Helmsley v. Borough of Ft. Lee

• Court: United States State Supreme Court (New Jersey)
• Writing for the Court: MOUNTAIN
• Citation: 78 N.J. 200,394 A.2d 65
• Parties: Harry B. HELMSLEY et al., Plaintiffs-Appellants, v. BOROUGH OF FORT LEE et al., Defendants-Respondents. AMERICANA ASSOCIATES et al., Plaintiffs-Appellants and Cross-Respondents, v. BOROUGH OF FORT LEE et al., Defendants-Respondents and Cross-Appellants. NEW JERSEY REALTY COMPANY et al., Plaintiffs-Appellants and Cross-Respondents, v. BOROUGH OF FORT LEE et al., Defendants-Respondents and Cross-Appellants.
• Decision Date: 17 October 1978

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78 N.J. 200 394 A.2d 65 Harry B. HELMSLEY et al., Plaintiffs-Appellants,
v.
BOROUGH OF FORT LEE et al., Defendants-Respondents.
AMERICANA ASSOCIATES et al., Plaintiffs-Appellants and
Cross-Respondents,
v.
BOROUGH OF FORT LEE et al., Defendants-Respondents and
Cross-Appellants.
NEW JERSEY REALTY COMPANY et al., Plaintiffs-Appellants and
Cross-Respondents,
v.
BOROUGH OF FORT LEE et al., Defendants-Respondents and
Cross-Appellants. Supreme Court of New Jersey. Argued May 22, 1978.
Decided Oct. 17, 1978.

[394 A.2d 66]

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Richard F. Aronsohn, Martin Kesselhaut, West Orange, and David N. Ravin, West Orange, for appellants (Aronsohn, Kahn & Springstead, Hackensack, and Ravin & Kesselhaut, West Orange, attorneys; Richard F. Aronsohn, Lauren B. Cohen, Martin Kesselhaut and Bernard Schenkler, West Orange, on the briefs).

William T. Reilly, Newark, for respondents (McCarter & English, Newark, attorneys; Richard C. Cooper, Newark, of counsel).

Kenneth Meiser, Trenton, for defendant-intervenor, New Jersey Dept. of the Public Advocate (Stanley C. Van Ness, Public Advocate, attorney).

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Mr. John Atlas, Ms. Joan Pransky, Orange, and Mr. Ronald Atlas, Fort Lee, submitted a brief on behalf of Amici curiae The New Jersey Tenants Organization, The Essex County Housing Coalition, and The East Orange Tenants Organization.

The opinion of the court was delivered by

MOUNTAIN, J.

Rent control ordinances have proliferated in the five years following this court's decision in Inganamort v. Borough of Fort Lee, 62 N.J. 521, 303 A.2d 298 (1973), which upheld a municipality's power to enact such an ordinance. The principles governing attacks on the facial validity of rent control ordinances were discussed at length in Hutton Park Gardens v. West Orange Town Council, 68 N.J. 543, 350 A.2d 1 (1975); [394 A.2d 67] Brunetti v. Borough of New Milford, 68 N.J. 576, 350 A.2d 19 (1975), and Troy Hills Village v. Parsippany-Troy Hills Tp. Council, 68 N.J. 604, 350 A.2d 34 (1975) (hereinafter sometimes called the "Trilogy"). In those cases, we held that a rent control ordinance must permit an efficient landlord to realize a "just and reasonable" return. Hutton Park Gardens, supra, 68 N.J. at 568, 350 A.2d 1; Brunetti, supra, 68 N.J. at 592, 350 A.2d 19; Troy Hills Village, supra, 68 N.J. at 620, 350 A.2d 34. On the present appeal, we are required to determine whether the application of the rent control ordinances of Fort Lee has or has not denied landlords this minimum constitutional return.

I

Fort Lee enacted its first rent control ordinance in 1972. Under Ord. No. 72-1, landlords could increase rents by the percentage rise in the Consumer Price Index (hereinafter "CPR"). After the municipality's power to regulate rents was confirmed in Inganamort v. Borough of Fort Lee, supra, the ordinance was superseded by Ord. No. 74-32, effective November 6, 1974. Section 2 of the new ordinance still purported to limit rent increases to the percentage increase in the CPI. A crucial proviso, however, overrode the CPI limitation:

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Notwithstanding any of the foregoing provisions of this section to the contrary, no landlord may request or receive a percentage increase in rent with respect to any housing space which is greater than two and one-half (21/2%) per cent of the last prior rent during any calendar year.

In light of recent economic trends, the practical effect of Ord. No. 74-32 was to impose a 2.5% Ceiling on rent increases. ¹ In addition, Section 6 permitted landlords to pass through to tenants increases in property taxes. Landlords could seek hardship relief to supplement the automatic increases. Guidelines governing the granting of such relief were embodied in Ord. No. 75-45.

The validity of Ord. No. 74-32, or the "2.5% Ordinance," was immediately challenged in A-163, Helmsley v. Fort Lee, an action in lieu of prerogative writ. The twelve plaintiffs, owners of multiple-family dwellings in the borough, contended that Ord. No. 74-32 was not justified by any housing emergency, and further that it deprived them of a fair and reasonable return on their investment. ² On November 20, 1974 the trial court entered a temporary restraining order against enforcement of the 2.5% Limitation on automatic rent increases.

On July 31, 1975 the trial court held the 2.5% Limitation to be facially constitutional, but continued its order restraining

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enforcement. By order, the court permitted the landlords to raise rents up to the percentage increase in CPI, but increases greater than 2.5% Were to be placed in escrow. The restraining order and escrow arrangement have been continued during the appellate process. On March 31, 1977 the Appellate Division affirmed the trial court judgment.

Meanwhile, Fort Lee had enacted a major revision of its rent control system on June 30, 1976. Ordinance No. 76-8 limited automatic rent increases to a "maximum annual percentage," or "MAP," which was derived from increases in real estate taxes and specified components of the CPI. Thus, rent increases were to be related to operating cost increases. The details of the MAP plan [394 A.2d 68] will be discussed in Section V, Infra. The MAP formula was not to become effective, however, until thirty days after the "final and complete disposition" of the appeal in Helmsley v. Fort Lee. Ordinance No. 76-8 also repealed, effective immediately, the sections of Ord. No. 74-32 which permitted landlords to pass through to tenants real estate tax increases. The impact of the tax passthrough repealer was substantial; the 1976 tax rate had been recently announced, and it represented a 30% Increase over the 1975 rate.

Ordinance No. 76-8 was immediately challenged in two actions in lieu of prerogative writs, A-164, New Jersey Realty Co. v. Fort Lee and A-166, Americana Associates v. Fort Lee, which were consolidated for trial. The Fort Lee Tenants Association, and later the Department of the Public Advocate, were permitted to intervene as defendants. On March 11, 1977 the trial court held the tax passthrough repealer valid, effective June 30, 1976, but invalidated all other sections of Ord. No. 76-8 because of the contingent effective date.

On July 21, 1977 we granted certification in Helmsley v. Fort Lee and in the appeals and cross-appeals in New Jersey Realty Co. v. Fort Lee and Americana Assoc. v. Fort Lee then pending unheard in the Appellate Division. 75 N.J.

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31, 32, 379 A.2d 262 (1977). We vacated the Appellate Division judgment in Helmsley, consolidated and remanded all three cases for a plenary hearing on the issue of just and reasonable return, at the same time retaining jurisdiction.

The 17-day hearing on remand concluded on December 14, 1977. It would serve no useful purpose to attempt to summarize, however briefly, all of the evidence adduced at this hearing. Instead, we will here merely outline the nature of the proofs, referring to specific factual showings, where appropriate, in later sections of this opinion.

The keystone of plaintiffs' case was a survey of the operating histories of 35 multiple-family buildings in Fort Lee, prepared by a certified public accountant whose clients include the operators of several Fort Lee apartment buildings. The 35 buildings in the survey contain 7542 apartments, or units; they comprise approximately 85% Of all rental units in the borough. Fifteen buildings with 4958 units were classified as highrises, 11 buildings with 2053 units as lowrises, and 9 buildings with 531 units as garden apartments. ³ The survey included buildings whose landlords were not plaintiffs in this litigation. For each building, the landlord supplied detailed financial data for the years 1970 through 1976, including financial statements, utility and fuel bills, real estate tax bills, payroll and income tax returns, insurance and mortgage information, monthly rent rolls, and any applications for hardship relief. From these data several tables were prepared for each building showing actual profit and loss and projecting future trends under the 2.5% Limitation. The plaintiffs' survey was interpreted by several expert real estate consultants. Other experts and several landlords discussed the theoretical and practical effects of rent control in Fort Lee. Several witnesses addressed the question of determining a just and reasonable return. Fort Lee presented

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only one witness, a real estate consultant. He testified in general terms about relevant factors in fixing a just and reasonable return. Finally, the chairman of the Fort Lee Rent Leveling Board testified as the court's witness. He described the Rent Leveling Board's procedures.

On March 1, 1978 the findings and determinations on remand were filed. The court determined that "the entire Fort Lee rent control mechanism" was confiscatory and hence invalid.

As the abbreviated procedural history above suggests, this appeal is the culmination of long and complicated litigation. The complaint in Helmsley v. Fort Lee was [394 A.2d 69] filed almost four years ago, in November 1974. The length of the litigation has produced an unusual procedural situation. The focus of the Helmsley case has shifted over time. What started as an attack on the facial constitutionality of Ord. No. 74-32 has become a challenge to the ordinance's validity as applied. This is, moreover, an unusual test of an ordinance "as applied," for we are asked to rule on the ordinance's application to the entire borough of Fort Lee, rather than to an isolated building. Plaintiffs have made no attempt to single out their properties; their proofs have been addressed to the boroughwide impact of the ordinance. In the case of an individual building, the landlord would be required to exhaust his administrative remedies by seeking hardship relief. Brunetti v. Borough of New Milford, supra, 68 N.J. at 588, 350 A.2d 19. In Fort Lee, however, no administrative body is empowered to review the general...