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Salem Management Company v. Township of Lopatcong

387 N.J. Super. 573, 904 A.2d 839 (App. Div. 2006)

RENT CONTROL —A municipality can exercise its police power and apply rent control ordinances to vacant apartments so long as there is a rational basis for finding that rent control is in the public interest.

A municipality passed a rent control ordinance that limited landlords to a three percent annual increase. This ordinance stated that is was necessary for public welfare and, therefore, should be construed liberally, but did not address vacant units. A number of tenants then took occupancy of certain units that had been vacant for some time prior to their residence and then filed complaints with the municipality’s Rent Leveling Board alleging that their landlord was operating in violation of the ordinance. Following an order by the municipal agency that the landlord was in violation of the ordinance and an order to roll back rents and repay the overage, the landlord, who owned over ninety percent of the rental housing in the municipality, responded by filing a complaint in lieu of prerogative writ alleging that the ordinance was unconstitutional, both facially and as applied to it. Additionally, the landlord alleged that the municipality exceeded its constitutional police power in applying the ordinance to vacant apartments. Both parties moved for summary judgment focusing on whether the ordinance was constitutional and whether the municipality exceeded its police powers in applying the ordinance to vacant apartments

The lower court decided in favor of the municipality, concluding that the ordinance was constitutional as a matter of law. It reasoned that a rent control ordinance receives a presumption of validity that may only be overcome by showing that the legislative body had no rational basis for concluding that the public interest was best served by a regulated rental housing market. Specifically, a rational basis may be found where, this particular landlord controlled over 90% of the market monopolistic conditions exist in the rental market. Thus, the lower court held the ordinance to be facially constitutional. It also held that the ordinance was constitutional as applied, explaining that the landlord had failed to exhaust its administrative remedies with the Rent Leveling Board and failed to offer any evidence that suggested the application of the ordinance in this case is unfair.

Finally, the lower court held that the ordinance could validly apply to vacant rentals validly under the municipality’s police power. In doing so, it applied commonsense and the plain language of the ordinance which provided for liberal construction and for no rental increases except as provided specifically within the ordinance. The lower court concluded that vacant units were subject to the same three percent annual increase as any other units.

The landlord appealed, arguing that the municipality failed to show that there were any excessive rental amounts or a lack of affordable housing to justify the rent control ordinance. The Appellate Division dismissed these arguments as missing the point because they did not rebut the presumption of validity that attached to the ordinance. The Court approved of both the reasoning and the result of the lower court as to the constitutionality of the ordinance and the validity of its application to vacant properties. It further explained that the landlord failed to meet its burden as to showing the unconstitutionality of the ordinance and it also agreed that the language of the ordinance manifested the ordinance’s intent to apply to all rental units whether occupied or vacant.
Finally, the Court held that the ordinance satisfied the rational basis test when it allowed landlord to obtain a just and reasonable profit. Therefore, without a showing of a wide spread confiscatory impact on landlords, and in light of its failure to resort to administrative remedies, the landlord failed to meet its burden of persuasion.

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