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Ryan Gina Marie

420 N.J. Super. 215, 20 A.3d 442 (App. Div. 2011)

CONSUMER FRAUD ACT; LEASES; RENT CONTROL — A landlord’s violation of a municipality’s rent control rules subjects the landlord to liability under the Consumer Fraud Act, but not liability for the period of time before the landlord acquired the property.

The buyer of a multi-unit building had owned other properties in the same municipality and knew that the municipality had a rent control ordinance. The contract of sale had a provision giving the buyer ten days after the end of attorney review to conduct its own due diligence as to the legality of the rents, with the seller making no representations as to their legality. The buyer intended to convert the building to a condominium, anticipating a profit on the sale of the units. The contract addendum required, as a condition of closing, that at least six units be vacant.

According to the buyer’s principal, she went to the municipality to review its files in an effort to determine whether the tenants were being charged a legal rent. She further certified that the municipality would not give a prospective purchaser an official calculation of legal rents for a subject property. Based upon that information, and her familiarity with the ordinance, she performed her own calculations to determine whether the rents conformed to the ordinance. Having satisfied herself that the rents were appropriate, she proceeded to close.

After assuming ownership, the buyer notified a tenant that her rent would increase. The tenant disputed the amount and requested an official calculation from the municipality. The municipality calculated the tenant’s legal base rent to be lower than the buyer had calculated. It urged the parties to agree on how the tenant would be reimbursed for the overage, whether through a refund or credit. Instead, the tenant sued in the Law Division for a refund of the excess rent she had paid during the course of her entire tenancy. She also sought damages under the Consumer Fraud Act. She also exercised the right of self-help in the ordinance and stopped paying rent, taking credit for the accumulated refund she was claiming.

Three days after the buyer was granted leave to file its pleadings, and before it had done so, the lower court entered an order granting what it referred to as the tenant’s motion for a “default/summary judgment” and entering partial judgment against the buyer for the excess rents. It also awarded treble damages and counsel fees under the Consumer Fraud Act. The buyer didn’t protest the entry of this order, but did file an administrative appeal with the municipality. Following a hearing, the municipality adopted a resolution requiring the buyer to refund to the tenant the excess rent paid for the twelve months beginning on the date she filed her request. The letter accompanying this resolution interpreted the order to mean that the buyer was obligated to refund only the excess rent for the one-year period before the tenant requested an official rent calculation. The letter relied on the one year time limit for prosecuting disorderly persons offenses or petty disorderly persons offenses.

The tenant, dissatisfied with this resolution, filed a separate action in lieu of prerogative writs, naming the buyer and the municipality as defendants. Eventually, the two matters were consolidated. As part of that consolidated litigation, the buyer’s principal submitted a certification in which she asserted that when she signed the contract of sale, she agreed to forego any claim against the predecessor with respect to the excessive rents. She further certified that the buyer had not agreed to forego any claim it might have with respect to rents collected in the past that had not been computed in accordance with the rent control ordinance. In connection with her motion to consolidate, the tenant also sought a summary ruling that the municipality had improperly limited her claim for a refund of excess rent to the one-year period prior to her seeking an official rent calculation. The order granting consolidation also granted her summary judgment on this issue, finding the municipality lacked the authority to impose such a limitation and remanding the matter to the rent board.

In response, the municipality passed another resolution that calculated the legal base rent for a number of years. As a result, the tenant calculated that she had paid a significant sum more in rent than she should have under the ordinance, and she sought to recover that entire amount from her present landlord, the buyer. The municipality never made a formal calculation of the amount of rent actually paid in excess of the permissible rent under the ordinance plaintiff over during the course of her tenancy. The buyer sued to challenge this resolution

The consolidated matter was ultimately resolved in the lower court through motion practice. After extensive argument, the lower court placed an oral decision on the record, setting forth its reasons for concluding that the buyer was obligated for the total sum of overcharged rent that the tenant had paid during her entire tenancy. Further, citing the contract language, it granted summary judgment to the predecessor on the buyer’s third-party complaint against it. In addition, it denied the buyer’s application to revive its previously dismissed claims against those who had owned the building even earlier. The lower court awarded treble damages under the Consumer Fraud Act but limited the period of trebling to the time of the buyer’s ownership. It also awarded counsel fees.

The lower court adopted a final jurisdictional approach and held it had no authority to direct any reimbursement beyond the period of the buyer’s ownership. On appeal, the Appellate Division disagreed. Unlike in the precedential case relied upon by the lower court, the buyer did not purchase the building with knowledge of the tenant’s claim. Further, here, the municipality never made a determination that the tenant was entitled to a particular sum, and the municipality was never called upon to make a decision as to which person or entity was liable to the tenant. Finally, the Court was uncertain as to how the absence of prior owners from the proceedings before the municipality could operate to limit the buyer’s right to pursue a third-party claim in an action in the Law Division.

The Court expressed approval for the lower court’s determination that the buyer’s actions had violated the Consumer Fraud Act because a landlord’s violation of a municipality’s rent control ordinance subjects the landlord to liability under the Act. Here, the buyer, after performing its own calculations of the permissible rent for this apartment, sought to collect a monthly rent greater than what it had calculated was permissible. The lower court also correctly recognized that, because liability under the Consumer Fraud Act requires that there be a proximate link between the unlawful act and the consumer’s loss, the tenant’s entitlement to treble damages from the buyer was limited to the period of time during which the buyer owned the building and was the tenant’s landlord.

The Court then found that the contract between the buyer and its predecessor was not clear and unambiguous. Rather, it was susceptible of several differing interpretations, and its meaning could not be concluded as a matter of law on a motion for summary judgment. Thus, it ordered further proceedings to elucidate the purchase contract’s meaning and the parties’ intent.

The lower court had denied the buyer’s motion to reinstate its previously dismissed claims, finding that there would be prejudice to the remaining parties in light of the late filing of the motions. The Court found that permitting those prior landlords to retain funds improperly collected would be to reward them for their disregard of the ordinance and its requirements; such a result would be bad policy.

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