[164 NJSuper Page 297] These consolidated cases present difficult questions pertaining to the parameters of the federal preemption doctrine. The principal issue raised is whether federal regulations promulgated pursuant to the National Housing Act*fn1 preclude judicial inquiry into the conscionability of rent increases which were approved by the Department of Housing and Urban Development (HUD). The question is presented within the context of an action to summarily evict defendants for failure to pay rent increases in accordance with notices which were served upon them. Plaintiff's claim is grounded upon N.J.S.A. 2A:18-61.1(f) which authorizes the county district court to summarily dispossess a tenant under such circumstances, "provided the increase in rent is not unconscionable" and complies with
governing municipal ordinances. The basic thrust of plaintiff's argument is that the Supremacy Clause*fn2 prohibits the state courts from reviewing the reasonableness of rent increases which have been considered and approved by HUD. In response, defendants contend that the rent increases charged by plaintiff in this case are excessive and that nothing in the National Housing Act or in its legislative history evidences a Congressional design to displace coincident state regulation.
The history of this litigation is formidable and is partially recounted in Hill Manor Apartments v. Stokes , 154 N.J. Super. 496 (App. Div. 1977). The material facts are not in dispute and are essentially a matter of public record. Plaintiff is a large apartment complex owned by the Newark Community Housing Corporation. The building consists of 426 rental units and houses primarily low and middle-income families. The apartment complex is financed, subsidized and regulated pursuant to the National Housing Act.*fn3 Under this program owners receive insurance on mortgage loans, can borrow at below market interest rates, are subject to reduced equity requirements and enjoy various tax advantages.*fn4 The statutory scheme is designed to serve the needs of a broad spectrum of citizens by encouraging and stimulating private investment. In return for such assistance mortgagors are required to enter into regulatory agreements which confer broad supervisory authority upon the Federal Housing Commissioner. The agreement in this case, for example, empowers the Commissioner to "control the establishment of maximum rental charges applicable to the project."*fn5
Additional safeguards have been adopted to insure the financial viability of the Federal Government's investment in the project. Under current regulations it is incumbent upon the owner to notify tenants with respect to prospective rent increases.*fn6 All tenants are accorded the right to file objections or otherwise comment upon the proposed increases.*fn7 The owner is then obliged to submit a certified profit and loss statement and other documents supporting the need to increase rents to HUD for its approval.*fn8
Three applications for rent increases have been approved by HUD since 1969 when construction of the apartment complex was completed. It is uncontroverted that a 24.7% annual rent increase was approved on November 27, 1974. It is also undisputed that HUD granted an 11.5% increase on December 18, 1975. A rent strike apparently ensued, resulting in the institution of numerous summary eviction actions by plaintiff. On December 13, 1977 the Appellate Division rendered its decision pertaining to these suits and held that various federal regulations served to preempt the City of Newark's rent control ordinance.*fn9 The court did not have occasion to consider the specific question presented here, however; i.e. whether the federal Supremacy Clause mandates a similar conclusion with respect to New Jersey's Anti-Eviction Act. That issue is now ripe for resolution by virtue of plaintiff's subsequent decision to seek an additional
25% increase which was to become effective on June 1, 1977.
In the latter part of April 1977 plaintiff's agent served defendants with notices to quit and accompanying notification of rent increases.*fn10 Simultaneously, plaintiff filed an application with HUD and provided appropriate documentation supporting its request. Numerous objections and comments by various tenants were forwarded to HUD and were considered along with the documents submitted by plaintiff. Following its review of these materials, HUD rejected plaintiff's request for a 25% increase in rents. However, it approved a 20.2% increase. Defendants have refused to pay the increased rents claiming that they are excessive and unconscionable.*fn11
The issue presented here goes to the very heart of our federal system. Under our basic constitutional scheme the Federal Government is delegated an assigned role, all else being reserved to the states.*fn12 Within its proper sphere, however, the federal law is supreme. The Supremacy Clause establishes "as a principle of our federalism that state and [164 NJSuper Page 301] local laws are not enforceable if they impinge upon an exclusive federal domain."*fn13 Juxtaposed against this important constitutional policy is the undeniably strong traditional interest of the states in defining and protecting the respective rights of landlords and tenants. This obligation has deep historical roots and has assumed greater importance with the passage of time. Both the Legislative and Judicial Branches of our State Government have recognized that a housing emergency exists in New Jersey, "especially in the low and moderate-income housing areas."*fn14 It has been stated that the deteriorating housing problem in this State has "made it almost impossible for dispossessed tenants to locate other housing accommodations."*fn15 To ameliorate this problem our Legislature enacted a comprehensive Anti-Eviction Act*fn16 designed to protect tenants against overreaching landlords. In essence, residential tenants can be evicted only upon a showing of good cause.*fn17 At issue here is whether federal statutes and regulations prohibit the state courts from performing their essential responsibility under the Anti-Eviction Act to insure that rent increases charged by landlords are not unconscionable. For reasons which I will express shortly, it is my view that the tension between the competing values underlying this dispute can best be alleviated by subordinating the State's interest to that of the Federal Government under the preemption doctrine.
The preemption doctrine was initially developed by the Supreme Court in Gibbons v. Ogden , 22 U.S. 1 (9 Wheat 1), 6 L. Ed. 23 (1824). The rule is founded upon the Supremacy Clause and is designed to insure its effective implementation. Succinctly stated, the Supremacy Clause "mandates that federal law displace concurrent state regulation when the two are incompatible."*fn18 The courts have enunciated several tests in determining whether a federal statute or regulation supersedes state legislation. The doctrine is applicable where (1) there exists clear evidence that Congress intended to preempt the field, (2) the nature of the subject matter demands exclusive federal uniform regulation, (3) there is an actual conflict between two statutory schemes, and (4) the state law stands as an obstacle to the accomplishment and execution of the federal objectives and purposes.*fn19 Nevertheless, the mere potential for conflict constitutes insufficient ...