On appeal from Superior Court, Law Division, Essex County.
Fritz, Bischoff and Morgan. The opinion of the court was delivered by Bischoff, J.A.D.
Defendants City of Orange, the Rent Leveling Board of the City of Orange, the Orange Tenants Association and individual tenants appeal, with leave granted, from summary judgment declaring invalid and unenforceable an amendment to the rent leveling ordinance of the City of Orange which (1) repealed the tax surcharge provision thereof and (2) required "substantial compliance" with the Orange property maintenance code as a condition precedent to an increase in rents.
The relevant facts follow. The City of Orange adopted a rent leveling ordinance November 10, 1972 based on factual findings that (1) the board of commissioners had received numerous complaints from citizens in the city concerning increases in rents and deterioration of dwelling units, causing hardship and adversely affecting the health, safety and general welfare of the citizens, and (2) there was a shortage of housing space in the city warranting legislative action by the governing body.
The ordinance created a rent leveling board with powers to promulgate rules and regulations and to adjudicate applications from landlords for additional rent. This ordinance, as originally enacted, authorized landlords in Orange to raise rents by either (1) a tax surcharge, (2) a consumer price
index (CPI) or percentage increase, and (3) a hardship increase.
The Tax Surcharge. Section 5 of the ordinance originally allowed a landlord to charge a tenant for increases in municipal taxes and provided a formula for apportioning any increase in taxes levied against the property among the tenants. On April 2, 1974 this section was amended to provide:
A separate tax surcharge shall be allowed for each and every year the taxes of the landlord are increased above the 1972 tax base * * *.
The CPI Increase. Section 2 of the 1972 ordinance allowed a landlord to increase rent by an amount equal to a base rent (the 1972 level), multiplied by the percentage increase in the consumer price index for the relevant period. The ordinance provided that the tax surcharge shall not be considered rent for purposes of computing the CPI rental increases. In March 1974 this provision was amended to limit the CPI increase to a maximum of 4% a year.
The Hardship Increase. Section 10 of the ordinance provided that if "a landlord cannot meet his mortgage payments and maintenance," he could appeal to the rent leveling board for a "hardship increase." A landlord could also "seek additional rental for major capital improvements or services." The capital improvement increase was limited to 15% of a tenant's rent.
The city council later amended the provision. As modified it reads in part:
In the event that a landlord cannot meet his mortgage payments, and maintenance and or usual customary and normal cash flow expenses of operating a multiple dwelling property, he may appeal to the Rent Leveling Board for an increase in rentals. * * *
On January 15, 1974 § 10 of the ordinance was amended to require a landlord be in "substantial compliance" with health and safety codes in order to "petition for a rent
increase." When petitioning for an increase in rent, an apartment owner was required to attach a certification from the Property Maintenance Department of the City of Orange that the buildings and grounds were substantially in compliance with the Property Maintenance Code of the City and the Property Maintenance Code of the State of New Jersey. Affidavits filed with the trial court indicated that in actual operation hardship applications were generally processed within two months and when granted were retroactive to the date of filing. It was also averred that the rent leveling board processed hardship applications upon submission of certificates from the Orange Property Maintenance Department alone. The yearly 4% increments were granted as a matter of course where a landlord posted his own certificate of compliance in the apartment building.
This rent control law generated many conflicts between landlords and tenants in the City of Orange. Open public meetings were held at which evidence of landlord abuse in computation of rental increases and accumulation and addition of tax surcharges was revealed.
The city council thereafter adopted an ordinance on August 17, 1976, effective September 19, 1976, repealing all sections of the rent leveling ordinance permitting a tax surcharge. Due to uncertainty concerning the retroactivity of the repeal ordinance the city council passed a resolution on March 1, 1977, interpreting the ordinance and declaring (1) the repeal of the tax surcharge was effective September 19, 1976 and applied to all tax surcharges after that date, and (2) the tax surcharge was separate and apart from basic monthly rent.
On March 10, 1977 plaintiffs, a corporation of landlords, together with individual apartment house owners, filed a verified complaint in lieu of prerogative writs alleging, among other matters, that the tax surcharge repeal provision and the substantial compliance provision of the Orange rent control ordinance were void as an arbitrary and capricious exercise of the police power preventing a fair return on invested capital. Plaintiffs sought a judgment declaring these provisions
null, void and unenforceable. Following argument on cross-motions for summary judgment supported by affidavits, the trial judge ruled as follows.
(1) The tax surcharges "cumulated from 1972" constituted rent and their elimination by the repealing ordinance constituted a rollback of rents. Relying on Albigese v. Jersey City , 127 N.J. Super. 101 (Law Div.), mod. and aff'd 129 N.J. Super. 567 (App. Div. 1974), the judge held that municipal authorities enacting such regulations must "have either a well supported factual finding as to the need to do so and limited its action to that purpose or acted on a temporary basis." He found the record "barren of any facts upon which the Council acted to generally roll back the portion of rent based upon taxes to the level of the base year 1972" and declared the portion of the ordinance repealing the tax surcharge unconstitutional.
(2) In an issue raised on his own motion the judge held the rollback provisions of the repealing ordinance in conflict with, and therefore preempted by, the Tenants' Property Tax Rebate Act, ...