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Block 268 LLC v. City of Hoboken Rent Leveling and Stabilization Board

August 28, 2006

BLOCK 268 LLC, PLAINTIFF,
v.
CITY OF HOBOKEN RENT LEVELING AND STABILIZATION BOARD, CITY OF HOBOKEN, CAROLE MCLAUGHLIN, DIVISION CHIEF CITY OF HOBOKEN, DEPARTMENT OF HUMAN SERVICES, RENT LEVELING AND STABILIZATION, RAUL G. PEREZ, JR., AND ELIZABETH L. PEREZ, DEFENDANTS.



The opinion of the court was delivered by: Curran, J.S.C.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE COMMITTEE ON OPINIONS

OPINION

APPROVED FOR PUBLICATION

This matter having been opened by the Plaintiff, Block 268 by way of a motion for partial summary judgment on Plaintiff's First, Second, and Third Causes of Action in Writs against the Defendants City of Hoboken Rent Leveling and Stabilization Board (the "Board"), City of Hoboken and Dept. of Human Services, Division Chief, City of Hoboken, Carole McLaughlin, and Raul & Elizabeth Perez (the "Perezes") this Court sets forth below its reasons for granting Plaintiff's motion for partial summary judgment.

This case presents an issue of first impression as to whether a residential property comprised of rental units, which is free from rent control pursuant to the Rent Control Exemption Act, N.J.S.A. 2A:42-84.1 to -84.6 ("the Rent Control Exemption Act" or the "Act"), loses its exemption status upon sale of the property or upon conversion of some of the property's units from apartments into condominiums. This Court, having reviewed the Act, finds that the language is clear and unambiguous; the Legislature has amended the Act since its 1987 effective date but has not addressed the issues of sale of the property nor conversion of certain units to condominiums. The Court finds, therefore, that the Board's actions at the May 10, 2006 hearing were arbitrary, capricious and unreasonable and exceeded the authority of the Board under the Act. This Court finds it appropriate, therefore, that Plaintiff Block 268's motion for partial summary judgment is granted.

FACTS

Block 268 is a New Jersey limited liability corporation that owned residential buildings located at 1500 Hudson Street and 1500 Washington Street, Hoboken, New Jersey and currently owns condominium units in those buildings. The members of Block 268 are Hoboken L and I, LLC (a limited liability company related to Toll Brothers, Inc.), GMAC, and Apollo Real Estate Advisors LP. These buildings are also referred to as the Hudson Tea Buildings (the "Property").

From 1998 to 2004, BDLJ Associates, LLC ("BDLJ"), owned the Property. Starting in approximately 1998, BDLJ renovated those buildings and converted them from commercial and industrial facilities into a residential complex consisting of 525 residential units. When the renovation was completed in 2000, the residential units were all rental units.

The Hudson Tea Buildings and The Exemption From Rent Control

In 2000, the Property obtained a thirty-year exemption from rent control, in accordance with the Rent Control Exemption Act, that will not expire until 2030. In August 2004, BDLJ sold the Property to Toll Brothers, which, in turn, in October 2004, sold it to Plaintiff Block 268. After purchasing the Property, Block 268 decided to convert many of the rental apartments to condominiums. Block 268 utilized a "Non-Eviction Plan" for the conversion that allows the renters occupying the apartments in the Property immediately prior to the conversion to remain in occupancy following the conversion with the same or similar lease terms. Block 268 contemplated that, even with the conversion, units would continue to be rented. Currently, there are over 100 units in the Property being rented or offered for rent by Block 268. That number does not include units that are being rented by other owners of condominiums in the Property.

The Perez Application

On February 3, 2004, the Perezes entered into an eighteen-month lease agreement with BDLJ for apartment unit 1-I in the Property (the "Perez Lease"). The Perez Lease was to expire on August 31, 2005. Like all other tenants in the Property, BDLJ provided the Perezes with the "Notice To Prospective Tenants," thereby advising them that the Property was exempt from the provisions of Hoboken's Rent Control Ordinance (the "Ordinance"). The Perezes each signed, executed and acknowledged receipt of the Notice.

In addition, the Perez Lease contained the provision reflecting that their unit was exempt from the provisions of the Ordinance and would remain "exempt from any future rent control, rent stabilization or rent leveling ordinance of the City of Hoboken pursuant to N.J.S.A. 2A:42-84.1 et. seq. for a period of 30 years from completion of construction of the building."

The Perezes' initial rent was $2,825 per month. With concessions granted during the first lease term, the effective rent was $2,750. The Perez Lease expired in August 2005. By then the lease had been assigned to Block 268, so the renewal was with Block 268. The lease renewal sought to raise the rent to $3,050. On or about January 15, 2006, the Perezes, rather than renewing their lease with Block 268, sent a Legal Rent Calculation Request to the Rent Control Board's Administrator, Ms. Carole McLaughlin, seeking to have a new rent calculated under the rent controls in the Ordinance.

By letter dated January 26, 2006, Ms. McLaughlin wrote back stating that, on the advice of counsel, the Board could not issue a legal rent calculation because the Perezes' unit in the Property was exempt from the Ordinance or any rent control regulation.

By letter dated March 21, 2006, the Perezes appealed Ms. McLaughlin's determination and filed a Request for the Legal Rent Calculation with the Board. The Perezes argued that "[u]pon closing of the sale of the [the Property from BDLJ] to Toll Brothers, Inc., the [rent control] exemption was void and the building immediately converted to rent control status." The Perezes also contended that the base rent they were paying (for purposes of conducting a legal rent calculation) was $2,521.

Block 268, through its attorneys, submitted a response to the Perezes' application. In its submission, Block 268 explained that the Perez unit, specifically, and the Property, generally, were exempt from the Ordinance by virtue of the Rent Control Exemption Act. Block 268's submission also provided legal explanations as to why the exemption was not lost through either the sale of the buildings or their conversion to condominiums. Finally, in response to a possible court finding that the Ordinance did apply, Block 268 also provided analysis of why they believe the Perezes' calculation of their "base rent" was incorrect.

The Rent Control Board's May 10, 2006 Hearing

On May 10, 2006, the Board held a hearing on the Perezes' Request for a Legal Rent Calculation. Mr. Perez, representing himself, argued that the Property should be subject to rent control. Counsel for Block 268, John Randy Sawyer, Esq., responded that the Property was exempt from rent control for thirty years under the Act, and that the Act provides that no municipality can adopt any resolution or take any action to "limit, diminish, alter, or impair any exemption." N.J.S.A. 2A:42-84.5. Accordingly, Block 268's attorney argued, the Property retained its exemption under the Act notwithstanding the sale of the buildings or its subsequent conversion to condominiums.

A Board member moved to "support" the Perezes' appeal. That motion was later clarified to confirm that the motion applied only to the specific Perez unit and was not a "blanket edict" covering other units in the Property. The Board voted unanimously in favor of the motion. However, Block 268 indicates in its moving papers that during the May 10 hearings the Board did not provide an explanation or basis for its decision.

Following its vote to support the Perezes' appeal, the Board addressed the rent calculation and, more specifically, the "base rent" for the Perezes. The Board did not hear substantive arguments specifically addressing the amount of the base rent. The Board determined that the "base rent" for the Perez Lease should be $2,750. Block 268 then stated its exceptions to the determination of the "base rent."

The Rent Control Board's June 14, 2006 Meeting

On June 14, 2006, the Board held a regularly scheduled meeting during which the Board voted on and approved a Resolution addressing the Perez appeal. Plaintiff Block 268 claims that after passing the Resolution, and after representatives of Block 268 had left the meeting, the Board made additional determinations concerning the Property. In particular, the Board determined that the Ordinance should apply to all units in the Property. Block 268 argues that based on the Board's actions, other tenants in the Property may seek reformulations of their rents in accordance with the Ordinance.

On June 22, 2006, Block 268 filed a Complaint in Lieu of a Prerogative Writs action seeking to vacate the Board's Resolution, the decision of May 10, 2006 as embodied in the Resolution, and the Board's actions taken on June 14, 2006 regarding the Property. All ...


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