Drew Associates of N.J., L.P. v. Travisano

• Decision Date: 31 January 1991
• Citation: 584 A.2d 807,122 N.J. 249
• Parties: DREW ASSOCIATES OF NJ, LP, a New Jersey Limited Partnership, Plaintiff-Respondent and Cross-Appellant, v. Raniero TRAVISANO, Clerk of Middlesex County, Defendant, and State of New Jersey, Department of Community Affairs, Defendant-Appellant and Cross-Respondent.
• Court: New Jersey Supreme Court

Page 249

122 N.J. 249

584 A.2d 807

DREW ASSOCIATES OF NJ, LP, a New Jersey Limited Partnership Plaintiff-Respondent and Cross-Appellant, v. Raniero TRAVISANO, Clerk of Middlesex County, Defendant and State of New Jersey, Department of Community Affairs Defendant-Appellant and Cross-Respondent.

Supreme Court of New Jersey.

Argued Oct. 10, 1990.

Decided Jan. 31, 1991.

Daniel P. Reynolds, Deputy Atty. Gen., for defendant-appellant and cross-respondent (Robert J. Del Tufo, Atty. Gen., attorney; Mary C. Jacobson, Deputy Atty. Gen., of counsel).

Gage Andretta, for plaintiff-respondent and cross-appellant (Wolff & Samson, attorneys; Gage Andretta and Bruce Dickstein, Roseland, on the brief).

The opinion of the Court was delivered by

O'HERN, J.

This appeal concerns the constitutionality of the Cooperative Recording Act, a legislative determination to phase in a title-registration system for recording and taxing the creation and transfer of ownership in cooperative housing units. N.J.S.A. 46:8D-1 to -18. The Act applies only to cooperatives created after the effective date of the 1988 legislation. Previously formed units are exempt. In addition to enacting usual recording provisions, the Legislature amended the definition of "deed" under N.J.S.A. 46:15-5 to include proprietary leases of cooperative units, thereby making the realty transfer tax applicable to transfers of ownership of cooperatives. The Appellate Division upheld the recording requirements but invalidated the transfer tax. We uphold both.

I

Cooperative apartment ownership is a familiar type of housing ownership. For convenience, and without endorsing any of its particulars, we adopt the description given in American Jurisprudence. 15A Am.Jur.2d Condominiums and Cooperative Apartments §§ 1, 4, 62, and 71 (1976). The formation of a cooperative commonly begins with a cooperative sponsor who owns a building or is planning to buy or construct a building. The sponsor creates a cooperative entity. That cooperative entity is usually, though not always, organized in the form of a corporation. The cooperative corporation purchases the property from the sponsor and then issues stock with a "total par value equal to the purchase price." 15A Am.Jur.2d § 62 at 893. The stock is "allocated among the various apartments according to their estimated relative value." Ibid. Ordinarily, individual housing units are acquired by purchasing shares in the cooperative corporation. Stock purchasers are then given an exclusive right, usually in the form of a proprietary lease, to occupy one of the cooperative apartments. While the cooperative corporation is the titleholder to the property, the stock purchasers become "tenant-shareholders." The tenant-shareholders do not pay individual tax bills to the municipality, nor do they make individual mortgage payments. Rather, they pay to the cooperative corporation a monthly "carrying" charge, which represents their proportional share of the mortgage payment, common expenses, and tax payments assessed against the cooperative as a whole. In this way, tenant-shareholders are dependent on each other; if one fails to make a payment, the others must make up the difference.

Another form of housing ownership that is often compared to the cooperative is the condominium. Conceptually, the condominium-unit owner holds title to the individual condominium unit and has an undivided interest in the common facilities of the condominium building. As titleholders, condominium-unit owners are responsible for the mortgage payments and taxes on their own unit. Condominium-unit owners are not as dependent on each other as are cooperative tenant-shareholders.

Notwithstanding the differences in form, the Legislature has chosen to treat cooperative-housing interests as it treats other forms of real estate ownership in many circumstances. For example, cooperative-housing units are subject to the Retirement Community Full Disclosure Act. N.J.S.A. 45:22A-2. Under the Senior Citizens and Disabled Protected Tenancy Act, tenants in units converting to cooperatives have the same protections as tenants in units converting to condominiums or other forms of ownership. N.J.S.A. 2A:18-61.23.

II

In 1988, the Legislature determined to treat the creation and transfer of an interest in cooperative-housing units in much the same manner as any other interest in real estate--more particularly, as it treats the creation and transfer of interests in condominium property. In the Cooperative Recording Act, the Legislature modified and extended the usual provisions of our recording-act system to cover cooperatives. Previously, the creation and transfer of the cooperative units did not have to be recorded in a place of public record. ¹

To create a housing cooperative now, the cooperative sponsor must record in the appropriate county recording office a master declaration and a master register. N.J.S.A. 46:8D-5. The master declaration must contain a legal description of the property including scaled architectural plans; the corporate bylaws; a statement regarding the financing of the building; a schedule of the owners' shares of common expenses and common surplus; information on any restrictions or limitations on the use, transfer, or leasing of any unit; and information on voting procedures and on procedures to amend the master declaration. N.J.S.A. 46:8D-6. The master register must include an identification of each unit, the percent of common ownership representing each owner's proportionate undivided interest in the common elements, and the name and address of the present owner and occupant of each unit. N.J.S.A. 46:8D-7. All transfers of cooperative interests must now be recorded in order to be valid. N.J.S.A. 46:8D-11.

Drew Associates (Drew) is a limited partnership that, at the time of the appeal, was in the process of converting a multi-unit apartment building into a cooperative. Drew challenges the constitutionality of the Act on the basis that it is "so arbitrary, irrational and vague" that it violates Drew's due-process rights. Drew also contends that by exempting cooperative units created before the effective date of the legislation, the Act infringes on its equal-protection rights. Finally, Drew argues that the Act impermissibly imposes a double tax on cooperatives and that it creates an illegal restraint on alienation.

In ruling on the State's cross-motion for summary judgment, the Chancery Division upheld the constitutionality of the Act in all respects. The court found that the Act did not violate either the equal-protection rights or the due-process rights of the plaintiff. It held that the Act did not impose a double tax and that it did not create an unreasonable restraint on alienation.

While upholding the Act in all other respects, the Appellate Division found that the Act violated Drew's equal-protection rights in its application of the realty transfer tax. 235 N.J.Super. 194, 561 A.2d 1177 (1989). Unlike the Chancery Division, the Appellate Division found no rational basis for imposing the tax only on transfers of cooperatives created after the effective date of the Act and not on transfers of cooperatives created before that date. The court ordered a remand to determine what portion of the tax represented administrative costs and what portion represented new revenue.

We granted both parties' petitions for certification. 118 N.J. 228, 570 A.2d 980 (1989); 118 N.J. 229, 570 A.2d 981 (1989).

III

The Challenge to the Recording Aspects of the Statute.

Drew attacks the Cooperative Recording Act on both equal-protection and due-process grounds. Drew argues that the Act treats similarly situated entities differently and that the distinction does not reasonably relate to a legitimate state purpose. Thus, according to Drew, the Act contravenes the fifth and fourteenth amendments to the United States Constitution.

Federal equal-protection analysis employs different tiers of review: strict scrutiny when an act involves a fundamental right or a suspect class; intermediate scrutiny when an act involves a semi-suspect class; and minimal rational-basis scrutiny in all other cases. Brown v. City of Newark, 113 N.J. 565, 573, 552 A.2d 125 (1989). The Cooperative Recording Act does not involve a suspect or semi-suspect class, nor does it affect a fundamental right. Thus, it "need be only rationally related to a legitimate state interest to satisfy federal equal protection requirements." Ibid. This rational-basis standard is the functional equivalent of the due-process requirements of the fifth and fourteenth amendments. Under due-process analysis, a statute will survive a challenge if it is supported by a "conceivable rational basis." Greenberg v. Kimmelman, 99 N.J. 552, 563, 494 A.2d 294 (1985). While the equal-protection and due-process clauses "protect against different evils," analyses under those clauses, "while proceeding along parallel lines may overlap." Id. at 562 and 569, 494 A.2d 294. See, e.g., Katobimar Realty Co. v. Webster, 20 N.J. 114, 123, 118 A.2d 824 (1955) (due process and equal protection demand that exercise of police power be devoid of unreasonableness and arbitrariness and that means selected for fulfillment of policy bear a "real and substantial relation" to that end); see also Holman v. Hilton, 542 F.Supp. 913, 920 (D.N.J.1982) (for purposes of both equal-protection and due-process considerations, statute must be reviewed under "rational basis" and will be upheld only if it classifies affected persons in a manner "rationally related" to legitimate governmental objectives), aff'd, 712 F.2d 854 (3d Cir.1983). Although plaintiff's brief does not refer to state constitutional doctrine, our principles of state constitutional analysis in the area are substantially the same. Brown v. City of Newark, supra, 113 N.J. at 574, 552 A.2d 125.

Drew contends that the Act fails to meet the rational-basis standard in light of its stated...