On certification to the Superior Court, Appellate Division.
For affirmance -- Chief Justice Wilentz and Justices Clifford, Schreiber, Handler, Pollock and O'Hern. Concurring in part and dissenting in part -- Justice Pashman. The opinion of the Court was delivered by Pollock, J. Pashman, J., concurring in part and dissenting in part.
The issue in this case is whether a landlord, who has obtained a rent increase from a rent control board, must serve tenants with a notice to quit before the rent increase becomes effective. Resolution requires evaluation of the interrelationship between the common law, the anti-eviction act, N.J.S.A. 2A:18-53, 61.1 to -61.12, and a municipal rent control ordinance. We hold that, after receiving authorization from a municipal rent control board to increase rent, a landlord must nonetheless give a valid notice to quit for the rent increase to be effective.
The Egg Harbor Township rent control ordinance, enacted in 1977, permits landlords unilaterally to pass along at the end of a periodic tenancy any reasonable increases in property taxes and in costs of operations, maintenance and services. Tenants may contest the accuracy of those increases before the Board. Prior Board approval, however, is required before a landlord may increase rents because of capital improvements or hardship. A landlord may apply for a hardship surcharge when rents are insufficient to cover the costs of mortgage payments, taxes, operating expenses, other "special hardships," and a reasonable profit.
Under the ordinance, the landlord must notify each tenant of the time and place of the hearing. If the Board grants the landlord a capital improvement or hardship increase, it must notify the landlord in writing, and the landlord must "forthwith" serve each tenant with a copy of the Board's decision. A hardship surcharge is valid for one year, and a landlord must reapply to extend the surcharge.
Harry's Village, Inc. owns and operates in Egg Harbor Township a mobile home park known as Harry's Village No. 1, consisting of 226 trailer sites. After assuming ownership on November 2, 1977, Harry's Village made several capital improvements: it patched potholes, repaved streets, installed street lights and street signs, and dug two new wells.
Upon realizing that the rental income would not cover all its costs, Harry's Village applied on March 17, 1978 to the Egg Harbor Township Rent Review Board to require tenants to pay for their own heat, to increase rent to cover capital improvements and for a hardship surcharge. At all times the landlord and tenants association were represented by counsel.
The Board held a hearing on August 10, 1978 and granted certain relief to Harry's Village. In addition to requiring tenants to provide their own fuel, the Board set rents based on lot size: 40' X 60' lots -- $85 monthly; 50' X 70' lots -- $95 monthly; and 60' X 90' lots -- $105 monthly.
Although dissatisfied with the amount of the increase, Harry's Village simultaneously notified the tenants of the Board's decision and filed an action in lieu of prerogative writ challenging the rent increase as inadequate and also challenging the ordinance as unconstitutional. During the pendency of the action, the tenants complied with the rent increase. Nonetheless, their attorney wrote Harry's Village that, in the future, tenants would not pay a rent increase unless it was preceded by a valid notice to quit as required by N.J.S.A. 2A:18-61.1 (Supp.1981-1982). While recognizing that the rent increases were inadequate, the trial court continued the increases and remanded the matter for a new hearing before the Board.
The Board conducted further hearings, and on April 10 it granted Harry's Village the right to charge the following rents effective May 1, 1979: 40' X 60' lot -- $100; 50' X 70' lot -- $110; and 60' X 90' lot -- $115.
Once again Harry's Village challenged the decision before the trial court as arbitrary and capricious and alleged that the ordinance was unconstitutional. Furthermore, at a hearing on May 22, Harry's Village informed the Court that the tenants were not paying the rent increase granted by the Board. The defendants asserted that they had not been notified in writing of the Board's decision, as required by the ordinance, and that Harry's Village, despite their prior warning, had failed to serve them with a notice to quit. Harry's Village replied it could not comply with the ordinance because the Board had not issued a written opinion to be served on the tenants and that no notice to quit was necessary to effectuate the decision of the Board.
The court ordered the Board to issue immediately a written decision and reserved decision on the necessity of the notice to quit. The following day, May 23, 1979, the Board released its decision and on May 24 Harry's Village sent each tenant a copy of the decision and the following notice:
I hereby give you notice that the rent for lots as of May 1, 1979 at Harry's Village I Mobile Home Park, as fixed by the Egg Harbor Township Rent Review Board, is as follows:
If you fail to pay the above rent for May and June prior to Wednesday, June 27, 1979, you are hereby notified to vacate and quit the premises now occupied by you no later than June 27, 1979 . . . .
On June 9, 1979 the court made its final decision, holding the rent control ordinance constitutional. Once again, however, the court found that the Board had acted arbitrarily. The tenants acquiesced in the landlord's request that the trial judge make findings and conclusions based on the second hearing before the Board. Accordingly, the court determined that the monthly rents should be: 40' X 60' lot -- $103; 50' X 70' lot -- $118; and
60' X 90' lot -- $128. The court made the increase effective the same date as the Board's second decision, May 1, 1979. Also, the court ruled that a notice to quit was not required when a rent control ordinance provides tenants adequate notice of Board proceedings and rent increases. Immediately thereafter, Harry's Village amended its May 24 notice by personally serving on each tenant a copy of the court order increasing the rent retroactive to May 1. In addition, tenants ...