Orange Taxpayers Council, Inc. v. City of Orange

• Citation: 416 A.2d 353,83 N.J. 246
• Parties: ORANGE TAXPAYERS COUNCIL, INC., a New Jersey Corporation, The Terrace, Inc., a New Jersey Corporation, Arthur Clay, Robert Mangus and Cora Mangus, t/a Orange Towers, Plaintiffs-Appellants, v. CITY OF ORANGE, a Municipal Body Politic of the State of New Jersey, the Rent Leveling Board of the City of Orange, Edward Ferrari, Marion Stewart, Kenneth Condon, Beverly Savage, Ralph Perrella, Brenda Harrington, Orange Tenants Association, a/k/a "OTA" and Barbara Davis, Defendants-Respondents.
• Decision Date: 17 June 1980
• Court: United States State Supreme Court (New Jersey)

Page 246

83 N.J. 246

416 A.2d 353

ORANGE TAXPAYERS COUNCIL, INC., a New Jersey Corporation The Terrace, Inc., a New Jersey Corporation Arthur Clay, Robert Mangus and Cora Mangus, t/a Orange Towers Plaintiffs-Appellants, v. CITY OF ORANGE, a Municipal Body Politic of the State of New Jersey, the Rent Leveling Board of the City of Orange Edward Ferrari, Marion Stewart, Kenneth Condon, Beverly Savage, Ralph Perrella, Brenda Harrington, Orange Tenants Association, a/k/a "OTA" and Barbara Davis, Defendants-Respondents.

Supreme Court of New Jersey.

Argued Feb. 5, 1980.

Decided June 17, 1980.

Walter R. Cohn, South Orange, for plaintiffs-appellants (Walter R. Cohn, South Orange, attorney; Richard Flexner, Livingston, on the brief).

Elliot M. Baumgart, East Orange, for defendants-respondents City of Orange, The Rent Leveling Bd. of the City of Orange, Edward Ferrari, Marion Stewart, Kenneth Condon, Beverly Savage, Ralph Perrella and Brenda Harrington (Elliot M. Baumgart, East Orange, attorney; David H. Ben-Asher, East Orange, of counsel and on the brief).

Joan Pransky, East Orange, for defendants-respondents Orange Tenants Ass'n a/k/a "OTA" and Barbara Davis (Timothy Weeks, Executive Director, Essex County Legal Services, Orange, attorney).

The opinion of the Court was delivered by

PASHMAN, J.

This is the third of three related cases challenging municipal power to prevent the deterioration of rented residential housing. ¹ Here we consider the validity of a rent control ordinance which prohibits increases in rent without a certification that a dwelling is in "substantial compliance" with municipal housing regulations.

On November 15, 1976, the City of Orange enacted Ordinance MCD 27-76 "to regulate, control and stabilize rents and to create a Rent Control Board within the City of Orange * * *." The enactment codified and replaced the various ordinances regarding rent control which had been passed since 1972. It applied to all rented housing besides hotels, motels, one- and two-family dwellings and three-family, owner-occupied dwellings. The ordinance prohibited increases in rentals except under three sets of circumstances. When a lease expired or a periodic lease terminated, a landlord could charge an increase in rent proportionate to the increase in the Consumer Price Index ² over the period of the former lease. Such periodic increases were originally limited to an annual rate of 4%. ³ A landlord could also petition for an increase to avoid economic hardship if he could not meet his "usual(,) customary and normal" operating expenses, including mortgage payments and maintenance costs. Finally, the ordinance permitted a landlord to seek additional rent for "major capital improvements or service (improvements)." An increase by reason of hardship or capital improvements was limited to 15% of a tenant's rent.

While no further official authorization was needed for periodic increases, each proposed increase in rentals due to hardship or capital improvements required the approval of the city's Rent Leveling Board. The board consisted of five members and two alternates appointed by the City Council for three-year terms. The ordinance granted the board authority to promulgate rules and regulations to implement the ordinance. Such regulations would "have the force of law." An aggrieved landlord or tenant could appeal decisions of the Rent Leveling Board to the City Council within 20 days of the date of determination.

The ordinance contains several provisions designed to insure a multiple dwelling's compliance with municipal standards for safety and habitability. When seeking a periodic increase in rents, a landlord must give formal notice to his tenants of the calculations involved in the increase, "and a certification that said dwelling and housing space is in substantial compliance with the applicable Property Maintenance Codes." Petitions for increases due to hardship or capital improvements required "a certification from the Property Maintenance Department of the City of Orange that the building and grounds are in Substantial Compliance with the Property Maintenance Code." The ordinance provided that the landlord must apply for official certification no more than one month prior to filing his petition with the Rent Leveling Board.

The ordinance defined "substantial compliance" as follows:

"Substantial Compliance" means that the housing space and dwelling are free from all heat, hot water, elevator and all health, safety and fire hazards as well as 90% qualitatively free of all other violations of the Orange Property Maintenance Code and the Property Maintenance Code of the State of New Jersey ⁴ where applicable. (footnote added)

As written, the definition appeared to mandate compliance with both the State and municipal housing codes. After the Appellate Division's decision in this case, however, the Rent Leveling Board issued regulations requiring substantial compliance with only the municipal housing code for the issuance of certificates.

Orange Taxpayers Council, Inc., a coalition of owners of rental properties in Orange, and several individual landlords ⁵ instituted this challenge to the rent control ordinance on March 10, 1977. Filing a verified complaint in lieu of prerogative writs, R. 4:69, plaintiffs named as defendants the City of Orange, its Rent Leveling Board, each of the board's members and its secretary, ⁶ the Orange Tenants Association, an unincorporated association of tenants residing in Orange, and Barbara Davis, the association's president. ⁷ Plaintiffs alleged numerous grounds for the invalidation of Orange's rent control scheme. Among them were challenges to the requirements that a landlord provide or obtain a certification of "substantial compliance" as a condition for any increase in rents. ⁸

The parties filed cross motions for summary judgment on the legality of the certification scheme. ⁹ In a letter opinion the trial court held it invalid. According to the court, the requirement that an apartment be in "substantial compliance" with housing regulations was unrelated to the purposes of rent control. It found that the ordinance imposed penalties on landlords for violations of State as well as municipal housing regulations. Relying upon the Appellate Division decision in Modular Concepts, Inc. v. South Brunswick Tp., 146 N.J.Super. 138, 369 A.2d 32 (App.Div.1977), certif. den., 74 N.J. 262, 377 A.2d 667 (1977), the court held that the City of Orange did not possess authority to establish penalties for the violation of State regulations. Even as a measure designed to enforce only local housing standards, the court ruled that the ordinance exceeded the limits of delegated municipal authority. By prohibiting increases in rent for dwellings that were not in "substantial compliance," the ordinance prescribed penalties for violations in excess of the $500 limit provided in N.J.S.A. 40:49-5. The court also noted that by requiring "substantial compliance" before permitting higher rents, the ordinance prevented landlords from seeking an increase to finance repairs for existing violations. Accordingly, the trial court granted judgment for plaintiffs. ¹⁰

Defendants sought and were granted leave to appeal this decision to the Appellate Division. ¹¹ Finding no facial defect in the certification requirement, the Appellate Division reversed the trial court. Orange Taxpayers Council, Inc. v. City of Orange, 169 N.J.Super. 288, 404 A.2d 1186 (App.Div.1979). It held that Orange's scheme to insure the safety and habitability of rent-regulated dwellings was a reasonable exercise of municipal authority. Addressing the contention that compliance with housing regulations was not reasonably related to the purposes of rent control, the court observed, "Rent control would be self-defeating were landlords permitted to reduce maintenance expenditures and allow buildings to deteriorate because their profits have been regulated downward." Id. at 303, 404 A.2d at 1193.

The Appellate Division distinguished its earlier decision in Modular Concepts, supra, on three grounds. Although the South Brunswick ordinance in Modular Concepts required State, county and municipal approval of housing conditions, the court noted that Orange's ordinance required only municipal certification of "substantial compliance." Not only were the procedures in Orange less burdensome, but the detailed definition of "substantial compliance" and the availability of an appeal to the City Council were sources of protection from arbitrary treatment that were lacking in the South Brunswick ordinance. 169 N.J.Super. at 303, 404 A.2d 1186. Concluding that the requirement of "substantial compliance" was on its face a reasonable exercise of municipal police power, the Appellate Division remanded the case to determine whether the ordinance was invalid in its application and whether plaintiffs had exhausted their administrative remedies before the Rent Leveling Board and the City Council. Id. at 304, 404 A.2d 1186. ¹²

We granted plaintiffs' petition for certification, but limited our review to whether a municipality could require the production of a certificate of "substantial compliance" as a prerequisite to an increase in controlled rents. 81 N.J. 399, 408 A.2d 793 (1979). As to that issue we now affirm.

The power of a municipality to control rents within its borders, in the absence of specific legislative authorization by the State, was recognized in the landmark case of Inganamort v. Borough of Fort Lee, 62 N.J. 521, 303 A.2d 298 (1973). Writing for the Court, Chief Justice Weintraub observed, "The police power is vested in local government to the very end that the right of property may be restrained when it ought to be because of sufficient local need." Id. at 538, 303 A.2d at 307. The Court in Inganamort found that a shortage of rental housing and the consequent risk that landlords would exploit tenants presented a proper occasion...