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Ryan v. Hoboken Rent Leveling & Stabilization Board

A-4413-09T3 (N.J. Super. App. Div. 2011) (Unpublished)

LANDLORD-TENANT; RENT CONTROL — If a rent control ordinance does not require a landlord to provide its tenant with a copy of each document upon which the landlord intends to rely on at a rent increase hearing, the landlord need not do so.

When purchased by its current owner, an apartment building had six vacant units and four rent-controlled units. Some apartments were remodeled, the building was converted to a condominium, and units were sold. The owner sent a tenant a letter stating that it would be filing a hardship application with the municipal rent control board. The letter contained no other details about the application. It included no supporting documents. More than two months later, the landlord submitted its hardship application stating that it acquired the property, with a mortgage, four years earlier.

Attached to the application was an operating statement for the prior twelve-month period. It listed the gross annual income as well as operating expenses, which were about double the income. The expenses included property taxes, insurance, repairs, and miscellaneous items. The latter entry contained a notation next to it stating “Association fees.” The statement also showed mortgage interest. Along with its application, the landlord submitted the required supporting documentation, including a copy of the mortgage, a list of all tenants, the proposed rental increase, copies of all bills substantiating its operating expenses, copies of canceled checks validating the payment of those expenses, current mortgage statements showing recent mortgage payments, a copy of the deed, and proof of the rent currently being paid by the tenant.

Even though the applicable section of the rent control ordinance specified that tenants are entitled to twenty-days’ notice of a landlord’s application for a hardship increase, the rent board scheduled a rent increase hearing before the end of the twenty days because it was not going to hold meetings over the summer. It granted the request for a rental increase and notified the tenant by letter. The tenant protested the decision, pointing to the lack of twenty-day notice. The board agreed and scheduled a new hearing. On the written application submitted in anticipation of both hearings, the landlord specified that no equity had accrued in the property subsequent to its purchase of the building. Nonetheless, at the second hearing, the landlord’s attorney notified the board that the landlord had actually paid down the mortgage, thereby increasing its equity by a corresponding amount. Deeming that information to be a substantial change from the written application, the board adjourned the application until its next meeting.

Prior to that meeting, the tenant filed a brief opposing the application, arguing that the landlord did not make a prudent investment; the property did not fit the definition of a subject property under the rent control ordinance; and that the landlord had failed to base its application on the condominium’s pre-conversion expenses. The landlord, in response, provided an appraisal report and stated that it intended to rely on that report. The tenant requested an adjournment in order to obtain a complete copy of the appraisal and to secure the appearance of the municipal tax assessor. The tenant believed that the appraisal was incomplete because it was only three pages long and there were binder marks on the copy. The landlord opposed the request for adjournment and stated that the property appraisal would only be used to rebut an argument by the tenant of an imprudent investment, but would not be used for its case in chief.

Before the vote on the adjournment request, the board’s counsel advised the tenant’s counsel that if, at the end of the hearing, she wished to retain her own expert to value the property, she could request a continuance of the hearing to enable her to present the testimony of her expert at the next meeting. When the tenant’s attorney attempted to argue that such a procedure was unfair because the landlord’s appraisal report had already been submitted to the board, counsel for the board disagreed, commenting that the board had no intention of considering the appraisal report unless its contents became an issue through an argument advanced by the tenant. The board also discussed the tenant’s effort to subpoena the tax assessor, finding the association to be unqualified because he was not a licensed real estate appraiser and had no authority to render an opinion on the value of the property, or any other property. By unanimous vote, the board denied the tenant’s adjournment request and decided to proceed with the hearing. Rather than participate in the hearing, and exercise the right to challenge the evidence and cross-examine witnesses, and rather than request a continuance at the conclusion of the hearing, as offered to her, the tenant’s attorney left the hearing before it began. At the conclusion of testimony from the landlord, having sufficient evidentiary support before it, the board closed the hearing and granted the hardship increase based upon the pre-conversion expenses. The board also denied the landlord’s request that the hardship increase be applied retroactively to the date of the original application.

The tenant filed an amended complaint in lieu of prerogative writs in which she asserted that the approval of the hardship rent increase was arbitrary and capricious because the board wrongly refused to grant her request for an adjournment of the meeting to enable her to subpoena the tax assessor; it improperly permitted the landlord to submit a list of pre-conversion expenses on the day of the hearing, thereby violating the twenty-day notice requirement imposed by the ordinance; and the landlord’s mortgage payment was improperly treated as an increase in the landlord’s equity in the property. In a written opinion, the lower court rejected each of the arguments, concluding that: the rent control ordinance did not require a landlord to provide a tenant with a copy of each document upon which the landlord intended to rely at the hearing; the board correctly determined that the tax assessor was not authorized to provide an expert opinion; and the board did not act in an arbitrary or capricious manner when it refused to grant an adjournment so that the tenant might obtain a full and complete copy of the appraisal report, in light of the fact that the landlord only intended to use the report in rebuttal. The lower court did not address the allegation that, by paying down the mortgage, the landlord had not increased its equity in the building. The lower court later denied the tenant’s motion for reconsideration.

On appeal, the tenant argued that the board’s same day approval of the filing of a new hardship application, using pre-conversion expenses, without any proof of service of notice of its details, violated the rent control ordinance and was arbitrary, capricious, unreasonable, and ultra vires; and the board’s approval of the same day filing without any proof for the listed expenses was improper and should be set aside.

The Appellate Division noted that the tenant failed to raise the first argument during trial in the lower court. Nonetheless, for the sake of doing a complete appellate review, the Court exercised its discretion to consider the argument. It refused to fault the board for proceeding with the application because all of the necessary documents had been on file with the clerk of the municipality for a period of five months before the hearing, and the list of pre-conversion expenses presented at the final hearing differed only slightly from the pre-conversion expenses that had been on file for months. Thus, reviewing the record as a whole, the Court rejected the tenant’s argument that the board acted in an arbitrary and capricious fashion by considering the pre-conversion statement of expenses at its hearing even though the statement had not been submitted in advance of the meeting.

Further, the tenant argued that the board had acted in an arbitrary and capricious fashion by approving the rent increase without requiring the landlord to submit any proof for the listed expenses. The landlord had explained, in considerable detail, its operating expenses for the building, and the board was satisfied that the claimed expenses were reasonable. However, the tenant argued that the board should have required more, namely, that the board should have insisted that the landlord should have supplied additional documents to supplement those that were provided at the time the rental increase application was submitted. Despite advancing the argument on appeal, the tenant did not demonstrate what bearing these additional documents would have had if they had been presented. The Court was unwilling to assume that requiring additional proofs would have altered the outcome. Thus, in affirming the lower court, it rejected the tenant’s argument that the landlord should have been required to submit additional documentary proofs.

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