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Main Union Associates v. Township of Little Falls Rent Leveling Board

A-003587-96T2, 1997 WL 784474 (N.J. Super. App. Div. 1997)

LANDLORD-TENANT; RENT CONTROL—A landlord challenged a rent control ordinance because of its lack of an explicit provision to provide for increases based on capital improvement costs. The Court upheld the ordinance.

A landlord challenged the facial constitutionality of a township’s rent leveling ordinance, claiming it was arbitrary, capricious, and unreasonable since it failed to explicitly provide for an increase in rent based on capital improvement costs. The landlord also claimed that its substantive due process rights were violated, arguing that failure to allow a rent increase other than as provided in the ordinance precluded any possibility of a just and reasonable return on a landlord’s investment. The lower court judge granted summary judgment for the township, concluding that the landlord could seek a capital improvement surcharge under the hardship increase provision of the ordinance. On appeal, the landlord also argued that the township’s refusal to allow it to recover capital costs resulted in an inverse condemnation of its property.

The Appellate Division cited a New Jersey Supreme Court decision holding that a separate provision for a capital improvement surcharge was unnecessary, and that an ordinance was constitutional, regardless of form, as long as it allowed a landlord a just and reasonable return on its investment. The Court held that the hardship increase provision sufficiently allowed recovery of capital improvement costs by factoring those costs with other data to compute a landlord’s return. If the return is not just and reasonable, the landlord is entitled to an increase. The Court then concluded that no inverse condemnation took place. The United States Supreme Court has held that a regulation does not constitute an inverse condemnation if it substantially advances legitimate state interests and is reasonably necessary to the effectuation of a substantial government purpose. The Court not only found that this standard was satisfied by the ordinance in question, but also enumerated ways such as through tax deductions and increased desirability to prospective tenants and purchasers through which the landlord could recoup 100% of its capital costs, not just a fair and reasonable return. The Court also refused to accept the landlord’s argument that the ordinance discouraged landlords from making capital improvements for the benefit of tenants, holding that the hardship increase provision adequately satisfied the dictates of public policy.


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