.A.D., concurring in the result.

Pashman

Having held that regulation of rents is within the powers delegated by the Legislature to municipalities under N.J.S.A. 40:48-2, Inganamort v. Fort Lee, 62 N.J. 521 (1973), this Court is now presented with various questions concerning when and how municipalities may exercise that power.

West Orange adopted a rent control ordinance, No. 247-72, in October 1973. It has since amended the ordinance twice (Ordinances Nos. 276-73, 287-73), each time imposing additional restrictions on the freedom of landlords within the municipality to raise rents. In its present form, the ordinance recites the existence of a limited supply of rental housing in the municipality and receipt of complaints concerning rising rents and deteriorating conditions of rental units. It establishes rent charges as of February 1, 1973 as the base rent and provides that rent increases at the expiration of a lease or a tenancy are limited to the annual percentage increase in the Consumer Price Index (CPI) for the New York metropolitan area computed by the United States Department of Labor for the period from 90 days prior to the commencement of the lease to 90 days prior to its termination.*fn1 Tenants may additionally be surcharged for the portion of any tax increase equal to the percentage of the square footage of the building which they occupy. The ordinance, however, places a ceiling on such

rent increases and surcharges equal to 5% of the existing rent. It also permits a landlord to apply to the municipal rent leveling board for a rent surcharge up to 10% of the existing rent where he has made major capital improvements or increases in services or for a hardship rent increase of up to 10% if he cannot meet his mortgage obligations or maintenance costs. It places a ceiling on the aggregate of all such additional increases and surcharges equal to 10% of the existing rent.

Plaintiff-respondent Hutton Park Gardens filed a complaint in lieu of prerogative writ in the Superior Court in Essex County in which intervenors Hutton Lafayette Apartments Company and Rockledge Realty Company joined challenging the West Orange ordinance and particularly the 5% ceiling on annual rent increases imposed by the most recent amendment*fn2 as confiscatory, arbitrary and unreasonable. The case was heard on cross-motions for summary judgment on the issue of whether the ordinance was facially unconstitutional.

The principal evidence at this hearing was the affidavit of Richard Segal, manager of apartments owned by plaintiff-intervenors Hutton Lafayette Apartments Company and Rockledge Realty Company. He estimated that operating costs of apartments owned by Hutton Lafayette would increase by 15% of the average existing rent during 1974 and of apartments owned by Rockledge Realty by 5-7% during the same period.

The trial court held the ordinance facially unconstitutional, granted summary judgment for parties plaintiff, and enjoined enforcement of the ordinance.

The history of rent control in Wayne Township is similar to that in West Orange. Wayne Township adopted a rent control ordinance, No. 22-1972, in May 1972. The ordinance has since been amended three times (Ordinances Nos. 129-1972, 106-1973, 51-1974). In its present form, the ordinance declares the existence of a housing crisis in Wayne Township. It establishes the rents as of May 1972 as base rents and limits rent increases over those rents to 50% of the percentage increase in the Consumer Price Index during the period from 120 days before the prior lease was entered into to 120 days before it expires. It permits landlords to apply to the municipal rent leveling commission for rent increases to alleviate hardships such as inability to meet mortgage payments or maintenance costs, or to reimburse them for major capital improvements. These increases are limited to 15% of the tenant's existing rent charge. It also permits him to apply for permission to impose an additional surcharge to pass through to the tenant a portion of increases in local taxes equal to the percentage of rooms in the building occupied by the tenant.

Plaintiffs, various apartment owners in Wayne Township, filed a complaint in lieu of prerogative writ in the Superior Court in Passaic County challenging the restriction of annual rent increases to 50% of the increase in the CPI*fn3 as

confiscatory, arbitrary and unreasonable. The trial court heard the issue of the facial constitutionality on cross motions for summary judgment and entered judgment for the municipality. The Appellate Division affirmed in an unreported opinion.

We granted certification*fn4 in both of these cases, as well as in Brunetti v. New Milford, 68 N.J. 576 (1975) and Troy Hills Village v. Parsippany-Troy Hills Tp. Council, 68 N.J. 604 (1975), also decided today, to consider the limitations imposed by the federal and state constitutions upon municipal efforts to regulate rents. These questions have been the subject of much litigation since this Court's decision in Inganamort v. Fort Lee, supra.*fn5

I

We first consider plaintiffs' contentions that the ordinances are generally arbitrary and unreasonable, that is, that they violate principles of substantive due process.

Municipal rent control is, of course, but one example of the larger and more pervasive phenomenon of governmental regulation of prices under the police power. For constitutional

purposes, rent control is indistinguishable from other types of governmental price regulation. Despite the permanence and concreteness of real property, and the special place accorded it by the common law as expounded by the early commentators, its commercial use is no less subject to regulation under the police power than other, more ephemeral, goods and services. Block v. Hirsh, 256 U.S. 135, 41 S. Ct. 458, 65 L. Ed. 865 (1921).*fn6 The renting of residential property is as much an essential enterprise as the retail sale of food-stuffs, the extraction and processing of natural resources, the operation of a railroad, or the conduct of a banking business, cf. Javins v. First Nat'l Realty Corp., 138 U.S. App. D.C. 369, 428 F.2d 1071, 1079 (D.C. Cir. 1971), and equally subject to public regulation when the need arises. Bowles v. Willingham, 321 U.S. 503, 64 S. Ct. 641, 88 L. Ed. 892 (1944); Block v. Hirsh, supra; Jamouneau v. Harner, 16 N.J. 500 (1954), cert. denied 349 U.S. 904, 75 S. Ct. 580, 99 L. Ed. 1241 (1955). To ascertain the limitations imposed by the state and federal constitutions upon municipal efforts to regulate rents, it is therefore appropriate to consider the constitutional limits on governmental regulation of prices generally.

Governmental regulation of prices has a long, although somewhat checkered, legal history in this country.*fn7 For

present purposes, however, we need look no farther back than the decision of United States Supreme Court in Nebbia v. New York, 291 U.S. 502, 54 S. Ct. 505, 78 L. Ed. 940 (1934), a case concerning regulation of milk prices. In that case, breaking free of the tangled and restrictive body of decisional law concerning price regulation which it had developed over the preceding half-century, the Court held that state regulation of prices enacted to promote the general welfare is not per se violative of the due process clause in the federal constitution:

We may as well say at once that the dairy industry is not, in the accepted sense of the phrase, a public utility. We think the appellant is also right in asserting that there is in this case no suggestion of any monopoly or monopolistic practice. It goes without saying that those engaged in the business are in no way dependent upon public grants or franchises for the privilege of conducting their activities. But if, as must be conceded, the industry is subject to regulation in the public interest, what constitutional principle bars the state from correcting existing maladjustments by legislation touching prices? We think there is no such principle. The due process clause makes no mention of sales or of prices any more than it speaks of business or contracts or buildings or other incidents of property. The thought seems nevertheless to have persisted that there is something peculiarly sacrosanct about the price one may

charge for what he makes or sells, and that, however able to regulate other elements of manufacture or trade, with incidental effect upon price, the state is incapable of directly controlling the price itself. This view was negatived many years ago. Munn v. Illinois, 94 U.S. 113, 24 L. Ed. 77. [291 U.S. at 531-32, 54 S. Ct. at 513, 78 L. Ed. at 954].

Rather, it held that where, in the opinion of the legislature, regulation of prices serves the public interest, a state is entirely free to impose such regulation, provided only that it does not employ means which are arbitrary, discriminatory or demonstrably irrelevant to a legitimate purpose:

If the lawmaking body within its sphere of government concludes that the conditions or practices in an industry make unrestricted competition an inadequate safeguard of the consumer's interests, produce waste harmful to the public, threaten ultimately to cut off the supply of a commodity needed by the public, or portend the destruction of the industry itself, appropriate statutes passed in an honest effort to correct the threatened consequences may not be set aside because the regulation adopted fixes prices reasonably deemed by the legislature to be fair to those engaged in the industry and to the consuming public. [ Id. at 538-39, 54 S. Ct. at 516, 78 L. Ed. at 957; footnote omitted].

In so deciding, the Court reverted to its earliest view of the limitations imposed upon such state action by the fourteenth amendment. Munn v. Illinois, 94 U.S. 113, 24 L. Ed. 77 (1877); Peik v. Chicago & N.W.R. Co., 94 U.S. 164, 24 L. Ed. 97 (1877). In subsequent decisions, the United States Supreme Court has consistently reaffirmed its holding in Nebbia. E.g., Cities Service Gas Co. v. Peerless Oil & Gas Co., 340 U.S. 179, 71 S. Ct. 215, 95 L. Ed. 190 (1950) (wellhead price of natural gas); Olsen v. Nebraska ex rel. Western Reference & Bond Ass'n, 313 U.S. 236, 61 S. Ct. 862, 85 L. Ed. 1305 (1941) (fees of employment agencies); Mayo v. Lakeland Highlands Canning Co., 309 U.S. 310, 60 S. Ct. 517, 84 L. Ed. 774 (1940) (prices of citrus fruits); Townsend v. Yeomans, 301 U.S. 441, 57 S. Ct. 842, 81 L. Ed. 1210 (1937) (fees of tobacco factors); Hegeman Farms Corp. v. Baldwin, 293 U.S. 163, 55 S. Ct. 7, 79 L. Ed. 259 (1934) (price of milk).

Among other things, Nebbia and the line of decisions following it reject the view previously expressed by the Supreme Court in cases such as Ribnik v. McBride, 277 U.S. 350, 48 S. Ct. 545, 72 L. Ed. 913 (1928) and Tyson & Bros.-United Theatre Ticket Offices v. Banton, 273 U.S. 418, 47 S. Ct. 426, 71 L. Ed. 718 (1927) that governmental price regulation violates principles of substantive due process unless supported by a special showing that an "emergency" exists or that the industry to be regulated is "affected with a public interest." The issue was presented most starkly in Olsen v. Nebraska ex rel. Western Reference & Bonding Ass'n, supra, a case challenging the constitutionality of regulation of fees charged by employment agencies. In its decision, the Court summarily rejected the contention that "special circumstances must be shown to support the validity of such ...


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