Property Owners Assn. of N. Bergen v. Tp. of N. Bergen

378 A.2d 25, 74 N.J. 327, 5 A.L.R. 4th 908, 1977 N.J. LEXIS 162

• Court: Supreme Court of New Jersey
• Decided: September 12, 1977
• Status: Published

Opinions

The opinion of the court was delivered by

Schreiber, J.

Twenty-five owners of apartment buildings filed a complaint in lieu of prerogative writ challenging the validity of amendments to a rent control ordinance passed by the Township of North Bergen. The provisions in question regulated rents for senior tenants who lived in the plaintiffs’ buildings located within the Township. Each of these structures contained between 7 and 400 dwelling units. On cross-motions for summary judgment, the trial judge declared the amendments invalid. The Appellate Division, in an unreported opinion, affirmed. We granted certification. 71 N. J. 521 (1976).

On December 16, 1971, the Township of North Bergen (North Bergen) adopted an ordinance to regulate residential rents in buildings which contained more than six apartments. The prefatory language of the ordinance recited that an acute shortage of apartment dwelling units existed which had resulted in excessive rent increases with attendant hardships to all rent payers, that a housing state of emergency existed, and that in adopting the ordinance North Bergen was exercising its inherent power to protect the welfare of its citizens. The ordinance limited rental increases to percentages reflected in changes in the Consumer Price Index and created an Emergency Rent Leveling Commission to resolve disputes between landlords and tenants.

The ordinance was amended in June 1973 and May 1974. Those amendments excluded only owner occupied dwellings containing four or less housing units. In addition to rental increases predicated on changes in the Consumer Price Index (limited to 5% in any one year), the amendments provided for landlord relief in the event municipal property taxes were increased, or the landlord was unable financially to satisfy mortgage payments and maintenance needs (not to exceed 10% of the tenant’s rent), or expenditures for major capital improvements were to be incurred (not to exceed 10% of the tenant’s rent). Rent increases for all causes were limited to 15% in any one year.

On January 16, 1975, the Township adopted the amendments ,(Amendments) in question, which were to be effective for a three-year period commencing January 11, 1973. The parties have not raised, briefed, or argued the validity of the retroactive aspect of the ordinance and, accordingly, we shall not consider'that issue. Nor is the question projected by this appeal, the validity of the Amendments, moot, for the disputed amount of rent increases has been held in escrow pending determination of this action.

The Amendments created a special class designated as Senior Tenant, defined as every person aged 65 or over whose income, including that of his spouse, did not exceed $5,000. Income excluded gifts, inheritances, Social Security, Railroad Retirement and federal pension benefits, and all state and local governmental pensions of those who were not receiving Social Security. Senior Tenants were treated specially. Their rents were frozen as of December 1, 1974. Landlords could not increase rents for Senior Tenants. If, after the rents for other tenants had been raised up to 15%, the landlord had been found entitled to additional funds by the Emergency Rent Leveling Commission because of one or more of the grounds stated in the ordinance (Consumer Price Index increase, mortgage and maintenance need, or a major capital improvement), the Township would pay a rent subsidy to the landlord up to 10% of the rents paid by the Senior Tenants. The ordinance contained no provision which granted the landlord an opportunity to obtain relief in the event that he could justify an increase in excess of the recovery from the Township.

Judge Larner, the trial judge, in his oral opinion, after noting that the Amendments contained no recitation of motive for their adoption, commented that a municipality’s desire to care for needy senior citizens is unquestionably laudatory. Holding that the Amendments caused an unconstitutional deprivation of property without due process, he reasoned as follows:

Now, more importantly, however, the Ordinance is unconstitutional as a deprivation of property without due process of law. By this Ordinance the Municipality seeks to establish a special subsidy for those who the fathers, the Legislative fathers of the Municipality think should get a break in connection with rent increases. This is a fine reason and something to be applauded. However, this can be constitutionally done only on the basis of an overall use of public funds which then is distributed among all the taxpayers by virtue of taxation. And so we have that in [m]any types of legislation which counsel has cited where the burden rests upon the entire community, in which event special treatment of people in need is fully justified and constitutional. We have it from welfare up. We have senior citizen housing. We have other types of legislation which are properly protective of the rights where need appears [f]or special categories of persons. However, in every one of these instances the burden of supporting these people partially, of granting them a subsidy, is a public burden and should he borne by the entire community. Here, however, the Municipality undertakes to attempt to shift its burden, that is the burden of all the citizens and taxpayers of the Municipality, to a particular class of individuals, namely, persons who own property, and demand that those persons take care of the needs of the community as a whole. That to my mind constitutes a clear-cut taking of property without due process. Selecting a particular class of people in the community to subsidize another class of people in the community is hardly constitutional in its approach.

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Npw, in this area of discrimination I didn’t mention during our colloquy one facet, namely, not only discrimination against the landlord, but I can see a potential of discrimination against other tenants in a building under the pattern of the Kent Control Ordinance of the Municipality. And it arises in this way: If a landlord is burdened with a reduction in his income by virtue of the failure and inability to increase the rents of senior tenants in his building because of this amendment and he is thereby compelled to apply for an overall hardship increase within the additional ten percent permitted in the legislation, and such increase is granted, then, in effect, the other tenants in the building who are not sixty-five and who have an income over $5,000 will ultimately be paying more rent because of the lack of contribution by these other tenants towards the overall income of the' landlord. This is another form of discrimination which is a practical result of this kind of legislation by the Municipality.

So that all in all I find that there is no basis for supporting this legislation and that the purpose of helping elderly, although excellent in concept, cannot be done at the expense of an individual property owner.

The Appellate Division agreed with Judge Darner’s analysis, pointing out that the landlord may never be compensated for each Senior Tenant’s pro rata share above the 10% subsidy. It concluded that to the extent that the landlord will not be compensated for what is justly due him, the landlord would be called upon to subsidize the Senior Tenant or Tenants residing in the apartment house.

The Appellate Division, also found that the stated objective of the ordinance, the alleviation of all tenants’ hardships due to a housing shortage and excessive rents, was not reasonably related to the classification of Senior Tenants — for the evil was equally applicable to many under age 65, whose incomes do not exceed $5,000 and whose needs may be equal to or greater than those of a Senior Tenant. Lastly, it condemned the definition of net income which, for example, excluded, inter alia, state and other local governmental pensions of persons who were not receiving Social Security, and which did not consider assets, gifts or inheritances, so that, in some eases, Senior Tenants with more spendable cash than others with less funds received the benefits of the Amendments.

We are in full accord with Judge Larner that subsidization of housing for the elderly may well be an appropriate subject for legislation in furtherance of the public welfare. Justice Pashman in his comprehensive opinion in Taxpayers Ass'n of Weymouth Tp. v. Weymouth Tp., 71 N. J. 249 (1976), graphically described the economic problems which face many of our older citizens. He wrote for the Court:

In part the need of the elderly for specialized housing results from the fixed and limited incomes upon which many older persons are dependent. In 1970, 82.3% of households in New Jersey with persons over the age of 65 had incomes of less than $10,000 and 62.1% had incomes of less than $5,000. N. J. Office on Aging, Detailed Housing and Income Information on the Elderly of New Jersey 2 (1973). By comparison, the median income for all families in New Jersey at that time was $11,407. Because many of the elderly derive their incomes from pensions, social security or other government benefit programs, or from interest on savings or income-producing securities, they are among those hardest hit by inflation and the current statewide housing shortage. N. J. Dep’t of Community Affairs, The Housing Crisis in New Jersey 1970 (1970). Consequently, many of the elderly cannot afford housing specifically designed for their needs, and in many cases are actually obliged to live in substandard housing. Sousing Sew Jersey’s Elderly, supra at 3. Many others must devote a disproportionate amount of their available resources to housing costs. N. J. Office on Aging, Detailed Sousing and Income Information on the Elderly of New Jersey, supra at 4. Moreover, those who are homeowners must often forego proper maintenance and upkeep of their homes. Retirement Communities, supra at 2. [Id. at 268-269]

That appropriate legislative action may he taken to ameliorate the financial problems of senior citizens is indisputable. The Legislature has seen fit to enact legislation to assist senior citizens. See, e. g., N. J. S. A. 55:14I-1 et seq. (senior citizen non-profit housing for lower middle-income families at rentals which this class can afford). The difficulty in this case arises because of the method employed by the Township.

In Hutton Pk. Gardens v. West Orange Town Council, 68 N. J. 543 (1975), following its holding in Inganamort v. Bor. of Fort Lee, 62 N. J. 521 (1973), the Court upheld a municipal rent control ordinance, provided that such "rent regulation must permit a just and reasonable return.” 68 N. J. at 569. Writing for the majority Justice Pashman expressed several basic principles which are significant here:

The existence of a. chronic housing shortage of indefinite duration would not justify depriving property owners of a fair return for an indefinite period. [Id. at 566-567]

In ordinary circumstances, price controls which do not permit an economically efficient operator to obtain a “just and reasonable” return on his investment are deemed confiscatory. [Id. at 568]

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The requirement that rent regulation must permit a just and reasonable return does not place any undue restriction on the mechanism of regulation. The regulatory scheme need not take a particular predetermined form. So long as the means chosen to accomplish the object are not wholly arbitrary and unreasonable, the courts are concerned solely with the question of whether the return actually permitted is just and reasonable. [Id. at 569]

He concluded that:

Every rent control ordinance must be deemed to intend, and will be so read, to permit property owners to apply to the local administrative agency for relief on the ground that the regulation entitles the owner to a just and reasonable rate of return. [Id. at 572]

All parties concede that, although the North Bergen ordinance has no express provision assuring that the landlord will have the opportunity to receive a just and reasonable rate of return, such a provision must be impliedly deemed to have been incorporated in it. However, because of the unique rental treatment of Senior Tenants, the provision that a landlord shall be entitled to a just and reasonable rate of return may be violated.

The ordinance is not a model of clarity, but it does provide that if a landlord were entitled to rents in excess of (a) the 15% increase which would be borne by the tenants (other than Senior Tenants) and (b) the Township’s 10% rental subsidy, the landlord would be called upon to subsidize the Senior Tenants to that extent. Under the terms of the ordinance, the landlord may not recoup any additional funds to which he is rightfully entitled. Imposition of that burden would deprive an owner of property without due compensation. Such rent control is confiscatory and unconstitutional. Troy Hills Village v. Parsippany-Troy Hills Council, 68 N. J. 604, 620 (1975); U. S. Const., Amend. XIV; N. J. Const. (1947), Art. I, par. 1. Cf. In re Intrastate Industrial Sand Rates, 66 N. J. 12, 23-24 (1974) (unreasonably low rates are confiscatory of utility’s right of property). Landlords with no tenants in the Senior Tenant category would receive all the funds to which they are constitutionally entitled. Landlords with all or some Senior Tenants would be deprived of varying percentages of that constitutional entitlement depending upon the number of Senior Tenants residing in their buildings. Such uneven treatment may well constitute a denial of constitutional equal protection. In this context this Court wrote in Washington National Ins. Co. v. Board of Review, 1 N. J. 545, 553 (1949) :

The legislation is unequal, partial and discriminatory; it treats members of the same class differently, capriciously denying to some the benefits granted to others. “Arbitrary selection can never be justified by calling it classification. The equal protection demanded by the fourteenth Amendment forbids this.” Gulf, C. & S. F. Ry. Co. v. Ellis, 165 U. S. 150, 17 S. Ct. 255, 41 L. Ed. 666 (1897).

As noted above, under the ordinance, when a landlord is entitled to additional rents, the initial burden falls exclusively upon the shoulders of the non-Senior Tenants, who in a given case may be financially less capable of bearing the increase than the Senior Tenants. Imposition of such cost bn the other tenant or tenants residing in the apartment building may not pass constitutional muster.¹ For example, suppose that nine of ten tenants are Senior Tenants so that the financial burden would be imposed on the one remaining tenant. The relationship between this tenant and his cotenants does not justify imposing on him the duty of assisting in the payment of their rent. This is quite distinct from the public recognizing and assuming an obligation to assist the elderly or where the cost is spread over a large number of .people so that the effect is minimal.

The Public Advocate, conceding that landlords are entitled to a fair return upon their investment, contends that the subsidization should be borne by the remaining tenants who are not Senior Tenants. The Advocate relies upon public utility rate structure decisions wherein certain types of users have been charged less than their cost of service and others in excess thereof. See, e. g., St. Paul Area Chamber of Commerce v. Minn. P. S. Comm'n, 251 N. W. 2d 350 (Minn. 1977). At oral argument he asserted that the trial court should exercise its discretion in determining whether the financial burden should be placed on the remaining tenants, the Senior Tenants or all tenants in the building.

None of those contentions is persuasive. Even assuming the constitutionality of each of these proposals, the ordinance does not expressly or impliedly impose this burden in any of the suggested methods and we cannot assume that the municipal governing body intended to apply any particular solution. Perhaps the municipality might increase its subsidy or spread the costs among the public in some other manner. The judiciary should not exercise a discretion entrusted to the legislative body. Gaps in an ordinance may be filled when the legislative intent is clear and judicial construction will further the legislative goal. See, e. g., Camarco v. City of Orange, 61 N. J. 463 (1972). But where the path is not clear, then the courts should refrain from usurping the legislative function. Orvil v. Woodclif, 61 N. J. L. 107, 111-112 (Sup. Ct. 1897); 2A Sutherland Statutory Construction § 47.38, at 173-173 (4th ed. 1973).

North Bergen relies substantially on the New York Court of Appeals decision in Parrino v. Lindsay, 39 N. Y. 2d 30, 323 N. Y. S. 2d 689, 272 N. E. 2d 67 (1971). New York City had adopted an ordinance which exempted from rent increases tenants who were 62 years of age or older, whose total annual income when added to other members of the household did not exceed $4500 and who paid more than one-third of such income for rent. The New York City ordinance prevented rent increases between August 1, 1970 and January 1, 1972, a period of one year and five months. The court, noting that the landlords were entitled to charge the maximum rents in effect on July 31, 1970 under a prior ordinance and that the rent freeze was for a limited period, held there was no impermissible taking of property. Although the court did not articulate its reasons, it apparently believed there existed an unusual situation of finite, short duration which justified that result. See Hutton Pk. Gardens v. West Orange Town Council, 68 N. J. at 566. Those factual circumstances are not present here and we do not find Porrino persuasive.

We reiterate that under its police power a municipality may in the interests of the general welfare enact ordinances to assist senior citizens provided the relationship between the purposes and the classification is rational and sound and there is not an undue taking of property of others which amounts to a constitutional confiscation. A legislative category of economically needy senior citizens is sound, proper and sustainable as a rational classification. But compelled subsidization by landlords or by tenants who happen to live in an apartment building with senior citizens is an improper and unconstitutional method of solving the problem. In view of our holding herein, we have found it unnecessary to discuss the equal protection arguments adverted to by the Appellate Division.

Affirmed.

1 The parties, including tbe Public Advocate, have not objected to consideration of tbe impact of the ordinance on non-Senior Tenants. We observe that landlords may have a tangible interest where their tenants’ occupancy and rent paying ability may be affected.