Articles Tagged with “Rent Control”

Local rent control laws are commonplace in New Jersey’s largest cities. Newark and Jersey City (New Jersey’s most populous cities) both maintain comprehensive rent control laws. The basics of these laws are well known. Rent control ordinances control the rent a landlord can charge and restrict the size of future rent increases. But, basic rent and rent increases are not the only financial obligations of tenancy. Many leases define late fees, attorney’s fees and other costs as “additional rent” to be collected from the tenant in an eviction action. Can these fees be collected from tenants in rent-controlled cities? Under Opex Realty Mgmt., LLC v. Taylor, (Law.Div.2019) the answer is: “No.” After Opex Realty (approved for publication on August 13, 2019), landlord and property managers of rent controlled properties should exercise care in drafting leases and initiating nonpayment evictions.

Opex Realty addressed a common-place but unresolved question. Does a rent control ordinance’s definition of “rent” necessarily preclude the collection of “additional rent” defined costs in a lease, when the collection of those costs exceeds the maximum rent under rent control? Prior to Opex Realty, tenants generally relied on Ivy Hill Park Apts. v. Sidisin, 258 N.J.Super. 19 (App.Div.1992). In Sidisin, the Appellate Division held that a landlord could not evict a tenant for “additional rent” (defined in a lease) when the same costs were not defined as “rent” under a rent control. The Opex decision arrives at the same conclusion of Sidisin, but with a different rationale.

Judge Petrillo’s Opex holding is that additional rent cannot be collected in a nonpayment eviction because the combination of additional rent and base rent exceeds the maximum allowable rent under rent control. Judge Petrillo held: “The court will not allow the landlord to circumvent rent control…and raise the rent beyond the lawful limits by labeling a late fee or legal fee as ‘additional rent…’” Emphasis added. The Opex decision is not that additional rent cannot be collected from rent controlled tenants. Rather, the decision is that additional rent cannot be collected when so doing exceeds the maximum legal rent. This is why, in dicta, Judge Petrillo added: “Were these tenants not already bearing the maximum rent allowed by law, the outcome might have been different.” A future post will address the practical implications of Opex and whether collecting “additional rent” is ever possible under rent control.

In May 2019, the City of Jersey City made a subtle but substantial change to its rent control ordinance. This change directly impacts the profitability of affected property owners. With the passage of Ord. 19-044, Jersey City revised the definition of “Fair Return” under its rent control ordinance from “6% above the maximum…demand deposit savings account interest rate” to “2.5% above…” The new 2.5%+ “Fair Return” applies to the “equity investment in real property.” The “equity investment” is considered only the “actual cash contribution of the purchaser” at closing, plus any additional principal payments.  The Jersey City ordinance follows the “Investment-Based Standard” and is the most restrictive constitutional rent control formula.

To understand the effect of Ord. 19-044,  it is helpful to restate the amended ordinance in plain language. Stated simply, the revised rent control ordinance “guarantees” a landlord a minimum net income of 2.5%+ measured against the landlord’s cash contribution to the purchase.  In its most basic application, the formula works as follows:

Purchase Price: $800,000

The Jersey City Rent Control Ordinance requires landlords to provide new tenants with specific information. At the start of each new tenancy a landlord must provide a tenant with a “rental statement” that informs of the tenant of “rent of the prior tenant and notification of the existence of the rent registration law.” The point is pretty simple: If a new tenant finds out her rent is three times what the old tenant paid, she’s more likely to question the legality of the rent. An interesting question presented itself a few weeks ago: What if the owner was the “prior tenant?” What notice is a tenant occupying an apartment after the owner entitled to?
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Northern New Jersey cities like Hoboken and Jersey City maintain sophisticated rent control ordinances. Rent control ordinances are designed to provide landlord’s a “fair” return on investment while keeping urban housing rents affordable. When a tenant is charged an illegal rent (a rent in excess of what rent control ordinance provides) most ordinances require a landlord to give the tenant a credit towards future rent. The credit is the amount of the overcharge per month for as many months as the tenant was overcharged. But, the time length of the overcharge is not unlimited. Jersey City and Hoboken have two very different approaches to determining the amount of a rent control overcharge. The distinction lies in the difference between a statute of limitation and a statute of repose.
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Local rent control laws are an important part of maintaining an affordable housing supply in densely populated areas. Prior posts explained the basics of rent control and some nuances between cities. Generally, tenants who pay rent in excess of the rent control rent (the “legal rent”) have two remedies. The first is an application to the local rent control board (sometimes called a rent leveling board) for a credit. The credit allows a tenant to pay a reduced rent going forward until the tenant “catches up” with the overcharge. The second remedy is much more powerful. Violations of rent control ordinances are actionable under the New Jersey Consumer Fraud Act (the “CFA”). Under the CFA, a rent control overcharge may entitle a tenant to triple damages and mandatory attorney’s fees. The principle that a rent control violation is also a consumer fraud violation comes from an Appellate Division decision called Wozniak v. Pennella, 373 N.J. Super. 445 (App. Div. 2004).
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