In Newark, new rent control law in legal limbo

By Naomi Nix | NJ Advance Media for NJ.com
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on October 14, 2014

Newark tenant activists and apartment building owners are at odds over a new ordinance making it more difficult raise rents in rent controlled properties.

 

NEWARK — It was just a few months ago that Newark tenant activists were hugging each other inside the city council’s chambers after legislators passed a new ordinance that made it harder for landlords to raise rents in rent-controlled properties.

Now, landlords are pushing back, alleging in court that the legislation is too difficult to interpret and follow.

“It is impossible to comply with a statute that is so poorly written,” said Derek Reed, a lawyer representing the Newark Apartment Owners Association. “The city has been all over the map."

Meanwhile, tenant activists say they are not backing down, sending groups of renters to lobby city council members and the mayor’s office for revisions to the law that protect tenants.

“We are pushing for an amendment that will clarify a few things and help defend the city of Newark against the lawsuit,” said Eric Martindale, one of the tenant organizers who first advocated for the law.

City officials did not respond to a request for comment.

In May, the city council passed the ordinance, which was sponsored by former South Ward councilman and current Mayor Ras Baraka. The law took effect on June 20th, impacting more than 10,000 rent-controlled properties in the city.

On June 6, the newly formed Newark Apartment Owners Association filed a complaint in Essex County Superior Court, asking a judge to order an immediate stay to the law and declare it unenforceable and unconstitutional.

The judge allowed the law to take effect, but left open the door to strike the legislation down in the future.

Under the old rent control law, landlords were allowed to raise rents by 5 percent if the building had 49 or fewer units, or by 4 percent if the building had more than 49 units.

As written, the new ordinance caps annual rent increases for all properties “to the Consumer Price Index (CPI) for the previous twelve (12) months for the New Jersey area, as established by the Federal Bureau of Labor Statistics.”

But the apartment owners’ complaint says no such index exists. Instead, the bureau of labor statistics puts out monthly CPI’s on a delayed basis. For example, the bureau might publish the April CPI in May.

“The amended ordinance fails to specify how one is to calculate the 12-month period and does not account for this delay in publication,” the complaint says.

Under the old law, apartment owners were also allowed to ask the city rent control board to raise rents when they made capital improvements to their properties as determined by IRS regulations.

The new law replaced the IRS capital improvement standard with a major new improvement standard which “provides all tenants in the dwelling with something not previously provided that improves the quality of life in the dwelling.”

The apartment owners association's lawsuit contends the wording of that revision is too vague and unfairly puts the burden on landlords to interpret the law.

"The way its written, it's a difficult ordinance to navigate for the owners," Reed said. "It is difficult for owners to know what would qualify as a major new improvement."

But Matt Shapiro, president of the New Jersey Tenants Organization, said the lawsuit was just a tool to get around the ordinance and squeeze more money out of the buildings.

“It’s basically a wasteful lawsuit,” he said. “The idea of 4 percent rent increases year after year when inflation has been less than 2 percent is ridiculous.”

NEW INTERPRETATIONS

In early June, one of the city's lawyers sent an email to city rent control officer Maria Hernandez saying the law's literal interpretation would require minimum 4 percent annual rent increases, the lawsuit said.

The Colonade Apartments, a major apartment complex in the Central Ward, has given more than 190 tenants whose leases expired or will expire between May 31 and Dec. 31 of 2014 new lease agreements with the 4 percent rent increase, according to court documents.

In September, city rent control officer Maria Hernandez sent an email to the Colonnade Apartments clarifying the council members’ intent about the permissible annual rent increases under the law, which would fall between about 1.3 and 1.9 percent, according to the lawsuit.

Hernandez said rent increases given to Colonnade tenants after the law went into effect were not permissible.

But the apartment owners' association filed a motion last week asking a judge to adhere to the minimum 4 percent increase standard and prevent the city from claiming the Colonnade owners and other building owners have violated the law. The issue is expected to be discussed in court later this month.

In addition to the legal fight, the Newark Apartment Owners Association commissioned a study to send to city council members from the Philadelphia firm Econsult Solutions. The study showed the new law could cost the city more than $17 million in property tax revenue in the long run.

The research group contends the new ordinance will decrease annual investment in apartment buildings by $25.2 million per year resulting in the loss of close to 400 jobs in the city.

“The bottom line is the changes are pretty drastic," said Dick Voith, president of Econsult Solutions. “They will certainly result in less investment in the economy...It’s pretty stark contrast to where the law was."

But Shapiro cast doubt on the study's validity.

“This report was something that was paid for," he said. “It's a PR piece. It’s just a public relations gimmick.”

While legal experts debate the merits of the law, both the tenant activists and the apartment building owners are lobbying city officials with their own proposed revisions to the ordinance.

Southward councilman John Sharpe James said he doesn't think automatic 4 percent increases should be allowed under the ordinance, but said he was open to passing revisions to the law to provide more clarification.

“We’re trying to be fair," he said. “We're not going to go 100 percent pro landlord or 100 percent pro tenant.”

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