Schulmann Realty Group v. Hazlet Tp. Rent Control Bd.

• Decision Date: 23 April 1996
• Parties: SCHULMANN REALTY GROUP, a partnership, Plaintiff-Appellant, v. HAZLET TOWNSHIP RENT CONTROL BOARD, Defendant-Respondent.
• Court: New Jersey Superior Court — Appellate Division

Page 176

290 N.J.Super. 176

675 A.2d 645

SCHULMANN REALTY GROUP, a partnership, Plaintiff-Appellant, v. HAZLET TOWNSHIP RENT CONTROL BOARD, Defendant-Respondent.

Superior Court of New Jersey Appellate Division.

Argued Feb. 6, 1996.

Decided April 23, 1996.

Christopher J. Hanlon, Freehold, for appellant (Gross, Hanlon, Truss & Messer, attorneys; Mr. Hanlon and Carol J. Truss, on the brief)

Paul A. Stamoulis, Hazlet, for respondent (Mr. Stamoulis, attorney; and on the brief).

Before Judges MICHELS, BAIME and VILLANUEVA.

The opinion of the court was delivered by

VILLANUEVA, J.A.D. (retired and temporarily assigned on recall).

Plaintiff Schulmann Realty Group, a partnership doing business under the name Brookside Mobile Estates, appeals from a judgment of the Law Division that dismissed its complaint challenging the decision of the Hazlet Township Rent Control Board (Board) with respect to a hardship rent increase. The Hazlet Board granted plaintiff an increase of $23.89 per month per unit to be paid for five years; thereafter said rent increase would not constitute base rent in any future rent increase applications.

On January 15, 1993, plaintiff, the owner and operator of a ninety-space mobile home park in Hazlet Township, filed an application with the Board, pursuant to subsection 9-2.9 of the On June 21, 1993, following several hearings, the Board passed a resolution granting plaintiff a

Hazlet Township Rental Control Ordinance (Ordinance), for a hardship rent increase of "$62.94/month/tenant."

hardship increase in the amount of $23.89 per month per unit which is to be paid for five (5) years from the effective date herein commencing May 1, 1993 and ending April 30, 1998, said sum not to be included in the Landlord's base rent in future rent increase applications after which time the $23.89 per month per unit will be deleted from the tenants' rent.

On July 26, 1993, plaintiff filed its complaint in lieu of prerogative writs against the Board seeking, among other relief, a judgment voiding the Board's 1993 decision. The trial court upheld the action of the Board, finding that the action was not arbitrary, capricious or unreasonable and that a cap of eight percent of the gross income for management fees did not deny plaintiff a just and reasonable return on its investment. On December 22, 1994, the trial court entered an order dismissing plaintiff's complaint with prejudice. This appeal followed.

Plaintiff asserts that (1) the trial court did not follow the correct standard of review in affirming the Board's resolution on its hardship rent increase application; (2) the trial court committed reversible error in upholding the Board's illegal reopening of its decision on plaintiff's 1992 hardship rent-increase application and its modification of that prior resolution; (3) the Board's decision to reduce the bookkeeper's salary without any justification and disallow all of plaintiff's professional fees and costs related to rent control was arbitrary, capricious and unreasonable and resulted in an unconstitutional confiscation and should be reversed; and (4) in order to avoid confiscation of its property, the modifications should be effective retroactively to May 1, 1993.

Plaintiff, therefore, asserts that this court should reverse the trial court's order, exercise its original jurisdiction and make its own findings of fact and conclusions of law, approve the balance of plaintiff's 1993 hardship rent increase for which it had applied and which was denied by both the Board and trial court, and deem the entire 1993 hardship increase a permanent part of the base rent.

I.

First, plaintiff contends that the trial court erred in affirming the Board's 1993 resolution on plaintiff's hardship rent increase application because the Ordinance does not authorize the Board to designate a hardship increase as temporary or to exclude the increase from base rent.

On October 17, 1983, the Hazlet Township Committee amended its rent control ordinance by adding subsection 9-2.9, which permits a park owner to apply for a hardship rent increase. Upon application therefor and a showing that the owner's reasonable and necessary operating expenses for the preceding full calendar year exceeded sixty percent (60%) of the owner's gross income, the Board may "grant a rent increase sufficient to restore reasonable and necessary operating expenses to sixty percent (60%) of gross income."

Thus, a hardship rent-increase application requires the Board to ascertain the owner's gross income and its reasonable and necessary operating expenses for the preceding full calendar year. The term "gross income" is, in material part, defined as the landlord's "annual income derived, directly or indirectly, from the operation of the mobile home park, including, but not limited to, all rents received."

In the general definitional section of the Ordinance, subsection 9-2.2, the term "reasonable and necessary operating expenses" is defined and explained, in part, as follows:

All expenses incurred and paid by the mobile home park owner to operate the park during the period reflected in gross income computed in accordance with the provisions and limitations of this section. In computing "reasonable and necessary operating expenses," the following limitations shall apply in all cases:

....

d. Repairs and maintenance expenses shall not include expenditures for major capital improvements as defined in this section. Unusual or extraordinary expenses for repairs and maintenance shall be prorated over the time period that the particular expense is not expected to reoccur, not to exceed five (5) years e. Purchase costs for new equipment not qualifying as a major capital improvement under this section shall be prorated over the useful life of the item.

The subsection defines "base rent" as follows:

The lawful rent in effect for the mobile home space on August 1, 1975, together with all subsequent base rental increases granted by the Rent Control Board pursuant to this section. The term "base rent" shall not include any amounts granted by the Rent Control Board for capital improvement surcharges, as defined in this section.

Significant to the issues of this case, the Ordinance also permits a landlord to apply for a "rent surcharge" in the form of a "major capital improvement surcharge." However, subsection 9-2.10 provides that any such surcharge granted by the Board "shall be collected by the park owner from the tenants in equal monthly installments over the actual useful life of the improvement, as determined by the Board," and, unlike hardship rent increases, "shall not become a part of the base rent and shall not be included for the purpose of calculating any future rent increase."

In 1993 plaintiff filed its application for a hardship rent increase. The Board found that plaintiff's reasonable and necessary operating expenses for 1992 exceeded 60% of plaintiff's gross income for 1992; therefore, plaintiff was entitled to a hardship increase in the amount of $23.89 per month, per unit. However, the Board ordered that this sum was to remain in effect for only five years and was "not to be included in the Landlord's base rent in future rent increase applications."

After noting that plaintiff "appears to favor a strict construction of the Ordinance," the trial court rejected plaintiff's argument that all hardship rent increases automatically and permanently become part of the base rent. The trial court explained:

The Board's position on this issue seems unambiguous to the court based upon a plain reading of the Ordinance. However, if an ordinance provision is ambiguous, "a court must defer to the administrative body's construction ... if it is a permissible or reasonable one, even if the court might have preferred a different reading." Somers Assoc. v. Gloucester Twp., 241 N.J.Super. 323, 34 [343, 575 A.2d 20] (App.Div.1990). The Landlord's interpretation as to how it believes the Ordinance is to operate must yield to the construction of the Board in accordance with Somers, cited supra.

What we actually said in Somers Associates, Inc. v. Gloucester Township., 241 N.J.Super. 323, 575 A.2d 20 (App.Div.), certif. denied, 122 N.J. 355, 585 A.2d 366 (1990), was that "a court must defer to the administrative body's construction of an ambiguous measure if it is a 'permissible' or 'reasonable' one, even if the court might have preferred a different reading." Id. at 343, 575 A.2d 20.

Plaintiff argues that there is simply no provision in the Ordinance which authorizes the Board to limit any portion of a hardship rent increase to a temporary time period or to exclude the same from base rent. The Board does not contradict this assertion. Nor does the Board contradict plaintiff's contention that for many years the Board consistently has applied the Ordinance as plaintiff now interprets it. Plaintiff also points out that its interpretation of the Ordinance is consistent with that of Judge Havey in Parks v. Tenants Ass'n of Holly Hill Mobilehome Terrace, 213 N.J.Super. 511, 517 A.2d 1192 (App.Div.1986), aff'd as modified, 107 N.J. 217, 526 A.2d 685 (1987), who stated in dicta that hardship rent increases granted under the post-October 17, 1983, Hazlet Township ordinance at issue here are "added to base rent." 213 N.J.Super. at 520, 517 A.2d 1192.

Generally, it would be arbitrary for a municipal rent control board to decline to follow the provisions of its own ordinance. Mayes v. Jackson Tp. Rent Leveling Bd., 103 N.J. 362, 376, 511 A.2d 589 (1986), cert. denied, 479 U.S. 1090, 107 S.Ct. 1300, 94 L.Ed.2d 155 (1987); see Doric Realty Co. v. Union City Rent Leveling Bd., 182 N.J.Super. 486, 490, 442 A.2d 652 (Law Div.1981) ("Since the power of the Board derives from the ordinance, it is ... axiomatic that the Board's actions must conform to the requirements of the mandate which is the source of its existence."); Park Tower Apts. Inc. v. City of Bayonne, 185...