T/U/W of Charles Shilowitz v. Rent Leveling Board of The Township of North Bergen

A-5396-95T3 (N.J. Super. App. Div. 1997) (Unpublished)
  • Opinion Date: June 12, 1997

LEASES; RENT CONTROL—How should equity in a property be calculated for the purpose of allowing hardship rent increases?—Acquisition cost?—Fair Market Value?—or by a formula?

The North Bergen rent control ordinance permits periodic rent increases according to changes in the Consumer Price Index. It also authorizes “hardship increases” and establishes two standards for determining hardship. The first standard is a comparison of operating expenses with gross income. If expenses exceed 75% of gross income, a landlord may qualify for a hardship increase. The second way to qualify is if the rent leveling board determines that the landlord “is not earning a fair return on his equity.” In this case, the Rent Leveling Board of the Township of North Bergen determined, by using the acquisition costs from 1968, that a landlord did not qualify under either test, and refused its request for a hardship increase. This finding was upheld by the Law Division and the landlord appealed. Landlord’s first claim was that the Board refused to calculate equity on the basis of the then-current year fair market value of the property, even though the Board was constitutionally required to adjust for inflation, and instead used dollar values from the year the building was constructed, 1956, and that this led to an unconstitutional result. Second, landlord claimed damages and attorneys’ fees for the deprivation of its constitutional right to earn a fair and just rate of return on its property.

The core of landlord’s appeal is that the Board should have considered the property’s current value and not used obsolete measurements of value from 1956 and 1968. However, the Appellate Division found that although the Law Division did not use the same valuation as the Board, it still determined that landlord was receiving a fair return on equity. While much of the Appellate Division’s analysis was on the calculation of mortgage interest (a factually dependent issue), it is useful to note that the Appellate Division did state its concern about the Board using such outdated numbers. Nonetheless, it did not pursue the matter further since the Law Division did not use those same numbers.