Silverman v. Rent Leveling Bd. of Cliffside Park

• Court: New Jersey Superior Court – Appellate Division
• Writing for the Court: BAIME
• Citation: 649 A.2d 1342,277 N.J.Super. 524
• Decision Date: 06 December 1994
• Parties: Barry SILVERMAN, Lynn Silverman, Carl P. Gross and Henry H. Bloom, t/a Silverman Chateau 21, a partnership, Plaintiffs-Appellants, v. RENT LEVELING BOARD OF CLIFFSIDE PARK; Mayor and Council of Cliffside Park, Defendants-Respondents, and George Ahrens, Defendant.

Page 524

277 N.J.Super. 524 649 A.2d 1342 Barry SILVERMAN, Lynn Silverman, Carl P. Gross and Henry H.
Bloom, t/a Silverman Chateau 21, a partnership,
Plaintiffs-Appellants,
v.
RENT LEVELING BOARD OF CLIFFSIDE PARK; Mayor and Council of
Cliffside Park, Defendants-Respondents,
and
George Ahrens, Defendant. Superior Court of New Jersey,
Appellate Division. Argued Oct. 26, 1994.
Decided Dec. 6, 1994.

[649 A.2d 1344] Christopher J. Hanlon, Freehold, for appellants (Gross, Hanlon, Truss & Messer, attorneys).

William C. Rindone, Englewood, for respondents (Liebowitz & Liebowitz, attorneys).

Before Judges GAULKIN, BAIME and KESTIN.

The opinion of the court was delivered by

BAIME, J.A.D.

This is an appeal from a judgment sustaining the denial of plaintiffs' application for a hardship rent increase by the Mayor and Council of Cliffside Park. Plaintiffs also appeal from the dismissal of their action for inverse condemnation and for damages under 42 U.S.C. § 1983. During the

Page 524

pendency of these proceedings, the tenant vacated the subject apartment which was then rented at market value as authorized by the vacancy decontrol provision of the rent control ordinance. Plaintiffs have disavowed

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any intent to sue the tenant for the difference between the rent charged and the amount sought in their hardship application. We thus dismiss as moot plaintiffs' appeal from the denial of their request for a hardship rent increase. We affirm the Law Division's dismissal of plaintiffs' claims for inverse condemnation and for damages under the federal Civil Rights Act.

I.

This appeal has a tortured history. On June 15, 1980, George Ahrens entered a month-to-month lease for a one bedroom apartment at "the Chateau" in Cliffside Park. The monthly rent was $370 including electricity. On December 8, 1980, the owner began converting the building into condominiums. On July 27, 1981, the Senior Citizens and Disabled Protected Tenancy Act ( N.J.S.A. 2A:18-61.22 to -61.39) became effective. Under the Act, Ahrens could not be evicted for a 40 year period following the conversion. See N.J.S.A. 2A:18-61.23; N.J.S.A. 2A:18-61.24h. However, the Act authorizes the owner to effect reasonable rent increases during this period, as long as such increases are not attributable to the cost of conversion. N.J.S.A. 2A:18-61.31.

On August 25, 1981, plaintiffs entered into a contract with the building owner to purchase the unit occupied by Ahrens. In September 1981, the Cliffside Park rent control ordinance was amended to include condominiums. Ahrens' unit was conveyed to plaintiffs for $52,500 by deed dated November 6, 1981, approximately one month after the effective date of the amendment to the rent control ordinance. Plaintiffs believed, however, that their newly purchased unit was not covered by the amendment because the purchase contract antedated the amendment's effective date.

Plaintiffs sought to increase Ahrens' rent to $470, effective February 1, 1982. After serving a notice to quit, plaintiffs instituted a summary eviction action in the Bergen County District Court. The District Court dismissed plaintiffs' complaint on the ground that Ahrens' rent was controlled by the Cliffside Park

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ordinance. On June 21, 1983, we affirmed in an unreported opinion.

During the pendency of their appeal to this court, plaintiffs filed a hardship application with the Cliffside Park Rent Leveling Board, requesting an increase of $1,166 per month. Under the Cliffside Park ordinance, the Board "may grant the landlord a hardship rent increase if it is satisfied that such hardship does in fact exist...." Cliffside Park, N.J., Rev.Ord.Supp. § 11-2.11 (1980). The ordinance does not specify a method for calculating "hardship" nor does it set forth criteria, standards, or guidelines in that respect. At the time of plaintiffs' application, the rent control ordinance also authorized an automatic seven percent increase at the expiration or termination of a tenancy. In the case of a month-to-month lease, municipal authorities construed the ordinance as authorizing an annual seven percent increase in rent. Plaintiffs, however, never sought an increase under this provision.

We need not describe in detail the extensive materials presented to the Board in support of plaintiffs' hardship application. Plaintiffs employed both the "return on fair value" and "return on investment" approaches[649 A.2d 1345] described by our Supreme Court in Troy Hills Village v. Parsippany-Troy Hills Tp. Council, 68 N.J. 604, 350 A.2d 34 (1975); but see Helmsley v. Borough of Fort Lee, 78 N.J. 200, 215, 394 A.2d 65 (1978). Plaintiffs claimed that the $52,500 purchase price was an "insider price" and that the condominium was worth $65,000--a value they arrived at by utilizing comparable sales for two similar apartments in the same building. Although the rent for the comparable units was "in the $750's" for one and "in the high $600's" for the other, plaintiffs asserted they were entitled to a 16% rate of return, which, coupled with reasonable expenses, yielded a total of $17,359.25 to be amortized over a 12 month period. Applying the fair value approach, plaintiffs suggested a monthly rental of $1,446. Plaintiffs also presented expert testimony respecting the return on investment approach. Of the $52,500 purchase price, plaintiffs borrowed $47,300 at an interest rate of 14.5 percent. By adding various expenses and

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costs, plaintiffs' total investment in "current dollars" was said to be $24,195. Applying a sixteen percent rate of return on investment yielded $3,871, to which operating expenses and investment payments on the mortgage were added. Amortizing the total amount, $17,089, over a 12 month period, the expert testified that $1,422 would be a reasonable rent and would produce a reasonable rate of return on investment.

The Board denied plaintiffs' application, noting only that the amount of the increase sought by plaintiffs was "unconscionable." Plaintiffs' appeal to the Mayor and Council was equally unavailing. The increase requested was denied without comment.

Plaintiffs then filed an action in lieu of prerogative writs, naming as defendants the Board, the Mayor and Council, and Ahrens. Ahrens filed a counterclaim in which he requested protected tenancy status. The Law Division upheld the determination of the Mayor and Council, but granted protected tenancy status to Ahrens.

In an unreported opinion, we upheld the Law Division's decision that Ahrens qualified for protected tenancy status. However, we reversed that part of the judgment that sustained the denial of plaintiffs' application for a hardship rent increase. We held that both the Rent Leveling Board and the Mayor and Council had failed to articulate the factual and legal bases upon which their decisions rested. We also said that the municipal agencies had erroneously adopted an "all or nothing" approach in considering plaintiffs' application and that it was incumbent upon the municipal agencies to carefully scrutinize the financial data submitted and, if required, grant whatever increase they deemed appropriate.

On remand and after additional hearings, the Rent Leveling Board again made no specific findings regarding what rental amount would yield the lowest reasonable rate of return. The gist of its decision was that plaintiffs had made a poor investment decision in buying the unit and that Ahrens was under no duty to make up for the owners' shortfall. The Board also expressed

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some doubt about the hardship claim in light of the fact that plaintiffs had never availed themselves of the provision in the rent leveling ordinance allowing a seven percent increase at the conclusion of a lease. The Board ultimately granted a seven percent rent increase retroactive to the date of plaintiffs' application. However, the Mayor and Council subsequently reversed the Board's determination and denied plaintiffs any rent increase.

Plaintiffs thereafter filed a second action in lieu of prerogative writs, contending that the municipal agencies' actions were arbitrary and capricious and ran afoul of our remand order. Plaintiffs also claimed that the rent control ordinance had been applied in a confiscatory manner resulting in a "partial taking" by inverse condemnation. Finally, plaintiffs sought damages and attorneys fees under 42 U.S.C. § 1983. The Law Division judge agreed that the resolutions adopted by the Board and the Mayor and Council were bereft of factual findings and legal conclusions. Nonetheless, the Law Division judge reviewed the record and determined that plaintiffs had failed to sustain their burden of proof.

We then reversed the Law Division's judgment, finding that both municipal agencies had failed to comply with our prior opinion [649 A.2d 1346] and that the judge's factual determinations were not supported by...