Marguerite T. Simon, J.s.c.
[211 NJSuper Page 464] Attacks on the facial constitutionality of rent-control ordinances have inundated the courts since Inganamort v. Borough of Fort Lee, 62 N.J. 521 (1973), which held that municipalities have the power to enact such ordinances in the face of critical housing shortages. However, this is a case of first impression. The issue here is whether an ordinance
which places a maximum limitation on annual increases, including increases granted pursuant to the hardship provision of the ordinance, is constitutionally permissible.
The rent-control ordinance presently in effect in Newark was adopted in 1982. The ordinance permits a 6% increase annually (NRO 15:9B-3) as well as a board-approved increase in cases where the proofs demonstrate that a particular hardship forecloses on a landlord's ability to obtain a fair rate of return defined by the ordinance as an 11.5% return on investment. NRO 15:9B-2.
On April 17, 1985, the City of Newark amended the rent control ordinance to limit the total of all increases granted in any 12-month period to 25%:
Since an immediate rent increase of more than 25 per cent above the prior monthly rent may be considered unconscionable and imposes a hardship on a tenant, the board shall not grant increases exceeding 25 per cent in any one year for any tenant.
For the purpose of determining whether the rent increase exceeds 25 per cent of the monthly rent, all increases pursuant to Section 15:9B-3 (Rent increases), 15:9B-7 (Capital improvements) and 15:9B-8 (Landlord hardships) occurring within 12 months prior to the effective date of the increase shall be added to determine if that amount exceeds 25 per cent of the prior monthly rent. [NRO 15:9B-21]
Plaintiff contends that the imposition of the 25% limitation denies it a fair rate of return as constitutionally mandated.
Plaintiff is the owner of the 294-unit Cromwell Terrace Apartments located at 352-376 Mount Prospect Avenue, Newark. On August 31, 1984, plaintiff applied to the Rent Control Board of the City of Newark (hereinafter the board) for hardship increases. Subsequently the board declared a moratorium on all hardship increases until January 31, 1985; plaintiff's application predated the declaration and therefore was exempt from the moratorium.
On November 27, 1984, the board approved plaintiff's application for hardship increases averaging 33% per tenant, but conditioned its approval on the completion of specified repairs. These conditions were substantially complied with and the hardship increases became effective March 1, 1985. The increases granted by the board were not appealed and are not disputed. In March 1985, plaintiff notified its tenants of an additional 6% increase to be effective May 1, 1985, pursuant to the automatic increase provision of the ordinance which provides:
The establishment of rents between a landlord and tenant in all housing spaces shall hereafter be determined by the provisions of this ordinance. The expiration of a lease or at the termination of the lease of a periodic tenant, no landlord may request or receive a percentage increase in rent which is ...