Overlook Terrace Management Corp. v. Rent Control Board of West New York , 71 N.J. 451 ( 1976 )

P ashman, J.

(dissenting). I disagree with the majority’s conclusion that the Legislature intended to foreclose local rent control of housing projects financed by the New Jersey Housing Einance Agency (HEA) when it authorized the HEA to set a ceiling on rents charged by owners. As the trial court observed in granting defendants’ motion for summary judgment, the pertinent statute, N. J. S. A. 55:14J-1 et seq., is primarily a financing mechanism for the construction and rehabilitation of housing for moderate income families. That provision is only incidentally concerned with rent control as a method of ensuring that funds allocated pursuant to it are used to provide dwelling units which are within the financial means of the intended class of beneficiaries. In no sense does it resemble a comprehensive rent control statute which is designed to preempt action by local municipalities. See Kennedy v. City of Newark, 29 N. J. 178 (1959). Therefore, I would affirm the Appellate Division’s holding that the Town of West New York’s ordinance applies to the plaintiff’s housing project.

The majority essentially argues that there is a conflict between the state law and the municipal act because the two regulatory agencies may approve rent increases of differing magnitude.¹ Accordingly, because it finds that the local ordinance would frustrate the State policy, it concludes that the rent control regulation must yield to State law under principles of preemption.

This Court has already ruled that preemption does not prevent the vesting of rent control powers in municipalities. In Inganamort v. Ft. Lee, 62 N. J. 521 (1973), we held that regulation of rents was within the powers delegated by the Legislature to municipalities under N. J. S. A. 40:48-2; the Court rejected the suggestion that the subject matter necessarily called for uniform statewide treatment and concluded that the complete legislative withdrawal from the area of rent control removed any possibility of conflict between state and local acts. Moreover, we noted the possible benefits to be derived from local initiative:

A problem may exist in some municipalities and be trivial or nonexistent in others. And if the evil is of statewide concern, still practical considerations may warrant different or more detailed local treatment to meet varying conditions or to achieve the ultimate goal more effectively.

[62 N. J. at 528]

Eurthermore, we found in that case that the mere existence of statutes dealing generally with the landlord and tenant relationship did not pose an irreconcilable conflict requiring preemption. Id. at 537-538.

However, legislative inaction has been the source of some confusion. The absence of a uniform enabling act has led to claims of uncertainty and uneven results by developers and owners. Eurthermore, in Brunetti v. Borough of New Milford., 68 N. J. 576, (1975), we struck down a provision of a local ordinance which duplicated the State laws setting forth enumerated grounds for eviction, reasoning that the Legislature had clearly evinced its intent to preempt this narrow field by passing N. J. S. A. 2A:18-61.1. Id. at 603. Consequently, this Court has expressly urged the Legislature to consider enactment of a comprehensive state rent control provision. Hutton Pk. Gardens v. West Orange Town Council, 68 N. J. 543, 574 (1975).

Contrary to the majority, I find little evidence suggesting a legislative intent to take a preemptive position when it enacted N. J. S. A. 55 :14J-1 et seq. It is apparent that when UFA was given the power under N. J. S. A. 55 :14J-9 to limit owners and principals or stockholders of projects to specified charges and fees, the subject matter of the local rent control ordinances was touched upon. But this fact alone is not sufficient to justify a conclusion that the Legislature has preempted the field. Tp. of Chester v. Panicucci, 62 N. J. 94, 102 (1973); State v. Uleskey, 54 N. J. 26, 29 (1969); Mogolefsky v. Schoem, 50 N. J. 588, 598 (1967). On the contrary, the Legislature’s brief treatment of the issue may be viewed as indicative of its decision not to retain jurisdiction over rent control matters. As Chief Justice Weintraub observed in reviewing the doctrine of preemption in Summer v. Teaneck, 53 N. J. 548 (1969) :

It is not enough that the Legislature has legislated upon the subject, for the question is whether the Legislature intended its action to preclude the exercise of the delegated police power. . . . The ultimate question is whether, upon survey of all the interests involved in the subject, it can be said toith confidence that the Legislature intended to immobilize the municipalities from dealing with local aspects othenvise within their power to act.

[53 N. J. at 554-555; emphasis supplied]

The legislative history of Assembly Bill 770 (introduced March 13, 1967), the foundation for N. J. S. A. 55 :14J-1 el seq., suggests that virtually no thought was given to the issue. At the public hearings on the legislation, only two witnesses made passing references to rent control, and their remarks failed to clarify whether they were referring to local controls or proposing State regulation.² More recently, a bill was introduced in the Legislature to exempt UFA projects from municipal controls, but it was withdrawn after being referred to committee.³

The statutory language is equally devoid of an unequivocal statement of legislative intent. N. J. S. A. 55:14J-2 merely refers to the need for a public agency to stimulate construction and rehabilitation by the building industry to provide “a fully adequate suppfy of safe and sanitary accommodations at rental or carrying charges which families of moderate income can afford.” N. J. S. A. 55:14J-9(a) (5) fulfills the statutory purpose by requiring inclusion of a term in the loan agreement subjecting rents to agency approval, and directing the plaintiff to make accommodations available at charges not exceeding those established in accordance with a schedule approved in writing by the agency. Taken as a whole, these terms suggest an overriding preoccupation with providing dwelling units within the financial means of moderate income families, not with rent control per se. Cf. New Jersey Mortgage Finance Agency v. McCrane, 56 N. J. 414, 420-421 (1970) ; Roe v. Kervick, 42 N. J. 191, 222 (1964).

Admittedly, the regulations adopted by the HEA pursuant to N. J. S. A. 55:14J-34(f) do permit the executive director to vary rentals “so as to secure, together with all other income of the sponsor, sufficient income for it to meet within reasonable limits all necessary payment, to be made by the sponsor, of all expenses including fixed charges, debt service of the Housing Einance Eund requirement, reserves and dividends as authorized by the executive director.” N. J. A. C. 5: 18-1.2. This provision reflects the agency’s interest in maintaining the solvency of a housing sponsor, while limiting the return on investment to no more than 8% per annum. N. J. S. A. 55:14J-9(a) (6). But, it does not follow that local rent control will impair the functioning of the HEA program. Significantly, our prior decisions hold that local rent control schemes cannot deny owners a just and reasonable rate of return on their investment. Hutton Park Gardens v. West Orange Town Council, supra, 68 N. J. at 572. As applied to these facts, this guarantee necessarily would include sufficient income for housing sponsors to meet their financial obligations to the HEA. We made this explicit in Troy Hills Village v. Parsippany-Troy Hills Tp. Council, 68 N. J. 604 (1975). In detailing the standards and criteria of a fair return in the context of rent control, we said:

. . . [T]o be “just and reasonable” a rate of return must be high enough to encourage good management including adequate maintenance of services, to furnish a reward for efficiency, to discourage the flight of capital from the rental housing market, and to enable operators to maintain and support their credit.

[68 N. J. at 629; emphasis supplied.]

The majority correctly notes that the criteria applied by a municipal rent control board may yield a different result than the figure set by the HEA. However, it errs in failing to note the possibility of resolving snch a conflict. If the HEA ceiling is lower than the rent board’s maximum, then the housing sponsor will be held to his contractual commitment and the state policy will be served. If the HEA fixes the rent at a higher figure, the owner will still be entitled to demonstrate that the rent board’s figure denies him a fair return. To the extent that the HEA’s calculation reflects a more accurate picture of costs, it will be persuasive evidence of the rent board’s error. Yet a finding by a court that the housing sponsor would be able to meet all financial obligations under the lower figure, would mean that the equally important state goals of keeping rents within reasonable limits and maintaining the fiscal integrity of the projects would be served.

Perhaps it is possible to argue that such restrictions deter prospective investors and weaken the bond market. However, these detrimental. consequences are factually unsupported and prematurely raised. The contention that upholding the ordinance would jeopardize debt repayment has only been alluded to in the affidavit of the HEA Controller. Even conceding the majority’s point, the proper disposition of this case would be a remand for expert testimony and introduction of evidence.

Equally unpersuasive is the majority’s contention that this outcome falls within the class of conflicts referred to by Chief Justice Weintraub in Summer v. Teaneck, supra. N. J. S. A. 55:14J-9 does not order the housing sponsor to charge a given price for accommodations; it simply sets a maximum above which the owner cannot go. Given the hazy legislative intent behind this enactment, there is no reason why the municipality should not be able to impose more restrictive measures which are geared to local conditions, as long as the HEA sponsor is guaranteed a just return. The pattern of HEA regulation suggests only a minimal' interest in statewide uniformity, and hence, fails to satisfy one of the reasons courts normally consider in applying the preemption doctrine. The executive director’s power to approve rent increases is oriented towards ad hoc decisions which turn on the particular character of each project.' Local rent control boards can serve that same function with as much efficiency, and they are likely to be more familiar with local factors bearing on the grounds for an increase. See, Inganamort v. Ft. Lee, supra, 62 N. J. at 529; Summer v. Teaneck, supra, 53 N. J. at 554-555. This is unlike the state regulation of public utilities which requires a regional approach. So. Ocean Landfill v. Mayor & Coun. Tp. of Ocean, 64 N. J. 190, 195 (1974); Ringlieb v. Tp. of Parsippany-Troy Hills, 59 N. J. 348 (1971).

The contrary result produces the incongruous situation of weakening protections for moderate income families, which are declared beneficiaries of HEA housing, by excluding them from the larger class of tenants covered by rent control. Under the majority’s decision, more affluent West New York tenants will be protected against inordinate rent increases while moderate income families will be subject to the attenuated controls of the agency. We should interpret the statute to give full effect to the consequences intended by its draftsmen and hold HEA moderate income tenants within the protective scope of municipal rent control.

This result comports with the decisions of federal courts which have addressed an analogous question in cases involving housing financed under the National Housing Act, 12 U. S. C. § 1702 et seq., by mortgage loans issued by the Department of Housing and Urban Development (HUD). These courts have held that such housing is subject to municipal rent control notwithstanding the assertion of federal preemption. See, e. g., Helmsley v. Borough of Fort Lee, 362 F. Supp. 581 (D. N. J. 1973); Druker v. Sullivan, 322 F. Supp. 1126, 1129-1130 (D. Mass. 1971), subsequent opinion 334 F. Supp. 861 (D. Mass. 1971), aff’d, 458 F. 2d 1272 (1 Cir. 1972); Stoneridge Apts. Co. v. Lindsay, 303 F. Supp. 677 (S. D. N. Y. 1969); Columbia Plaza Limited Partnership, et al. v. Comles, et al., 403 F. Supp. 1337 (D. D. C. 1975). See also, Stuyvesant Town v. Ingham, 17 N. J. 473 (1955). These decisions conclude that the National Housing Act is not a rent control statute, and that there is nothing to prevent the enforcement of local rent ceilings below the maximum level fixed by the Secretary of HUD. The reasoning in the HUD cases applies in full measure to the HFA cases.

The majority cites Druker v. City of Boston, 410 F. Supp. 1314 (D. Mass. 1976) in support of the contrary rationale, namely, that municipal or state rent control of § 221 (d) (1) projects conflicts with HUD’s procedures. The court noted the promulgation of a regulation by HUD expressly declaring its intention to preempt the field, see 24 C. F. R. § 403, but grounded its decision on a conflict between the two schemes. Id. at 1321. In this case, however, there has been no equivalent showing of conflict which jeopardizes the solvency of the housing projects and no clear cut announcement of regulatory policy.⁴

The remedy for housing shortage —■ publicly financed housing —■ should not be promoted at the expense of municipal' rent control. This is not the time to erode the ability of local government and this Court to assist all the people, regardless of income, to secure civilized dwellings. The Legislature had no such intent. Nor do I.

I dissent and would affirm the judgment of Judge Larner as trial judge and the Appellate Division.

For reversal—.Chief Justice Hughes, Justices Mountain, Sullivan, Clibbord and Schreiber and Judge Conbord—6.

For affirmance—Justice Passman—1.

1 The HITA and the Rent Control Board of West New York did reach different results in this case. The BGFA anproved plaintiff’s requested increase of $10.50 per room effective August 1, 1974. This amounted to a 20% to 30% increase, depending on the number of rooms. After dismissal of plaintiff’s complaint challenging the Rent Board’s jurisdiction, it applied for an increase and was awarded an 8% raise, 5% for a normal cost of living increment plus a 3% hardship allowance.. However, the plaintiff failed to exhaust the available procedures by contending on appeal that the board’s increase denied him a just and reasonable return. See Hutton Park Gardens v. West Orange Town Council, 68 N. J. 543, 571 (1975) ; Troy Hills Village v. Parsippany-Troy Hills Tp. Council, 68 N. J. 604, 621 (1975). See Infra at 472, 473.

2 Mr. Ernest Erber, a professional planner and staff member of the non-profit, research and planning agency, Regional Plan Association, testified:

A second safeguard should require rent control and dividend limitation to be in effect for a sufficiently long term to prevent misuse of state aid with the intent of early conversion to open market operation. [Public Hearing on Assembly Bill 770 before Assembly Committee on County and Municipal Government at 14A (1967) ; emphasis added].

Mr. Oliver Lofton, Administrative Director of Newark Legal Services Project whose testimony was primarily directed at an urban dweller relocation bill (A-767) then under consideration, suggested:

I would, therefore, respectfully commend to this Committee not only this piece of legislation before it [A-767] but also to give consideration to additional legislation which will impose rent controls to insure that safe, decent and sanitary housing is kept within the financial means of a substantial portion of the target population * * *

[Searings, supra at 49A-50A; emphasis added].

3 The act was introduced in January 1973 as Assembly Bill 2333 (1975). It was withdrawn on February 24, 1975.

4 The plaintiffs in Druker presented evidence of their financial circumstances, which had caused them to default on some of their mortgages. Id. at 1317.