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Mahoney v. Hoboken Rent Leveling Board

Decided: January 28, 1981.


Bilder, J.s.c.


[178 NJSuper Page 53] This is an action in lieu of prerogative writs brought by tenants to review the action of the Hoboken Rent Control Board in granting a hardship increase. Defendant landlords were

granted an increase in excess of 200% based upon an application which showed a gross annual income of $9,900,*fn1 operating expenses of $7,298.38 and interest expenses of $14,406.54. Thus, without consideration of their right to receive a fair return on their investment, see Helmsley v. Fort Lee , 78 N.J. 200, 210 (1978), the landlords had an annual operating deficit of $11,804.92. While a lack of findings leaves the details of the board's conclusion unknown, the final result evidences a substantial acceptance of the landlords' claim. Although generally alleging the board action to be arbitrary, capricious and unreasonable, the true thrust of plaintiff tenants' attack is directed at the claimed interest expense and the board's refusal to consider the reasonable value of the building. Both for the failure to make proper findings and conclusions, and the failure to consider the value of the building, the matter must be remanded.

The Interest Expense

Defendants are the owners of a three-family house in Hoboken which they acquired by purchase on May 15, 1980. At the time of the negotiations for its purchase one of the apartments was owner-occupied and the other two were apparently*fn2 rented for $200 and $250 a month. The purchase price was $145,000. The seller was obligated to deliver the premises free of all tenants and tenancies. One of the rented apartments was in fact vacated, so that when defendants obtained possession, two apartments were vacant and one was still occupied by tenants, the present plaintiffs. The landlords moved into one apartment, rented the other vacant apartment at an increased rental of

$350 and collected rent for the occupied apartment at the existing rate of $200.*fn3

On June 6, 1980 defendants filed an application for a hardship increase in the rent of each apartment to $650. The application was made pursuant to ยง 18:54(G) of the Hoboken ordinance, which, as far as relevant, reads as follows:

In the event that a landlord cannot meet his mortgage payments, operating expenses or does not make a "fair return" on his investment, he may appeal to the Rent Leveling and Stabilization Board for increased rentals.

The requested increases were bottomed on a claim by defendants that they were unable to meet their mortgage payments. They sought a sum sufficient to meet these expenses and to provide them with a "fair return" on their investment.

When defendants purchased the property in May 1980, they paid $25,000 in cash an obtained first and second mortgages totaling $120,000. The first mortgage, apparently obtained from an employer, secured a 25-year $70,000 loan at 13 1/2. The second mortgage, apparently obtained from a relative, secured a 25-year $50,000 loan at 10%. As a result, the 1980 purchase burdened the property with an annual debt service of $15,247.20 of which $14,406.54 was mortgage interest, an expense used by the board in calculating the right to a rent increase. When combined with the operating expenses of $7,298.38 for taxes, water, insurance, utilities and fuel, defendants' costs far exceed their $9,900 income, and all that without reference to a fair return on their $25,000 cash investment which, under the Hoboken ordinance, was calculated to be $2,875 a year.*fn4

"It is axiomatic that a rent control ordinance must permit an efficient landlord to realize a 'just and reasonable return' on his property." Helmsley v. Fort Lee, supra at 210. Plaintiffs do not claim defendants are not efficient landlords, nor can they effectively do so given the nature and dimensions of the claimed expenses. Plaintiffs' thrust, as noted, is at the debt expense. Plaintiffs contend that the purchase price of May 1980 sale was in large measure a reflection of anticipated income based on increased rentals. At the hearing before the board plaintiffs sought to show that a monthly income of $650 had been projected for each apartment and that this projection had been a substantial factor in defendants' valuation of a purchase price. Plaintiffs claim that defendants paid more than the value of the property, that the sales price ...

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