75 PROSPECT HOLDING COMPANY, LLC v. CITY OF EAST ORANGE

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SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-0381-19

75 PROSPECT HOLDING
COMPANY, LLC,

Plaintiff-Appellant,

CITY OF EAST ORANGE and
CITY OF EAST ORANGE
RENT CONTROL BOARD,

Defendants-Respondents.
__________________________

Submitted November 4, 2021 – Decided December 9, 2021

Before Judges Hoffman, Suter, and Susswein.

On appeal from the Superior Court of New Jersey, Law
Division, Essex County, Docket No. L-5254-18.

Ehrlich, Petriello, Gudin & Plaza, attorneys for
appellant (Matthew A. Sebera and Derek D. Reed, on
the brief).

Christopher M. Pisacane, attorney for respondents.

PER CURIAM
Plaintiff 75 Prospect Holding Company, LLC, appeals the August 15,

2019, orders denying its motion for summary judgment and granting the motion

by defendants City of East Orange (the City) and City of East Orange Rent

Control Board (the Rent Board) to dismiss plaintiff's verified complaint in lieu

of prerogative writs. We affirm the orders.

In December 2014, Veronica Thomas leased an apartment for $2,700 per

month from 75 Prospect, LLC (prior owner) in a residential apartment building

in the City. The prior owner filed a report regarding rents (rent roll) with the

City in October 2015, which showed the registered rent for Thomas's apartment

was $2,700 per month.

On October 26, 2016, Thomas signed a lease with the prior owner,

increasing her base monthly rent to $2,808 per month for twelve months starting

on May 1, 2016, and continuing to April 30, 2017. This was a four percent

increase over the prior rent. The prior owner did not serve Thomas with a notice

to quit or file an updated rent roll in September 2016, or at any time after that.

In May 2017, plaintiff purchased the apartment building and land where

Thomas was a tenant. Plaintiff alleged it filed a rent roll with the City in

September 2017, but a copy was not produced as part of the record. Thomas

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learned her rent had increased. She testified she did not receive a notice to quit.

Plaintiff acknowledged it reduced the rent to $2,808 when it "discovered that it

could not substantiate the increase from $2,808 to $2,948.40."

On September 26, 2017, Thomas filed a complaint with the Rent Board

alleging an "excessive increase" in rent "without notice to quit." On October

24, 2017, a rent regulatory officer with the City issued a preliminary decision

that plaintiff violated City of East Orange Municipal Code (Code) Section 218-

7 by charging excessive rent for a six-month period from May 1, 2017, to

October 1, 2017. She found "[t]he correct rental amount . . . should be"

$2,489.76 per month and that $1,909.44 was to be rebated for the overcharge.

Plaintiff appealed the preliminary decision to the Rent Board in November

2017. At the hearing before the Rent Board in May 2018, plaintiff argued

Thomas' complaint was time barred under Code Section 218-13(A). Plaintiff

also argued that Thomas entered into "a whole new lease contract" for a rent of

$2,808 per month. Because of this, plaintiff contended a notice to quit was not

required. The new lease amount was just a four percent increase over the prior

rent of $2,700. Thomas argued her rent should be $2,489.76 as determined by

the rent regulatory officer.

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The Rent Board voted to establish $2,700 per month as Thomas's base

rent. In June 2018, Rent Board Resolution #2018-04 overturned the preliminary

decision of the rent regulatory officer and established the base rent at $2,700 per

month effective May 2017.

In July 2018, plaintiff filed a verified complaint in lieu of prerogative

writs against defendants, alleging the Rent Board's action was arbitrary and

capricious when it lowered Thomas's rent to $2,700 per month. Plaintiff argued

Thomas's application was barred by Code Section 218-13(A)(1) because her

complaint about an unlawful rent increase was not filed within twelve months

of its effective date as required by the Code.

In January 2019, plaintiff filed a motion for summary judgment and

defendants cross-moved to dismiss. The court allowed supplemental briefing,

conducting oral argument in April1 and May 2019.

Plaintiff acknowledged a notice to quit was not served in connection with

the May 2016 lease. It argued the new lease did not require a notice to quit and

operated as a novation of the prior lease.

Plaintiff also argued Thomas' action was time barred by Code Section 218-

13(A)(1). Because the lease with monthly rent of $2,808 commenced on May

1
This transcript was not provided.
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1, 2016, Thomas had until May 1, 2017, to file a complaint about excessive rent.

She filed on September 26, 2017, which plaintiff argued was out of time.

Defendants argued there was substantial evidence that two sections of the

Code were violated. Specifically, the landlord failed to serve Thomas with a

notice to quit in violation of Code Section 218-14(a) and failed to file an updated

rent roll in violation of Code Section 218-12.

Defendants argued the statute of limitations was not applicable because

Thomas's lease was month-to-month starting in May 2017. See N.J.S.A. 46:8-

10 (providing that "the tenancy created by or resulting from acceptance of rent

by the landlord [from a holdover tenant] shall be a tenancy from month to month

in the absence of an agreement to the contrary."). Defendants further argued the

Rent Board was authorized to waive the statute of limitations if the rent increase

was unlawful. Defendants contended the statute of limitations was tolled by the

discovery rule. Thomas did not learn about the illegal rent increase until

plaintiff purchased the property in May 2017, and an investigation was

conducted. Finally, defendants argued summary judgment was not appropriate

in a prerogative writs matter.

The trial court denied summary judgment and dismissed the complaint on

August 15, 2019. In its oral opinion, the trial court concluded there were two

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Code violations: "first, the tenant was never served with a [n]otice to [q]uit,

second, a rent roll had not been filed for the premises since 2014." The court

found that "generally when a landlord seeks to increase the rent of an existing

tenant at the end of a rental term," a notice to quit is required. The trial court

disagreed with plaintiff's argument that because the parties voluntarily entered

into a new lease, a notice to quit was not necessary. Plaintiff never addressed

the argument that Thomas had a month-to-month tenancy after May 2017 and

how that applied in this context. There also was no evidence a rent roll was filed

in September 2017 by plaintiff as required by the Code.

The trial court determined the time bar did not apply here because of these

violations and because the Rent Board had the ability to waive the time bar

pursuant to Code Section 218-13(C). The Code provides for a liberal

interpretation of its provisions. The court found the Rent Board did not act in

an arbitrary, capricious or unreasonable manner because the landlord failed to

serve a notice to quit, "which [the] [c]ourt [found] to be a required prerequisite

to raising the rent . . . ." The Rent Board's decision was based on "competent

testimony and evidence in its exercise of discretion in waiving the time

limitation and ruling as it did . . . ."

On appeal, plaintiff argues the following:

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POINT I

THE TRIAL COURT ERRED IN FINDING THAT
THE FORMER OWNER OF THE PREMISES WAS
OBLIGATED TO SERVE A NOTICE TO QUIT TO
EFFECT A RENT INCREASE WHERE THE
TENANT RECEIVING THE INCREASE SIGNED AN
ENTIRELY NEW LEASE AGREEMENT.

POINT II

THE TRIAL COURT ERRED BY FINDING THAT
SECTION 218-13(C) OF THE EAST ORANGE
MUNICIPAL CODE ENTITLED THE EAST
ORANGE RENT CONTROL BOARD TO WAIVE
THE LIMITATIONS PERIOD ON FILING
COMPLAINTS SET FORTH IN SECTION 218-13
(A).

POINT III

THE TRIAL COURT ERRED BY RULING THAT
THE EAST ORANGE RENT CONTROL BOARD'S
DECISION NOT TO APPLY THE TIME
LIMITATION ON THE FILING OF RENT CONTROL
COMPLAINTS WAS JUSTIFIED BY THE FAILURE
TO SERVE A NOTICE TO QUIT.

II.

Actions of a municipal body are presumed valid and will not be disturbed

without sufficient proof that the conduct was arbitrary, capricious or

unreasonable. Grabowsky v. Twp. of Montclair, 221 N.J. 536, 551 (2015); Witt

v. Gloucester Cty. Bd. of Chosen Freeholders, 94 N.J. 422, 430 (1983). The

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burden of proof rests with the plaintiff who challenges the municipal action.

Price v. Himeji, LLC, 214 N.J. 263, 284 (2013). As a reviewing court, we are

not to substitute our judgment for that of the local board unless there is a clear

abuse of discretion. Cell S. of N.J., Inc. v. Zoning Bd. of Adjustment, 172 N.J.
75, 82 (2002) (citing Med. Realty Assocs. v. Bd. of Adjustment, 228 N.J. Super.
226, 233 (App. Div. 1988)). Like the trial court, we owe no deference to the

Rent Board's legal interpretations, including its construction of its ordinances.

See, e.g., Osoria v. W.N.Y. Rent Control Bd., 410 N.J. Super. 437, 443 (App.

Div. 2009) ("When interpreting an ordinance, our scope of appellate review is

plenary."); accord Schulmann Realty Grp. v. Hazlet Twp. Rent Control Bd., 290 N.J. Super. 176, 184 (App. Div. 1996).

Plaintiff argues the trial court erred in determining that a notice to quit

was required when the tenant signed a new written lease agreement that

increased the rent. It contends that the holding in Harry's Village, Inc. v. Egg

Harbor Township, 89 N.J. 576, 579 (1982), does not apply where the parties

reached a mutual agreement by signing a new lease, and the increase was within

the amount permitted by the Code.

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"In general, the notice to quit protects the interests of both landlord and

tenant." Id. at 584. "A purpose of a notice to quit is to give a tenant time 'to

decide whether to accept changes in the rental terms or to seek alternate living

arrangements.'" J.M.J. N.J. Properties, Inc. v. Khuzam, 365 N.J. Super. 325,

336 (App. Div. 2004) (quoting Harry's Village, 89 N.J. at 584). "It 'assures

tenants of time to consent to changes in their tenancy and protects them from

arbitrary, unilateral changes imposed by landlords.'" Ibid.

"To increase the rent of a month-to-month tenant, the landlord must serve

a notice to quit terminating the old tenancy and another notice offering a new

tenancy at an increased rent." Harry's Village, 89 N.J. at 583. If these

requirements are not met, "any attempt to increase the rent is ineffective and the

tenancy continues at the old rental term." Ibid. However, where "a landlord

gives a proper notice to quit and a notice of rent increase, a tenant, by holding

over, creates a new tenancy at the increased rental." Ibid. (citing Stamboulos v.

McKee, 134 N.J. Super. 567, 571 (App. Div. 1975)). Therefore, the Court held

in Harry's Village that "a notice to quit is required to effect a rent increase in

any periodic tenancy, including a tenancy in a rent-controlled municipality." Id.

at 585. Even if a rent control board were to authorize an increase, "a landlord

must still comply with requirements of state statutory and common law, which

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include service of a valid notice to quit and notice of rent increase before

imposing an increased rent on tenants." Ibid.

Under the Code, "[e]ach landlord is required to complete a rental increase

application and pay a nonrefundable application fee to the City." Code §218-

10(E). The application will not be processed until the landlord ". . . 3) delivers

the notice to quit, under § 218-12, to the City's Rent Control Office." Ibid. Code

Section 218-12(A) provides "[a]ny owner, landlord or agent or employee of a

landlord seeking an increase in rent shall give the affected tenant written notice

of termination of the existing lease or tenancy (commonly called 'notice to quit')

[sixty] days prior to the increase." This notice also is to include "[t]he actual

dollar amount of the proposed increase." Code §218-12(A)(5).

Here, although the rent increase from $2,700 per month to $2,808 per

month was included in the written lease, the former owner did not serve Thomas

with a notice to quit as required under the Code and under Harry's Village.

Neither the Code nor Harry's Village distinguished between rent increases

effected by written versus oral leases. The notice to quit requirement applies to

"effect a rent increase in any periodic tenancy." Harry's Village, 89 N.J. at 585.

This is not an extension of Harry's Village as plaintiff contends. The Court was

quite clear as to the requirements to increase rent. Thus, the trial court was

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simply applying Harry's Village, not extending it. Accordingly, the Rent Board

was not arbitrary or capricious in invalidating the rent increase, and the trial

court was correct to dismiss plaintiff's complaint.

Plaintiff argues the trial court erred by finding the Rent Board had

authority to waive the one year filing requirement set forth in Code Section 218-

13(A). Although plaintiff acknowledges Thomas had twelve months to

challenge the rent increase, it argues the lease commenced May 1, 2016, and

expired twelve months later on May 1, 2017. Because Thomas's complaint was

filed on September 26, 2017, plaintiff argues this filing was out of time. Plaintiff

argues the trial court's application of Code Section 218-13(C) was erroneous. It

contends this effectively removes any limitations periods from the Code because

any "illegal" increase in rent would have no time bar. It argues also that the

Rent Board never mentioned this Code Section in its decision.

Code Section 218-13(A)(1) provides "Time Limitations. (1) Complaints

by either the landlord or the tenant may not be filed more than [twelve] months

after the effective date of the increase involved, except as otherwise provided in

this chapter." However, Code Section 218-13(C) permits a waiver of the time

bar under certain circumstances. Specifically,

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Absent the filing of a complaint pursuant to the
applicable provisions of this chapter, payment of a
rental increase for [twenty-four] consecutive months or
more shall be construed to be an agreed increase and
not subject to the provisions of this chapter, except
when the landlord in violation of this chapter does not
inform or misinforms the tenant concerning the rent
paid by the prior tenant, or in any manner illegally
increases the tenant's rent, the Board shall waive the
limitations period, and then accept, hear and adjudicate
the matter based on the landlord's noncompliance with
the provisions of this chapter.

[Code § 218-13(C) (emphasis added).]

At the Rent Board hearing, Thomas testified as to the landlords' Code

violations regarding both the failure to serve a notice to quit and the failure to

file an updated rent roll. Plaintiff did not dispute that the last registered rent roll

for the apartment was in 2015, for $2,700 per month and acknowledged the lack

of a notice to quit. Both facts established Code violations before the Rent Board.

Therefore, under Section 218-13(C), the Rent Board was authorized to waive

the statute of limitations because the increase was done "illegally" in violation

of the Code. We agree with the trial court that the Code can be interpreted in

this manner.

A liberal construction of the Code supports the same outcome. Thomas

signed the new lease with the prior owner on October 26, 2016, which was

effective retroactively to May 1, 2016. We assume Thomas's prior lease term

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ended on April 30, 2016, or there would be no need to sign the lease on October

26, 2016, with an effective date six months earlier. The record supports the

conclusion that Thomas was a month-to-month tenant from the beginning of

May 1, 2016, until the new lease was signed on October 26, 2016.

"Our cases regard '[a] month-to-month tenancy [as] a continuing

relationship that remains unabated at its original terms until terminated by one

of the parties.'" Chase Manhattan Bank v. Josephson, 135 N.J. 209, 224 (1994)

(quoting Harry's Village, 89 N.J. at 583). However, "[t]o increase the rent of a

month-to-month tenant, the landlord must serve a notice to quit terminating the

old tenancy and another notice offering a new tenancy at an increased rent."

J.M.J., 365 N.J. Super. at 332 (quoting Harry's Village, 89 N.J. at 583). If there

is proper notice and the tenant then holds over, "a new tenancy is created at the

increased rent." Ibid.

If the new lease for Thomas were to terminate the old month-to-month

tenancy, it should have been on October 26, 2016, when she signed it. This

would have given Thomas until October 26, 2017, to file her complaint for

excessive rent. Thomas filed on September 26, 2017, which was within twelve

months from the date of the new lease. Plaintiff cites no authority to support its

argument that Thomas should receive six months to file a complaint instead of

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twelve months. Although the Code section in issue does provide that the twelve-

month period runs from the "effective" date of the lease, it also does not address

the situation here, where the lease purports to be retroactive and where there was

a month-to-month lease in effect immediately prior to that. Construing this

ambiguity in Thomas's favor, we agree that her complaint was timely filed.

Plaintiff argues the trial court erred by not applying the time bar because

there was no testimony whether a notice to quit was served by the former owner

when rent was increased from $2,700 to $2,808. This is inaccurate. Thomas

testified the notice to quit was not served. Ron Cutas, one of the new owners,

advised the Rent Board that after they closed on the property in May 2017, they

learned the prior owner "didn’t actually follow the protocol that he's supposed

to and give those notices." He could not find proof that the prior owner

distributed notices to quit.

Plaintiff's further arguments are without sufficient merit to warrant

discussion in a written opinion. R. 2:11-3(e)(1)(E).

Affirmed.

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