Westchester West No. 2 Ltd. Partnership v. Montgomery County

• Decision Date: 18 December 1975
• Docket Number: No. 32,32
• Parties: WESTCHESTER WEST NO. 2 LIMITED PARTNERSHIP et al. v. MONTGOMERY COUNTY, Maryland, et al.
• Court: Maryland Court of Appeals

Page 448

276 Md. 448

348 A.2d 856

WESTCHESTER WEST NO. 2 LIMITED PARTNERSHIP et al. v. MONTGOMERY COUNTY, Maryland, et al.

No. 32.

Court of Appeals of Maryland.

Dec. 18, 1975.

Ronald L. Early, Bethesda (Lerch, Pillote & Lerch, Bethesda, on the brief), for appellants.

Stephen J. Orens, Asst. Co. Atty. (Richard S. McKernon, County Atty., Alfred H. Carter, Deputy Co. Atty. and Sue Levin, Asst. Co. Atty., Rockville, on the brief), for appellees.

Argued before MURPHY, C. J., and SINGLEY, SMITH, DIGGES, LEVINE, ELDRIDGE and O'DONNELL, JJ.

ELDRIDGE, Judge.

This case presents a challenge to a Montgomery County that control ordinance on the ground that it constitutes a deprivation of property without due process of law in violation of the Fourteenth Amendment to the United States Constitution.

On September 18, 1973, the Montgomery County Council enacted a rent control law, Bill No. 39-73, codified as Montgomery County Code (1972, 1974 Cum.Supp.), Chapter 29, Article VI, which became effective on October 1, 1973. ¹ The law applies to persons owning three or more dwelling units in Montgomery County, and limits rent increases to a maximum of 4% of the base rent, depending on the type of unit involved and the utility services furnished by the landlord. ² Extraordinary rent increases, in excess of the basic rent increase, may be permitted after certain procedures are followed by the landlord. ³ The ordinance originally was to expire on October 31, 1975, but it was extended by Montgomery County Council Bill No. 6-75, to December 31, 1975. We were advised at the oral argument in this case that the County Council was considering legislation to extend further the rent control law.

The rent control law, Bill No. 39-73, included certain legislative findings made by the County Council, including findings.

'that a public emergency exists in the housing of a considerable number of persons in the county; that there exists a serious housing shortage of dwelling units in the county; that the construction of new housing units planned will not eliminate the existing housing shortage in rental units because of, inter alia, the sewer moratorium; that in the absence of regulations of rents there have ensued excessive rent rises which have resulted in serious impairment to the health, safety and welfare of a large segment of the population and in conditions that would substantially hamper and deter the efforts of the county government to effectuate the protection and promotion of the health, safety and welfare of the citizens of the county as well as the general purposes of planning; . . . that such regulations and controls are necessary in order to prevent the execution of unjust, unreasonable and oppressive rental agreement, and to forestall profiteering, speculation and other disruptive practices tending to impair the public health, safety and general welfare . . ..' Ch. 29, Art. VI, § 29-47.

Bill No. 6-72, the act extending the termination date of the rent control law, also recited 'that an emergency exists and that this legislation is necessary for the immediate protection of public health and safety.'

On August 26, 1974, Westchester West No. 2, a limited partnership, along with four other limited partnerships, all owning rental housing property in Montgomery County, filed suit against Montgomery County in the circuit court for that county, seeking to have Bill No. 39-73 declared unconstitutional in that it is based on a non-existent public emergency and therefore 'constitutes a deprivation of private property without due process of law.'

At trial (before McAuliffe, J.) each side produced one expert witness in support of its respective position. Thomas Hamilton, Executive Director for the Montgomery County Office of Landlord and Tenant Affairs, testified for Montgomery County concerning some of the factors that led to the enactment of the rent control bill. He stated that, in determining the present and future availability of housing, the county was aware of the lack of proper sewage disposal in some areas, and the fact that a sewer moratorium had been imposed on the county. Although pointing out that the full impact of the inflationary spiral in the economy could not have been fully appreciated at the time the bill was proposed, Mr. Hamilton testified that '(w)e did know at the time that resources normally connected with the housing industry were rising in cost, such as, material and labor,' thus suggesting a possible decrease in the construction of new housing units. Coupled with this was the knowledge that prospective buyers were having financial problems due to the high cost of homes, inability to obtain mortgages, high down payments, and high interest rates. These factors, according to Mr. Hamilton, prevented tenants normally interested in buying homes from leaving the rental housing market.

Mr. Hamilton further testified that the number of new housing starts decreased from around 2,000 in 1973 to about 400 in 1974. This was due, at least in part, to the high cost of materials, unavailability of financing, and inability to get sewerage connections. This shortage of new starts would adversely affect the stock available for rental housing.

The record also discloses that additional evidence was presented to the Montgomery County Council in connection with his consideration of the bill. At public hearings held by the council on August 2, 1973, and August 20, 1973, there was testimony both for and against the proposed law. Those in favor of the bill, including some realtors and representatives of several tenant associations, spoke of the low vacancy rates, unfair landlord practices, and fears of unbearable rent increases as a result of unequal bargaining power caused by the tight market. In addition to the oral testimony, letters were received from tenants concerned about what they considered to be exorbitant rent increases.

The county council also considered an apartment project survey which was undertaken by the Montgomery County Office of Community Development, and which was completed on May 22, 1973. The survey showed an overall vacancy rate in rental units of 3.5%. When broken into its component parts, the survey revealed a 26.1% vacancy rate in new units-those 12 months old or less. However, new units constituted a relatively small percentage of the total number of apartments. Mature units, those over one year old, had a vacancy rate of only 1.7%. A 1974 survey update indicated that while the overall vacancy rate climbed to 3.9%, the rate for mature units dropped to .5%. In comparison, the testimony revealed that a 1970 Department of Commerce study reported a 6.6% national vacancy rate, and a 5.0% overall vacancy rate for the state of Maryland.

According to the witness Hamilton, the newer units were largely to be found in the northern sections of the county, such as the area of Gaithersburg. Thus, those units were somewhat distant from the Washington metropolitan area and, consequently, were undesirable to many prospective renters who would have to travel a greater distance to work. Also, the newer northern units were more expensive than comparable units in other parts of the county because, as Mr. Hamilton stated, they were built with 'inflated dollars.' The effect of the higher rents in the Gaithersburg area, he said, was to cause people to move toward lower rents outside the area, where the vacancy rate was less than .5%. Mr. Hamilton also testified that the 3.9% overall vacancy rate indicated by the 1974 survey was inflated by an unusually high percentage (20%) of new units in the sample.

The 1973 survey also indicated that vacant units occurred more frequently at higher rent levels. Of units costing less than $200 per month, only .4% were not rented. Over 70% of the projects surveyed reported no vacancies at all.

The evidence showed that another factor contributing to a rental housing shortage was the increase in the population and number of households in Montgomery County. A census survey taken in 1974 by The Maryland-National Capital Park and Planning Commission revealed an 11.5% increase in population and a nearly 20% increase in households in Montgomery County between April 1970 and April 1974.

Finally, the county council feared that the termination of federal rent controls under Phase II of the Economic Stabilization Program on January 11, 1973, would lead to 'exorbitant' rent increases.

Dr. Michael Sumichrast, Vice President and Chief Economist of the National Association of Homebuilders, testified in the circuit court on behalf of Westchester West. Dr. Sumichrast said that Montgomery County has experienced an average vacancy rate of about 3.5% since 1950, and that the county's rate has traditionally been lower than that of other jurisdictions in the Washington metropolitan area. But he argued that in arriving at a fair and acceptable vacancy rate for a particular area, the vacancy rates of other geographical areas should not be used for a comparison because of the many variables involved, such as the size and economic growth of the area. He said that for Montgomery County a normal and acceptable vacancy rate would be 'in the vicinity of about one and a half to two percent.' A 3.5% vacancy rate, he claimed, was 'a very acceptable rate, high.'

Dr. Sumichrast also stated that most of the available rental units, 'eighty percent, are in garden-types, which . . . are the cheapest units.' He also challenged the county's statistical breakdown of the overall vacancy rate into 'new' and 'mature' units, saying that '(t)here is always one market. It doesn't really make any difference whether it is new or mature.' Dr. Sumichrast disputed Mr. Hamilton's conclusion concerning the 1974 survey update, arguing that it did reflect an accurate percentage of new rental units, and that the overall vacancy rate of 3.9% stated in the survey was not artifically high.

After reviewing both the evidence before...