On appeal from Superior Court of New jersey, Law Division, Special Civil Part, Hudson County.
Michels, Skillman and Landau. The opinion of the court was delivered by Skillman, J.A.D.
This appeal requires us to decide whether tenants may disregard the administrative remedy provided by a municipal rent control ordinance for challenging an invalid rent increase and instead seek recovery of excess rents through judicial proceedings.
The litigation in which the issue arises is the most recent round in a prolonged controversy over rents between Park Tower Apartments, Inc. (Park Tower) and its tenants, some of which is recounted in Park Tower Ap'ts, Inc. v. Bayonne, 185 N.J. Super. 211 (Law Div.1982). The mortgage on Park Tower is insured by the United States Department of Housing and Urban Development (HUD). Therefore, the control of rents by the Bayonne rent control board is subject to preemption by HUD. See Hill Manor Ap'ts v. Stokes, 154 N.J. Super. 496 (App.Div.1977), certif. den. 77 N.J. 486 (1978). This power was exercised by HUD in March 1978 to allow rent increases at Park Tower, effective May 1, 1978.*fn1 HUD granted approval in June 1978 for an additional rent increase, effective August 1, 1978. A dispute then arose concerning the effect of HUD's action, which resulted in litigation in the Chancery Division. See Park Tower Ap'ts, Inc. v. Bayonne, supra, 185 N.J. Super. at 215. This litigation was concluded, apparently in the fall of
1979, by entry of an order requiring Park Tower to file an application for a rent increase with the Bayonne rent control board. Id. at 215-216. In January 1981 the board granted Park Tower a 40% increase over the May 1, 1978 rents. Id. The board recognized that even with the 40% increase, "the building is still showing a deficit" (id. at 217), but it concluded that 40% was the maximum increase permitted by the Bayonne rent control ordinance.
The rent control board became aware during the hearing on the rent increase application, if not earlier, that the tenants at Park Tower had been paying rents at the level approved by HUD, effective August 1, 1978, rather than at the lower level approved by HUD, effective May 1978. It also became evident by the time of the hearing, although it had been a subject of dispute in 1978, that HUD's two approvals of rent increases during 1978 had different legal consequences: the approval effective May 1, 1978 was an exercise of HUD's power to preempt local rent control and hence was operative without the approval of the rent control board, but the approval effective August 1, 1978 was not preemptive and hence Park Tower was required to also secure the approval of the board before putting the second increase into effect. However, Park Tower withdrew its application to the board for an increase effective August 1, 1978 and when an increase was granted in January 1981, it was only effective as of February 1981. While no written complaint was ever filed with the board alleging that the August 1, 1978 increase was invalid because the board had not approved it, the board determined to respond to oral complaints received from some tenants and to award the tenants relief. Id. at 216. But the board was also apparently concerned about the financial condition of Park Tower. Therefore, instead of directing Park Tower to return to its tenants all the excess rent collected from August 1, 1978 to January 31, 1981, the board limited the rent rebate to one month's rent. Id. at 217.
Park Tower filed an action in lieu of prerogative writ challenging the board's orders limiting it to a 40% rent increase and directing it to rebate one month's rent to all tenants. Id. at 215. The Park Tower Apartments Tenant's Association, in which the plaintiffs in the present case are members, intervened as defendants in the prerogative writ action. Id. at 216, n. 3. The intervening defendant-tenants did not file any cross-claim against the rent control board asserting that the amount of the rent rebate was insufficient.
The prerogative writ action was heard by Judge Bilder, who decided in favor of Park Tower in a reported opinion. Park Tower Ap'ts, Inc. v. Bayonne, supra. He concluded that the Bayonne rent control ordinance did not impose a 40% limit on any rent increase. Consequently, he remanded the matter to the board to determine the full rent allowed by the ordinance without imposing any ceiling on the increase. Judge Bilder also concluded that the rebate of one month's rent was inconsistent with the ordinance pursuant to which it purportedly had been ordered:
The right of the board, under appropriate circumstances, to consider and adjudicate rent rebates is undoubted. However, it must exercise this right in strict conformity with the ordinance. The ordinance requires a tenant complaint within 120 days of the invalid rent increase, and a hearing thereafter held, § 23-5.3. Due process requires the landlord receive notice and an opportunity to be heard. The board may not ignore the requirements of the ordinance nor act except in conformity with its mandates. [Citation omitted]. It cannot be doubted that the board's actions were motivated by notions of fairness and equity. However, the board's power arises from the rent control ordinance, and its terms must be complied with. This is what makes a government of law. The order granting rebates is set aside. [ Id. at 225].
No appeal was taken from this decision.
On March 30, 1984, nearly two years after the prerogative writ action had been concluded, the two actions now on appeal were filed in the Special Civil Part. Both complaints alleged that Park Tower had illegally increased plaintiffs' rents in 1978. The two complaints were heard together. The cases were decided after trial by a letter ...