ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY - NEWARK.
Gibbons and Sloviter, Circuit Judges, and Green, District Judge.*fn*
These are appeals, pursuant to 28 U.S.C. § 1292(b)(1976), from an order granting partial summary judgment, 580 F. Supp. 69, declaring that section 14 of the New Jersey Senior Citizens and Disabled Protected Tenancy Act, 1981 N.J. Laws ch. 226, § 14 (codified at N.J. Stat. Ann. § 2A: 18-61.11(d) (West Supp. 1983)) (hereafter the "Tenancy Act"), violates the impairment of contracts and taking clauses of the United States Constitution. The plaintiffs are owners of interests in an apartment complex in Springfield, New Jersey affected by that Act. The defendants are the Commissioner of the New Jersey Department of Community Affairs, the Attorney General of New Jersey, and three tenants in the apartment complex who may be protected by the Tenancy Act.
We hold that the Tenancy Act does not violate the impairment of contracts or taking clause of the United States Constitution. Accordingly, we reverse.
I. Legislative Background
New Jersey regulates its rental housing stock through a comprehensive set of statutes. This discussion begins with an examination of the rental housing legislation in place before 1981 and then moves on to a discussion of the provisions of the Senior Citizens and Disabled Protected Tenancy Act that are in issue here.
Until 1981, tenants in New Jersey were protected from eviction by provisions of the New Jersey Anti-Eviction Act, 1974 N.J. Laws ch. 49 (codified, as amended by 1975 N.J. Laws ch. 311, at N.J. Stat. Ann. §§ 2A:18-61.1 to 61.12 (West Supp. 1983)). That Act authorized evictions on thirteen prescribed grounds.*fn1 One of these grounds was a conversion by the owner from rental housing to condominium form of ownership. N.J. Stat. Ann. § 2A:18-61.1(k) (West Supp. 1983). Eviction for that purpose, however, required that the owner satisfy several conditions.
An owner converting to condominium ownership must have served a notice of termination three years before the institution of any action for eviction. No action could be instituted until the existing lease expired. N.J. Stat. Ann. § 2A:18-61.2(g) (West Supp. 1983). Thus, the Act essentially contained a three-year minimum grace period before eviction. Tenants receiving a three-year notice could, during the eighteen months following its receipt, request that the owner offer to the tenant "the rental of comparable housing. . . ." N.J. Stat. Ann. § 2A:18-61.11(a) (West Supp. 1983). Unless the owner located and offered comparable housing, New Jersey courts having jurisdiction over eviction actions were authorized to issue up to five one-year stays of eviction. Id. In practice, therefore, if the owner could not locate comparable housing for the tenant, the grace period before eviction could be extended from three to eight years. After the first stay of eviction, however, the owner could prevent further stays by paying to the tenant a "hardship relocation compensation" equal to five months' rent. N.J. Stat. Ann. § 2A:18-61.11(c) (West Supp. 1983). Therefore, after the fourth year following a termination notice -- three years plus one stay -- owners who could not locate comparable housing were faced with a choice: either they could make a payment to the tenant equal to five months' rent, and thereby prevent additional stays of eviction; or they could make no such payment and continue receiving rent from the tenant for up to four more years.
In addition to the Anti-Eviction Act, several New Jersey statutes governed the conversion of real property to the condominium form of ownership. The New Jersey Condominium Act, 1969 N.J. Laws ch. 257 (codified at N.J. Stat. Ann. §§ 46:8B-1 to 30 (West Supp. 1983)), provided for conversion of real property to the condominium form by the filing of a master deed meeting certain statutory requirements. N.J. Stat. Ann. § 46:8B-8 (West Supp. 1983). When such a master deed is filed, each unit becomes a separate interest in real property. N.J. Stat. Ann. § 46:8B-4 (West Supp. 1983). New Jersey also authorized the sale by condominium developers of units created by the filing of a master deed. See The Planned Real Estate Development Full Disclosure Act, 1977 N.J. Laws ch. 419 (codified at N.J. Stat. Ann. §§ 45:22A-21 to 42 (West Supp. 1983)). The Disclosure Act required that a public offering statement be filed with the New Jersey Department of Community Affairs. N.J. Stat. Ann. § 45:22A-28 (West Supp. 1983). The Act also authorized the Community Affairs Department to investigate a developer's application, and to register that application upon finding that the developer is likely to comply with the terms of the public offering statement. N.J. Stat. Ann. §§ 45:22A-29-30 (West Supp. 1983). The developer's right to offer units for sale to the public was qualified, however, by a provision of the Anti-Eviction Act requiring that tenants must be afforded notice of their option to purchase the units they occupy. N.J. Stat. Ann. § 2A:18-61.8 (West Supp. 1983).
On July 27, 1981, the New Jersey Legislature enacted the Tenancy Act. The Act's purpose is to enhance the protection of certain senior citizens and disabled persons against evictions resulting from condominium conversions. Legislative findings in the Act recite that the "forced eviction and relocation of elderly persons from their established homes and communities harm the mental and physical health of these senior citizens, . . . affect adversely the social, economic and cultural characteristics of communities of the State, and increase the costs borne by all State citizens. . . ."*fn2 Although these appeals concern challenges only to Section 14 of the Tenancy Act, various provisions of the Act are interrelated. These provisions fall into three categories: those sections creating a "protected tenancy period"; a section governing rent increases during that period; and a retroactivity section.
1. Protected Tenancy Period
At the heart of the Tenancy Act is a provision in section 4 granting a "protected tenancy status" to "eligible" senior citizens and disabled tenants.*fn3 Section 3 provides that an eligible "senior citizen tenant" is a tenant in a complex of five or more units who was at least 62 years of age on the date of recordation of the master condominium deed, and who occupied a unit as a principal residence for the prior two years, or who is the surviving spouse of such a tenant. N.J. Stat. Ann. § 2A:18-61.24(a), (f) (West Supp. 1983). A recent amendment to this section now provides that an eligible surviving spouse must be at least 50 years of age at the time of the condominium conversion. 1983 N.J. Laws ch. 389 (approved Dec. 2, 1983). An eligible "disabled tenant" is a tenant who, on the date of the conversion, was "totally and permanently unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment, including blindness. . . ." N.J. Stat. Ann. § 2A:18-61.24(b) (West Supp. 1983).
Eligible tenants may apply under section 7 to an administrative agency for "protected tenancy status" on or before the date of registration of conversion. These tenants qualify for protected tenancy status if their annual household income does not exceed three times the county per capita personal income level. N.J. Stat. Ann. § 2A:18-61.28(c) (West Supp. 1983). The "protected tenancy period" conferred by the Act on qualified tenants continues for forty years after the date of conversion. N.J. Stat. Ann. § 2A:18-61.24(h) (West Supp. 1983). No action for eviction may be brought against protected tenants during this period. N.J. Stat. Ann. § 2A:18-61.1(k) (West. Supp. 1983). Thus, the effect of qualifying for a protected tenancy is to obtain the right to remain as a tenant in a converted unit for up to forty years beyond any period already authorized by the Anti-Eviction Act. A protected tenancy status may also be terminated. Section 11 of the Act provides that protected status shall be terminated if the unit is no longer the principal residence of the protected tenant, or if the annual household income of the protected tenant exceeds three times the most recently reported county per capita personal income level. N.J. Stat. Ann. § 2A:18-61.32 (West Supp. 1983).
2. Rent Increases During Protected Tenancy
The Tenancy Act also governs the magnitude of rent increases that developers may charge in order to recoup condominium conversion costs. Section 10 of the Act provides that in a municipality without a rent control ordinance in effect, the owner cannot use increased costs due to conversion as a justification for the conscionability of a rent increase in a suit for nonpayment of rent.*fn4 N.J. Stat. Ann. § 2A:28-61.31 (West Supp. 1983). In municipalities with rent control ordinances in effect, the impact of the Tenancy Act is slightly different. In these communities, increased costs due to conversion cannot be used to justify a rent increase in a "fair return or hardship hearing" before a municipal rent board. Id. The Township of Springfield, New Jersey has such a rent control ordinance. That ordinance currently authorizes rent increases of six and one-half percent per year, subject to a number of adjustments. Two such adjustments authorize increases in "Rate of Return" and "hardship" hearings;*fn5 in these hearings, evidence of increased costs due to conversion would evidently not be permitted. Other adjustments -- for example, adjustments reflecting increased property taxes -- operate automatically, without hearings; these adjustments would apparently permit the passing on of certain conversion costs.*fn6
In sum, the applicable rules in Springfield Township permit a condominium owner to receive yearly rent increases of six and one-half percent from each tenant-occupied condominium during the duration of a protected tenancy, and appear to permit the pass-on of certain condominium conversion costs.
3. The Retroactivity Clause
Section 14 of the Tenancy Act permits the retroactive application of the Act in certain circumstances. That section provides that in any action for a stay of eviction, for declaratory judgment, or in any other proceeding under the Anti-Eviction Act:
the court may invoke some or all of the provisions of the [Tenancy Act] and grant to a tenant, pursuant to that [Act], a protected tenancy period upon the court's determination that:
(1) The tenant would otherwise qualify as a senior citizen tenant or disabled tenant . . . except that the building or structure in which the dwelling unit is located was converted ...