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Main Union Associates v. Township of Little Falls Rent Leveling Bd.

December 23, 1997

MAIN UNION ASSOCIATES, A PARTNERSHIP, AND BROWNSTONE ASSOCIATES, A PARTNERSHIP, PLAINTIFFS-APPELLANTS,
v.
TOWNSHIP OF LITTLE FALLS RENT LEVELING BOARD, MAYOR AND TOWNSHIP COMMITTEE OF THE TOWNSHIP OF LITTLE FALLS, AND TOWNSHIP OF LITTLE FALLS, A MUNICIPAL CORPORATION, DEFENDANTS-RESPONDENTS.



On appeal from Superior Court of New Jersey, Law Division, Passaic County.

Approved for Publication December 24, 1997.

Before Judges Havey, Newman and Collester. The opinion of the court was delivered by Newman, J.A.D.

The opinion of the court was delivered by: Newman

The opinion of the court was delivered by

NEWMAN, J.A.D.

Plaintiffs, Main Union Associates and Brownstone Associates, unsuccessfully challenged the facial constitutionality of the Rent Leveling Ordinance of defendant Township of Little Falls (hereafter Township or Little Falls) because of the ordinance's failure to provide a separate mechanism by which to recover capital improvement surcharges. Plaintiffs appeal. We affirm.

Plaintiffs own two garden apartments located across the street from each other in the Township of Little Falls: Brownstone Apartments, consisting of 80 rental units, and Main Union Apartments, consisting of 52 rental units. The properties have been subject to rent control since 1972 when Little Falls first enacted its rent control ordinance.

The current ordinance permits three types of rent increases: (1) an automatic increase based on a percentage of the Consumer Price Index (CPI), (2) an automatic tax surcharge applicable to certain property tax increases, and (3) a hardship increase "where a landlord is not making a just and reasonable return on his investment." The hardship provision includes increases for capital improvement costs, but only if such costs prevent the landlord from making a just return on his overall investment. Unlike the other increases, hardship increases are not automatic; rather, a landlord must apply to the Rent Leveling Board (Board) and attend a hearing to obtain approval for such an increase.

On August 21, 1996, plaintiffs submitted an application for a capital improvement surcharge to the Board. In the application, plaintiffs sought approval to surcharge each tenant's rent based on capital improvements consisting of replacement windows, installation of a new boiler and improvements to the parking facility of the complex. The total cost of the capital improvements was $136,348.64 for Main Union apartments and $91,985.16 for Brownstone, or $228,333.80 when combined. Plaintiffs sought to surcharge the Main Union tenants' rent in the amount of $22 per month per unit for a period of ten years, at which time plaintiffs would have fully recovered their capital improvement costs. Brownstone's surcharge was projected over ten years to be $22.89 per month per unit.

At the time of plaintiffs' application, all improvements had been completed except window replacement and installation. Accordingly, the application contained receipts for the replacement of a water boiler and creation of a parking lot, as well as estimates of the cost to replace the windows. Because the Township's ordinance regarding rent control did not contain a separate provision for capital improvement surcharges, plaintiffs submitted a proposed amendment to the ordinance along with their application. This application was scheduled to be heard on September 4, 1996.

Prior to the hearing, the Chairman of the Rent Leveling Board asked the township attorney to review the application. On September 3, 1996, the township attorney forwarded a letter to the Chairman, advising that plaintiffs' application was incomplete and recommending that no hearing take place. The letter enumerated the application's deficiencies, including its failure to provide the information required by the ordinance's provision allowing for hardship increases.

The Board held a hearing on September 4, 1996, despite the township attorney's recommendation that it be canceled, during which it rejected plaintiffs' application. This decision was memorialized in a letter dated September 9, 1996, which stated in full:

This is to officially inform you that your application for capital improvement of August 21, 1996 has been rejected at our Rent Leveling Board Meeting of September 4, 1996 due to the fact that it does not meet the requirements of our Rent Control Ordinance, Ch. XXIV of the Township of Little Falls.

This matter has been referred to our Little Falls Township Committee.

On October 7, 1996, plaintiffs' counsel appeared before defendants, the Mayor and the Committee for the Township of Little Falls (Committee), during a committee meeting and requested that the Township amend its rent control ordinance to include a provision separately allowing for a capital improvement surcharge. The Mayor and Committee denied plaintiffs' request. Thereafter, plaintiffs filed a Complaint in Lieu of Prerogative Writs against the Board, the Mayor, the Committee and the Township of Little Falls, charging that defendants improperly denied their application for a capital improvement surcharge. In addition, plaintiffs alleged that the rent control ordinance was unconstitutional and in derogation of the Due Process Clauses of the United States and New Jersey Constitutions in that it violated plaintiffs' substantive due process rights by precluding any possibility of a just and reasonable return on a landlord's investment.

In early November 1996, defendants moved to dismiss plaintiffs' complaint. At a hearing on November 15, 1996, the Township represented that plaintiffs' application was not considered because it was incomplete under the hardship provision. The township attorney promised that once plaintiffs submitted their application in accordance with the requirements of that provision, it would be promptly considered. After this hearing, Judge Scancarella entered an order adjourning defendants' motion to dismiss until a later date. Most significantly, Judge Scancarella ordered plaintiffs to file a motion for summary judgment addressing the issue of the rent control ordinance's constitutionality.

Pursuant to Judge Scancarella's order, plaintiffs filed a motion for summary judgment challenging the ordinance's constitutionality on the basis of its failure to contain a separate provision for capital improvement surcharges. Defendants cross-moved for summary judgment. Following oral argument, Judge Scancarella rendered an oral opinion denying plaintiffs' motion and granting summary judgment to defendants. Acknowledging that "rent control ordinances must permit a landlord of course to realize a just and reasonable return," he concluded that plaintiffs could seek a capital improvement surcharge through the ordinance's hardship increase provision. Judge Scancarella memorialized his decision in an order declaring the ordinance constitutional and dismissing the complaint.

On appeal, plaintiffs challenge the ordinance on the following grounds: rent control is no longer necessary in New Jersey; the ordinance's failure to include a capital improvement surcharge violates the Fifth and Fourteenth Amendments to the United States Constitution and Article One, Sections One and Twenty of the New Jersey Constitution; the ordinance's failure to provide a separate mechanism by which to recover capital improvement costs is unreasonable; and the ordinance's limitation of only one rental increase per unit per year nullifies the fair return standard outlined in Hutton Park Gardens v. West Orange Town Council, 68 N.J. 543, 350 A.2d 1 (1975). In addition, plaintiffs argue that the Township's conduct has resulted in the inverse condemnation of their properties; the ordinance discourages property owners from making capital improvements in contravention of state public policy; and plaintiffs have a right to maintain this action in lieu of prerogative writs without a remand to the Board. We address the various arguments made by plaintiffs.

Plaintiffs assert that the forces necessitating rent control in the 1970s, such as housing shortages and excessive inflation, are now nonexistent. Therefore, they contend, rent control no longer achieves its objectives of protecting tenants. In fact, plaintiffs argue, rent control harms new tenants by forcing ...


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