Summit Plaza Assocs. v. Kolta

• Decision Date: 20 February 2020
• Docket Number: DOCKET NO. A-1305-18T3
• Citation: 227 A.3d 291,462 N.J.Super. 401
• Parties: SUMMIT PLAZA ASSOCIATES, Plaintiff-Respondent, v. Ragee KOLTA, Mark R. Kolta, Souad Kolta, and David R. Kolta, Defendants-Appellants.
• Court: New Jersey Superior Court — Appellate Division

462 N.J.Super. 401

227 A.3d 291

SUMMIT PLAZA ASSOCIATES, Plaintiff-Respondent,

v.Ragee KOLTA, Mark R. Kolta, Souad Kolta, and David R. Kolta, Defendants-Appellants.

DOCKET NO. A-1305-18T3

Superior Court of New Jersey, Appellate Division.

Argued November 7, 2019

Decided February 20, 2020

John V. Salierno, Jersey City, argued the cause for appellants.

Tracey L. Goldstein, West Orange, argued the cause for respondent (Feinstein Raiss Kelin Booker & Goldstein LLC, attorneys; Tracey L. Goldstein, on the brief).

Before Judges Koblitz, Whipple and Gooden Brown.

The opinion of the court was delivered by

GOODEN BROWN, J.A.D.

This appeal requires us to determine the parameters of the federal preemption doctrine in the context of a summary dispossess action. Defendants, a family of four, are tenants at plaintiff landlord's multi-family apartment building, which receives housing assistance payments for eligible families pursuant to section 8 of the United States Housing Act of 1937, 42 U.S.C. § 1437f (Section 8), and section 524(a) of the Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRA), Pub. L. No. 105-65, Tit. V, 111 Stat. 1384, as amended. Defendants received Section 8 housing assistance payments from 1980 until 2002, when their income exceeded the Section 8 threshold, requiring them to pay the full contract rent. In 2017, after receiving approval from the United States Department of Housing and Urban Development (HUD), plaintiff increased the contract rent, but defendants refused to pay the increased amount. As a result, plaintiff filed an eviction action under N.J.S.A. 2A:18-61.1(a), for failure to pay rent, and N.J.S.A. 2A:18-61.1(f), for failure to pay rent after a rent increase (New Jersey's Anti-Eviction Act).

Prior to trial, invoking preemption, plaintiff moved in limine to preclude defendants from introducing any evidence challenging the HUD-approved rent increase. Over defendants' objection, in an August 31, 2018 Law Division order, the trial court granted plaintiff's motion, finding that federal regulations preempted New Jersey's Anti-Eviction Act. The parties later settled, and a consent judgment was entered on October 12, 2018, rendering the underlying legal issue moot. See Daoud v. Mohammad, 402 N.J. Super. 57, 59, 952 A.2d 1091 (App. Div. 2008) (finding the defendant tenant's appeal from a judgment of possession entered against him in a summary dispossess action moot because "defendant vacated the ... premises, which has since been re-rented"). "Ordinarily, our interest in preserving judicial resources dictates that we not attempt to resolve legal issues in the abstract." Zirger v. Gen. Accident Ins. Co., 144 N.J. 327, 330, 676 A.2d 1065 (1996). However, notwithstanding its mootness, we now resolve the issue because it "is one of substantial importance, likely to reoccur but capable of evading review," ibid., and affirm the judge's August 31 evidentiary ruling.

I.

We summarize the relevant facts and procedural history. In December 2016, pursuant to Section 8 and MAHRA, plaintiff entered into a twenty-year "Project-Based Section 8 Housing Assistance Payments Renewal Contract for Mark-Up-to-Market Project" (HAP contract) with HUD and the New Jersey Housing and Mortgage Finance Agency (NJHMFA), HUD's contract administrator. Under the HAP contract, the operation, management and maintenance of plaintiff's property is subject to HUD's regulatory control. The HAP contract authorized increased contract rents based on "capital repairs" to the apartments agreed to by plaintiff. A contract rent is the maximum rent approved by HUD that a landlord is permitted to charge a Section 8 tenant, who pays thirty percent of the tenant's household income. The remaining portion of the contract rent is paid directly to the landlord by HUD. Once a tenant's income exceeds the Section 8 threshold, HUD regulations require the tenant to pay the full contract rent without the benefit of an assistance payment and prohibits the landlord from evicting the tenant based solely on the tenant's financial ineligibility. Pursuant to the HAP contract, the contract rent for a two-bedroom apartment in plaintiff's property was increased to $2700, effective December 21, 2016.

Defendants have lived in a two-bedroom apartment in plaintiff's property since 1980. Based on their annual recertification, a process by which tenants submit information to the landlord regarding household income and other relevant information required by HUD, defendants received a Section 8 housing subsidy. However, in 2002, defendants' household income increased, due partly to their now adult sons' employment, and they no longer qualified for housing assistance. As a result, defendants paid the full contract rent of $1006 from 2002 until 2017.¹ In 2017, upon receiving notice of the rent increase authorized by the HAP contract, defendants refused to pay, prompting plaintiff to file an eviction action, which was ultimately resolved by way of a consent judgment dated February 28, 2017. The February 28, 2017 judgment reduced defendants' rent from $2700 to $1460 per month through February 28, 2018, and required defendants to "complete the recertification process," including "signing a new lease ... no later than April 1, 2017."

On March 1, 2017, defendants completed the recertification process and reported a total annual household income of $182,819. Defendants also executed a one-year HUD model lease, beginning March 1, 2017, reflecting the agreed upon monthly rent of $1460. The lease specified that "th[e] monthly rent [was] less than the market (unsubsidized) rent due on th[e] unit," and that "the amount of rent ... may be changed during the term of [the lease]" if "HUD or the Contract Administrator ... determines, in accordance with HUD procedures, that an increase in rents is needed." In the event of a rent increase, pursuant to the lease, "[t]he landlord agree[d] to give the [t]enant at least [thirty] days advance written notice." "The landlord" could "terminate" the lease based on "the [t]enant's material noncompliance with [its] terms."

Effective December 21, 2017, HUD approved another contract rent increase for all 480 units on plaintiff's property. Pertinent to this appeal, monthly rent for all two-bedroom units was increased to $2724. The HUD approval letter indicated "[t]he increase [was] determined to be reasonable and necessary for the continued viability of the property." On May 30, 2018, plaintiff notified defendants in writing that "[b]eginning July 1, 2018," the rent would increase from $1460 to $2724. The notice explained that the increase "was approved by HUD for ... two-bedroom units at the property." Defendants were advised that "[i]f [they did] not accept and agree to th[e] rent increase, [they] must vacate and surrender possession of the premises no later than June 30, 2018," or face eviction proceedings. Defendants once again refused to pay the rent increase or vacate the premises, and plaintiff filed the summary dispossess action that is the subject of this appeal.

Prior to trial, plaintiff moved in limine to preclude defendants from introducing any evidence challenging the HUD-approved rent increase. In support, plaintiff argued that because its property was a HUD-regulated apartment building, New Jersey law was preempted under 24 C.F.R. § 246.1 (Section 246.1) and 24 C.F.R. § 246.21 (Section 246.21) (collectively, HUD regulations). Thus, according to plaintiff, HUD-approved rent increases were not reviewable in summary dispossess proceedings.

Defendants countered that the HUD regulations did not apply to them because they no longer qualified financially to receive Section 8 assistance payments. They asserted that because their tenancy was not controlled by the HUD regulations, the court must review the rent increase under the standard of unconscionability embodied in New Jersey's Anti-Eviction Act, pursuant to N.J.S.A. 2A:18-61.1(f), prohibiting eviction when the increase is "unconscionable." Defendants argued that even if the HUD regulations applied, the prohibition against rent regulation specified in Section 246.1 and Section 246.21 did not apply to N.J.S.A. 2A:18-61.1(f) because the statute was not a rent control law. Further, defendants contended HUD failed to comply with 24 C.F.R. § 246.22 ( Section 246.22 ), requiring written notification to the local board of HUD's proposed rent increase and preemption of rent regulation, a purported prerequisite to a finding of preemption. In reply, plaintiff certified that defendants "receive[d] the benefit of HUD involvement in the property" even if they no longer received rent assistance payments.

In an oral decision, the judge determined the "case law ... support[ed] [plaintiff's] position," and granted plaintiff's application to bar evidence of unconscionability "because the rent increase issue [was] pre-empted" by the HUD regulations. The judge reasoned that HUD had "to have pre-emption control over rentals of subsidized apartments" because it is in "the public's best interest to ... protect the economic interest of these HUD properties." According to the judge, "[w]e want these properties to exist and flourish so that people will have these apartments available to them." To that end, "the federal government has allowed [HUD] to create this process where the rents are set by HUD."

The judge explained that because defendants "signed the lease," and the "lease ... acknowledges the fact that there[ is] a possibility ... [a tenant] might not get any subsidy," defendants understood and agreed that they were subject to the HUD regulations, whether they qualified for a subsidy or not. Further, the judge was "particularly swayed" by plaintiff's argument that despite the fact that defendants no longer qualified for the subsidy, they received significant benefits from their tenancy in a HUD regulated apartment, including the HUD regulations' prohibition against eviction when the tenant no longer...