On appeal from the Superior Court of New Jersey, Chancery Division, Hudson County whose opinion is reported in N.J. Super. (Ch. Div. 1984).
Michels, Petrella and Baime. The opinion of the court was delivered by Baime, J.A.D.
This case presents novel questions pertaining to the constitutionality and interpretation of the Senior Citizens and Disabled Protected Tenancy Act. N.J.S.A. 2A:18-61.22 et seq. At issue is whether retroactive application of the statutory scheme pursuant to N.J.S.A. 2A:18-61.11d violates the Federal*fn1 or State*fn2 constitutional prohibition against the impairment of contracts. A somewhat related question is whether the protection accorded to senior citizens and disabled persons under the Act so pervasively affects the owner's property interests so as to constitute a governmental taking without just compensation under the Fourteenth Amendment. Other issues concern the statutory qualifications for protected tenancy status. More specifically, these questions relate to whether the gross or net business income of the applicant is to be considered in determining whether he or she satisfies the statutory requisites set forth in N.J.S.A. 2A:18-61.28c. A subsidiary issue pertains to the appropriate time period for evaluation of the applicant's qualifications.
We hold that the statutory regulation of condominium conversions constitutes a reasonable exercise of the State's police powers and is not violative of the owner's freedom of contract under the Federal and State constitutions. In a similar vein, we conclude that application of the statutory scheme under the facts presented here does not constitute a taking of property
without just compensation. We are entirely satisfied that the Act is immune from constitutional attack. In our view, the statute must be considered against the backdrop of the beneficent objectives and goals sought to be achieved. We, thus, construe the statute as requiring that the applicant's net rather than gross business income be considered in determining his or her qualifications for protected tenancy status. In that regard, we find that the tenants' annual household income in this case is to be determined by utilizing the last full calendar year prior to their applications.
The essential facts are not in dispute. Prior to May 26, 1981, Hudson Harbour Condominium was a rental apartment complex consisting of 251 units. The building was owned by Hudson Harbour Associates, plaintiff's predecessor in title. All of the defendants resided in the complex as tenants for a substantial period of time before January 5, 1981, when the process of converting the building from apartments to condominiums was commenced. On that date, the Department of Community Affairs approved the condominium offering plan and registered the premises for conversion. Shortly thereafter, a notice of intention to convert was served upon all of the tenants. In accordance with the Anti-Eviction Act, the tenants subsequently received notices to quit and a demand for possession. On May 26, 1981, the master deed was filed, thereby perfecting the conversion.
Thereafter, on July 27, 1981, the Senior Citizens and Disabled Protected Tenancy Act (L. 1981, c. 226) became effective. The Act effectuated several important modifications in the conversion and eviction processes, and will be described in detail subsequently. Suffice it to say, the Department immediately notified Hudson Harbour Associates and other condominium converters that they would be required to serve upon all prospective purchasers and existing tenants a notice of protected tenancy in the form prescribed by N.J.S.A. 2A:18-61.27. In addition, Hudson Harbour Associates amended its public offering statement to include a warning to future purchasers of the
possibility that existing tenants could be granted protected status.
On January 19, 1982, Hudson Harbour Associates sold the units to plaintiff. The deeds of conveyance were recorded shortly thereafter. Although the record is somewhat ambiguous, it would appear that Hudson Harbour Associates and plaintiff are related business entities. It is clear that Robert K. Raynor, the general partner of Hudson Harbour Associates, continues to serve in that capacity with respect to the plaintiff.
On December 15, 1982, plaintiff instituted a declaratory judgment action against defendants and other tenants. In essence, plaintiff contended that retroactive application of the Act would constitute an impairment of its vested contract rights. So too, it claimed that the regulatory scheme was so pervasive as to constitute a governmental taking contrary to due process. Plaintiff also argued that defendants did not qualify and, thus, should not be accorded protected tenancy status. Defendants filed an answer and counterclaim. The matter was submitted to the trial judge in a series of motions and cross-motions for summary judgment. Additionally, the trial court conducted limited plenary hearings with respect to several of the issues.
The court's decisions were memorialized in a comprehensive written opinion. Succinctly stated, the trial judge found that retroactive application of the Act did not violate the constitutional prohibitions against impairment of contractual obligations. The judge also determined that the statute constituted a proper exercise of the State's police powers and did not contravene plaintiff's right to due process. Finally, the court decided that defendants' gross business incomes for the calendar year prior to their applications for protected tenancy status were to be utilized in resolving questions pertaining to whether they satisfied the statutory criteria.
Defendants appeal upon the basis that the trial judge erred in considering their gross business incomes in determining their qualifications for protected tenancy status. They also claim
that the court incorrectly utilized the calendar year preceding their applications in determining whether they satisfied the financial criteria set forth in the statute. Plaintiff cross-appeals from that portion of the judgment holding that there was no constitutional impediment to retroactive application of the Act.
A brief description of the Act and related statutory provisions is necessary for a complete understanding of the questions presented. The Act is part of a comprehensive legislative effort to regulate condominium conversions. Prior to 1981, an owner wishing to convert rental premises was required by the Anti-Eviction Act to serve affected tenants with a notice of termination three years before commencing summary dispossess proceedings. N.J.S.A. 2A:18-61.1k and N.J.S.A. 2A:18-61.2g. Following receipt of a notice to quit, the tenant could compel the owner to offer comparable housing. N.J.S.A. 2A:18-61.11a. In the absence of a successful relocation under that alternative, the court was empowered to issue up to five one-year stays of eviction. After the first stay, however, the owner could foreclose further applications by providing the tenant with "hardship relocation compensation" equal to five months rent. N.J.S.A. 2A:18-61.11a and c. As a practical matter, these provisions granted the tenant either a five or eight year grace period depending upon whether the owner exercised his option to provide hardship relocation compensation.
Other statutes further regulated condominium conversions. For example, the Condominium Act, N.J.S.A. 46:8B-1 et seq., required the filing of a master deed. N.J.S.A. 46:8B-8. Other provisions regulated the sale of individual units and the rights of purchasers thereafter. N.J.S.A. 46:8B-4 and N.J.S.A. 45:22A-21 et seq. Under the Disclosure Act, N.J.S.A. 45:22A-21 et seq., the owner was required to file a public offering
statement with the Department of Community Affairs which was authorized to investigate the application. N.J.S.A. 45:22A-29 and 30. Within a limited period, the tenant was to be given ...