On appeal from Superior Court of New Jersey, Chancery Division, Hudson County, Docket No. C-3-06.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted October 16, 2008
Before Judges Stern, Payne and Waugh.
Defendants, owners of a residential three-family apartment building in Hoboken, appeal from a judgment entered on August 28, 2007, which granted plaintiff's "request for reformation of contract" and set the contract price at $870,000, permitted plaintiff to "waive the entitlement to purchase the property at the reformed price," and set a date for the election. On this appeal, defendants argue that "there was no mutual mistake ... and ... no unilateral mistake on the part of plaintiff with unconscionable conduct on the part of defendant that justifies reformation of the contract" and "there is no justification for specific performance of the contract." On the cross-appeal, plaintiff seeks an additional reduction of $153,429 from the sale price as the new landlord will be responsible to tenants and former tenants for "rent over charges."
Defendants Michael Su and his former wife*fn1 purchased a three-family building at 110 Park Avenue in Hoboken on February 20, 2004, at a price of $825,000. Prior to the purchase, defendant received rent registration forms from the previous owner showing the rents for the apartments within the building from the years 1994, 1999, and 2003. He never checked the legality of the rent charged, including the base rents of $1,550 and $1,900 for the smaller two apartments As a result, he never made "any inquiry to determine whether the rents were legal" for the two smaller units he intended to rent, and he accepted the "represented base" rents to be $1,550 and $1,900.
Defendants intended to live in the largest unit and rent the other two, then vacant, units.
After his purchase of the building, in January of 2005, defendant filed a rent registration form for the property with the City of Hoboken Rent Control Office, stating rents of $2,448 and $2,637 for the two smaller apartments, indicating an increase due to "vacancy decontrol." At the bottom of the rent registration form defendant filed, similar to the ones he received during his purchase of the building, were the words: "IMPORTANT: THE FILING OF THE RENT REGISTRATION DOES NOT CONSTITUTE A DETERMINATION BY THE RENT LEVELING OFFICE AS TO THE LEGALITY OF THE RENT SET FORTH IN THIS STATEMENT."
Incident to their separation and divorce, defendant and his wife subsequently placed the building on the market for sale. In July 2005, defendant listed the property, indicating monthly rents for the two apartments at $1,550 and $1,900 and stating the property provided "good income." Prior to signing the listing agreement, defendant again neglected to verify that the rents for the rental units were "legal rents." In the property settlement agreement with his wife, defendant agreed to pay her $103,000 from the sale of the property, regardless of the sales price.
Defendant and his wife set the initial asking price for the building at $1,400,000 based upon their review of other properties in Hoboken. In October 2005, plaintiff offered to purchase the building for $1,205,000. Plaintiff's attorney prepared a contract for the sale, which defendants' attorney reviewed and approved with some modifications submitted in a rider sent with a letter dated October 12, 2005. Plaintiff's attorney responded on October 17, generally agreeing to the contents of the rider, but listing a few other items plaintiff wished to incorporate into the agreement, including "a certification from the rent control office that the rents being charged to the two tenants are in fact legal rents," and a representation by defendant that the tenants were not "entitled to any post closing credits and adjustments of rents." In response, defendant certified the tenants would not be entitled to post closing credits. He also indicated in an email that he was in the process of obtaining the legally registered rents from the Hoboken Rent Control Office.
On October 21, 2005, defendant received a certification from the Hoboken Rent Control Office that the legal rent for the duplex unit in the property in which he lived had a legal rent of $2,186. However, the legal rents for the other two apartments were not listed.
Plaintiff accepted defendant's rider to the contract, executing it on October 24 and returning the executed rider together with a deposit check of $25,000 on October 28, 2005. On October 31, defendant sent a second request to the Hoboken Rent Control Office, requesting updated legal rents for the other two apartments.
When the Hoboken Rent Control Office received defendant's second request, it determined the legal rents for the two apartments would be much lower than the registered rents on file. The Rent Control Office contacted defendant regarding this fact by phone, and he elected not to receive the determination in writing, stating he wished to talk with his attorney first. Defendant's attorney told him to wait until they knew how to proceed before requesting the certification of legal rents for the two apartments.*fn2
At some point between the end of October and early December, defendant disclosed the problem with the rental amounts. On December 15, 2005, defendant's attorney sent plaintiff's attorney a letter discussing the inability of the parties to reach an agreement regarding how to proceed because the rents being charged to the two tenants were not "legal rents."
Among the points in the letter was a statement regarding the likely range of the actual legal rents for the apartments, that defendant had been willing to give plaintiff a $25,000 credit against the purchase price due to the discrepancy, and that plaintiff had counter offered with a requested "discount" of $200,000 to $250,000. The letter from defendant's counsel to plaintiff's attorney read:
Please be advised that I have sent to you simultaneously with this letter a formal Time of Essence letter for this closing. I make the following comments in support of my client's decision to cancel this contract if your ...