TOM LOWERY v. JERSEY CITY RENT LEVELING BOARD

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0

TOM LOWERY, SYDNEY NOVOTNY,

JOANNE DWYER AND MARCUS

SALDUTTI, Tenants,

Plaintiffs-Appellants,

v.

JERSEY CITY RENT LEVELING

BOARD, THE CITY OF JERSEY

CITY, MEIR KADOSH, MARY LOU

ZUBEL, FRANCES GRECO, ANGELA

COSTA, VINCENT MANZO, ESTATE

OF MARY MANZO, ESTATE OF SUSAN

AMOROSO.

Defendants-Respondents.

____________________________________

August 7, 2014

Submitted March 18, 2014 Decided

Before Judges Espinosa, Koblitz and O'Connor.

On appeal from Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-2152-10.

Tom Lowery, Sydney Novotny, Joanne Dwyer and Marcus J. Saldutti, appellants, pro se.

Jeremy Farrell, Corporation Counsel, attorney for respondents Jersey City Rent Leveling Board and City of Jersey City (John J. Hallanan, III, Assistant Corporation Counsel, on the brief).

Law Offices of Pojanowski & Trawinski, P.C., attorneys for respondents Meir Kadosh, Mary Lou Zubel, Frances Greco, Angela Costa, Vincent Manzo, Estate of Mary Manzo and Estate of Susan Amoroso (Joseph A. Pojanowski, III, on the brief).

PER CURIAM

Plaintiffs appeal the dismissal of their complaint in lieu of prerogative writs that challenged the decisions of the Jersey City Rent Leveling Board (Board) and sought money damages. We affirm.

I

In September 2008, defendants Estate of Susan Amoroso and Estate of Mary Manzo (estates) owned an eight-unit apartment building in Jersey City. Manzo and Amoroso inherited their interest in the building from relatives who had purchased the building in 1920. Defendants Mary Lou Zubel, Frances Greco, Angela Costa, and Vincent Manzo are beneficiaries of one estate or the other.

As none of the beneficiaries wanted to keep the building, the estates entered into a contract of sale (contract) with defendant Meir Kadosh to sell the property, for $800,000. The contract required the estates to file a hardship application with the Board in an endeavor to get an increase in the rent on all units in the building; however, the contract did provide that the failure to obtain an increase in the rents would not be a basis to cancel the contract.

In May 2009, the estates filed a hardship application1 pursuant to Jersey City, N.J., Municipal Code 260-10(a), which states in pertinent part:

In the event that a landlord cannot meet his or her mortgage payments or operating expenses or does not make a fair return on his or her investment, he or she may apply to the Rent Leveling Board for increased rentals . . . .

[Emphasis added.]

There was no mortgage against the property and the estates were able to pay the operating expenses. The controversy was whether the estates were making a fair return on the property.

In their hardship application, the estates asserted that, over the preceding twelve months, the gross rental income was $34,512 and the expenses $25,082.58, yielding an annual net income of only $9,429.42. The average rent for the six units that were rented at the time the application was filed (two units had been unoccupied for several months) was $479.33 per month. Along with their application, the estates submitted an appraiser's report that opined the fair market value of the property was $900,000,2 based upon comparable sales.

In October 2009, the hearing officer found the property capable of yielding an annual rental income of $43,684.44 and had annual expenses of $22,780.87, making the net annual income $20,903.57. The hearing officer concluded, however, that for the estates to realize a fair return on their property, the rent on each apartment had to be increased by $415.08 per month.

Municipal Code 260-1 defines "fair return" as:

The percentage of return on equity of real property investment. The amount of return shall be measured by the net income before depreciation. A "fair return" on the equity investment in real property shall be considered to be 6% above the maximum passbook demand deposit savings account interest rate available in the municipality.

Municipal Code 260-1 defines "equity of real property investment" as:

The actual cash contribution of the purchaser at the time of closing of Title and any principal payments to outstanding mortgages subsequent to acquisition of title by the purchaser.

The following is the hearing officer's analysis supporting her decision to grant a hardship increase:

Based on an appraisal of $900,000.00[,] the Jersey City Rent Leveling Ordinance allows a "Fair Return" which is 6.75%. Fair Return of $60,750.00 [900,000 x .0675] minus net income of $20,903.57 equals maximum annual increase of 39,846.43. Pro-rated into 12 months equals to a maximum increase of $3,320.54 per month; and pro-rated among 32 rooms equals to a maximum allowable increase of $103.77 per room per month. Each apartment has 4 rooms, therefore, a Hardship rent increase of $415.08 per apartment per month is recommended.

While the hearing officer did not make a finding there was equity in an investment, she did find there was equity in the property and then applied the formula in the ordinance to determine the fair return on equity in investment property.

The plaintiffs, who are tenants in the building, appealed the hearing officer's findings to the Board. The tenants advocated that the property owners did not have any equity in the property because they inherited and did not buy the property. The tenants also argued that the appraiser's opinion was flawed because the rents the landlords charged the tenants in the comparable properties were higher than the rents the estates charged the tenants in the subject property, making the comparable properties more valuable.

The tenants, however, did not produce any evidence before the board that the rents in the properties used for comparison were in fact higher than the rents the estates charged. Further, although the tenants were granted an adjournment of the hearing to secure their own appraisal, they failed to do so.3

As there was no evidence controverting the only appraisal put into evidence, the Board concluded that the value of and the equity in the property was $900,000. The board, however, did reduce the amount by which the rent could be increased on each apartment from $479.33 to $367.73.

The Board also consolidated the hardship application with complaints plaintiffs had filed alleging that Susan Amoroso, the landlord from 1982 until her death in 2008, only sporadically filed the mandatory annual landlord registration statement. See Municipal Code 260-2(F). Plaintiffs claimed Amoroso was disqualified from receiving the annual four percent cost-of-living increase to which landlords in Jersey City are entitled, see Municipal Code 260-3(A) and (B), for those years in which she did not file a registration statement. In support of their argument plaintiffs relied upon Municipal Code 260-3(H), which states:

The landlord shall register the rent roll with the Rent Leveling Bureau in order to qualify for any rental increase.

The tenants further claimed that Amoroso failed to give them a copy of the Truth-In-Renting Statement and any subsequent amendments to such statement, see Municipal Code 260-3(J), when their respective tenancies commenced. Plaintiffs claimed such omission also disqualified Amoroso from receiving any rental increases. Municipal Code 260-3(J) states:

The landlord shall provide to each tenant a copy of the Truth-In-Renting Statement and subsequent amendments to said statement

. . . to qualify for any rental increase.

As a result of the failure to file the registration statement every year and provide the Truth-In-Renting Statement, plaintiffs sought to roll back the cost-of-living increases that had been applied to their rent since 1982; if all cost-of-living increases were eliminated, plaintiffs' monthly rent would be $150 per month. The Board denied plaintiffs' request. The Board found that this remedy was not authorized by the Code, noting that Municipal Code 260-7(F) (2) states:

Rent charges by the landlord shall be reduced or rolled back for any one of the following reasons if so determined by the Rent Leveling Board or Administrator:

(1) For the reasons set forth in 260-14 of this chapter.

(2) For an unapproved rent increase beyond the annual cost-of-living increase.

All parties agreed subparagraph (1) did not apply. The Board found that 260-7(F)(2) prohibits the roll back of rent that has been increased from annual cost-of-living adjustments. The Board further reasoned that, given the very low rent plaintiffs have always paid and continue to pay, it would be contrary to the purposes of the rent control ordinances to lower the rent. Specifically, Municipal Code 260-18 declares that the "[rent control ordinances are] necessary for the welfare of the city and its inhabitants [and] shall be liberally construed to effectuate the purposes thereof." The Board indicated its decision was necessary to sustain the property while providing affordable rent.

Two weeks after the Board issued its decision, the estates sold the property to defendant Kadosh. A month later, plaintiffs filed a complaint in lieu of prerogative writs challenging the Board's decisions. Specifically, plaintiffs sought to have the Board's approval of the hardship increase and its denial of the roll back in rent reversed. In addition, plaintiffs sought damages from defendants because, among other things, Amoroso obtained annual cost-of-living increases in the rent even though she had not faithfully filed a registration statement every year and never provided a Truth-In-Renting Statement to plaintiffs.

The trial court dismissed the complaint, finding:

In the instant case, the court finds that the Board's decision, accorded a presumption of validity, and based on its review of the substantially supported record below, was proper and was not arbitrary, capricious, or unreasonable. While the Jersey City Rent Control Ordinance, by its plain terms, defines equity as involving an actual cash contribution, which is distinguishable from how the Estates of Manzo and Amoroso acquired the subject property, the court notes that "value" may be defined in several ways.

Here, the landlord applied for a Hardship Application because it did not think it was receiving a fair and reasonable return on its property. The method of valuation, proposed by landlord and accepted by the Board's Hearing Officer, was based on an appraisal. While plaintiffs objected to the use of said method, plaintiffs failed to timely suggest any alternative valuation method, as noted by the Hearing Officer in her recommendation to the Board.

II

A rent control ordinance must allow an efficient landlord to realize a just and reasonable return on his property. Salem Mgnt. Co. v. Twp. of Lopatcong, 387 N.J. Super. 573, 582 (App. Div. 2006) (citing Helmsley v. Borough of Fort Lee, 78 N.J. 200, 210 (1978), app. dis., 440 U.S. 978, 99 S. Ct. 1782, 60 L. Ed. 2d 237 (1979)). If a rent control ordinance fails to do so, the ordinance "must be deemed to intend, and will be so read, to permit property owners to apply to the local administrative agency for relief on the ground that the regulation entitles the owner to a just and reasonable rate of return." Hutton Park Gardens v. Town Council of West Orange, 68 N.J. 543, 572 (1975).

While the Jersey City ordinance establishes what constitutes a fair return when a landlord has made an investment in rental property, the ordinance does not provide how a landlord is to realize a fair return when no investment has been made.4 However, consistent with Hutton, the ordinance must be read as though it does permit a landlord under these circumstances to realize a fair return on property. As they were obligated to do, the hearing officer and the Board devised a method based upon the same formulation used to determine the fair return on equity when property has been acquired for investment - to give the estates a fair rate of return. The methodology employed by the hearing officer and the Board was reasonable under the circumstances.

The determinations of a Rent Control Board are presumptively valid, and the burden is on the party challenging a Board's decision to prove it was arbitrary, capricious or unreasonable. Park Tower Apts., Inc. v. City of Bayonne, 185 N.J. Super. 211, 222 (App. Div. 1982). The tenants have not met their burden. After carefully considering the record and the briefs, we conclude the tenants' arguments challenging the Board's other decisions are without sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).

Finally, we affirm the trial court's decision to dismiss the claims seeking damages. This is an action in lieu of prerogative writs, and "a claim for monetary damages against a municipality for the failure to execute its statutory obligations is not permitted absent a constitutional or statutory basis for the claim." Harvey v. Twp. of Deptford, 402 N.J. Super. 156, 165 (App. Div.), certif. denied, 197 N.J. 16 (2008) (citing Jenkins v. Kaplan, 50 N.J. Super. 274, 281 (App. Div. 1958)). Plaintiffs have not provided and we have not found either a constitutional or statutory basis for their claim for monetary damages against the municipality. Plaintiffs' claim against the estates for relief under the Consumer Fraud Act, N.J.S.A. 56:8-1 to -195, is also meritless, as the estates did not violate a rent control ordinance. See Wozniak v. Pennella, 373 N.J. Super. 445, 457 (App. Div. 2004), certif. denied, 183 N.J. 212 (2005).

Affirmed.

1 Although defendant Zubel, one of the beneficiaries of and a co-executor to the Estate of Amoroso, filed the hardship application as the "landlord," the estates were the owners of the building at the time.

2 The appraisal acknowledged that the property was under contract for sale below market value, but noted such sale was an "estate" sale.

3 The Board recognized that often tenants are unable to afford an appraisal, but observed that, of the four plaintiffs, two are attorneys and one has a Masters in Business Administration.

4 Employing the "return on equity standard," where equity is defined by the cash contributions made toward a property, to measure a landlord's fair return has been criticized, as such standard does not take into account when a landlord has acquired real property through gift, inheritance or devise. See Cotati Alliance for Better Hous. v. City of Cotati, 195 Cal. Rptr. 825, 829 (Cal. App. 1st Dist. 1983); Scott J. Sheldon, Note, Rethinking Rent Control: An Analysis of "Fair Return", 12 Rutgers L.J. 617, 644-45 (1981); Kenneth K. Baar, Guidelines for Drafting Rent Control Laws: Lessons of a Decade, 35 Rutgers L. Rev. 723, 794 (1983).