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440 COMPANY

December 17, 1996

440 COMPANY, Plaintiff,
v.
BOROUGH OF FORT LEE, et al, Defendants, and FORT LEE TENANTS' ASSOCIATION, INC., Intervenor.



The opinion of the court was delivered by: POLITAN

 Dear Counsel:

 This matter comes before the Court on the Complaint of plaintiff 440 Company against defendants Borough of Fort Lee, the Mayor and Council of the Borough of Fort Lee, and defendant-intervenor Fort Lee Tenants' Association, Inc. seeking a declaration that a municipal rent control ordinance is unconstitutional. A trial was held before the Court on October 9, 1996, and October 15, 1996. For the reasons stated herein, the Court finds that Ordinance 93-33A is CONSTITUTIONAL.

 FINDINGS OF FACT

 The Borough of Fort Lee ("Fort Lee") enacted its first rent control ordinance in 1973 (Ordinance No. 73-26). *fn1" This original rent leveling ordinance was amended on June 9, 1988, to provide for partial vacancy decontrol, a.k.a. one-time vacancy decontrol (Ordinance No. 88-25). Vacancy decontrol permitted a landlord to negotiate a market rent with a new tenant when a unit became vacant. Once this new rent was established, the unit became subject to rent control again.

 Shortly thereafter, on October 26, 1989, an ordinance was passed which completely eliminated vacancy decontrol for all units (Ordinance No. 89-71). Less than one year later, however, on September 27, 1990, the ordinance was amended again to reinstitute vacancy decontrol (Ordinance No. 90-32). This amendment, however, provided apartments with only partial vacancy decontrol. Single-family homes and condominium and cooperative units, on the other hand, were permitted permanent vacancy decontrol.

 Following this amendment, the Fort Lee Property Owners Association, of which plaintiff 440 Company ("440") was a member, instituted an action in the Superior Court of New Jersey, Law Division, challenging the constitutionality of the ordinance. The plaintiffs challenged the distinction between properties which was made by the ordinance. By Letter Opinion, dated February 5, 1992, the Honorable Edward Van Tassel found the ordinance to be constitutional as applied. This decision was affirmed by the Appellate Division by a per curiam opinion, on February 26, 1993.

 On September 14, 1993, Fort Lee amended the ordinance to eliminate vacancy decontrol for apartment buildings (Ordinance No. 93-33A). *fn2" Under this ordinance, however, small-scale landlords, i.e., single-family, condominium and cooperative rental units, are afforded vacancy decontrol. Hence, owners of apartments can only increase the rent charged to a tenant up to 5% within one year, with exceptions for qualified senior citizens and disabled persons.

 A landlord who wishes to increase the rent more than the allotted 5% may file a hardship application with the Rent Leveling Board. Said application is based on needed capital improvements and/or increases in the landlord's property taxes. These applications require that the landlord not be able to earn at least a 10% rate of return on the owner's original investment. In addition, the applicant is required to pay for all the expenses of the application, including those of Fort Lee. Prior to 1988, before vacancy decontrol was instituted, approximately ten hardship applications were filed per year. In 1988 and 1989 respectively, after the enactment of vacancy decontrol, three applications were filed. The last four hardship applications were filed in Fort Lee in 1990, and of those four only one was granted, two were denied, and one was withdrawn.

 440 Company owns and operates an apartment building in Fort Lee called the Carriage House. The Carriage House was built in 1972 by a previous owner. 440 purchased the Carriage House in 1980. Since the time 440 purchased the Carriage House until 1988, when vacancy decontrol was instituted, no capital improvements were made to the building. During the period of vacancy decontrol, 440 updated the apartments which became vacant, including new kitchens and bathrooms, and increased the rent to a negotiated market value. *fn3" Since the elimination of vacancy decontrol for apartments, 440 has not made improvements to basic building systems, such as heating, plumbing or roofing. Currently, forty-eight of the 298 units at the Carriage House are subject to rent control. *fn4"

 On September 29, 1993, 440 filed the instant Complaint and Order to Show Cause with Temporary Restraints, seeking to restrain and enjoin defendants from enforcing the provisions of Ordinance 93-33A or, in the alternative, to establish an escrow fund to preserve the status quo and to protect the parties' rights during the pendency of the litigation. After hearings were held on October 18, 1993, and October 19, 1993, the Court ordered the establishment of an escrow fund, which became effective on October 19, 1993. A special master, Liza M. Walsh, Esq., was appointed to supervise the fund. *fn5" Thereafter, 440 moved for summary judgment. After entertaining oral argument, the Court reserved decision on the motion and permitted the governing body an opportunity to revisit the ordinances.

 Consequently, on August 17, 1995, Fort Lee adopted an ordinance which provided for permanent vacancy decontrol for all rental units, including apartment buildings (Ordinance No. 95-25A). The Mayor vetoed the ordinance a few days later, but the Council overrode the Mayor's veto with four affirmative votes, on September 14, 1995. This ordinance, however, was invalidated by the New Jersey Superior Court, Law Division, because the ownership of two rental units by a council member constituted a conflict of interest. The Appellate Division affirmed the trial court's decision to vacate the ordinance. Therefore, Ordinance 93-33A is still in effect and the subject of this litigation.

 Thereafter, this Court held a status conference, signed an Order permitting the Fort Lee Tenants' Association to intervene, and set a trial date. A bench trial was held ...


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