Our office previously reported on the law concerning New Jersey Rent increases. For landlords in towns that have not instituted rent control, the only requirement is that the landlord must prove that the rent increase being sought is not unconscionable. There would, therefore, be no preset percentage of allowable increase. Rather, the Court would consider a variety of factors, and very often the most persuasive factor is the fair market rent of similar units. For landlords of properties in rent controlled towns, the restrictions are usually far more onerous, and oppressive. They have resulted in lower property values, and a general blight upon all rental properties in town. For this reason, very few towns have resorted to rent control. As recently as 2011, Blogfinder has reported that only 98 out 565 New Jersey municipalities had rent control.
Notwithstanding the economic arguments to the contrary, Neptune Township, New Jersey, has recently become the third town in Monmouth County to institute rent control. The new ordinance will apply to all residential structures of five units or more, and will limit the rent increases to the percentage set by the consumer price index (CPI).
What is a CPI Increase?
The Consumer Price Index is a published statistic that is determined based upon a variety of periodically changing factors. For the New York metropolitan area, CPI has hovered around 2% for much of the past 18 months. Traditionally, CPI increases have been used in commercial leases to enable the landlord to achieve a “cost of living” increase each year as the value of the dollar diminishes. However, in the commercial leases, the tenant is usually paying the utilities, taxes, and insurance, and therefore the amount paid for rent only encompasses the use of the rental space and not the expenses associated with that space. To employ the concept of a CPI increase to a lease in which the landlord is paying the taxes, insurance, and some utilities, would result in many landlords being driven out of business, which would further reduce the number of available rental units, and ultimately increase the initial rents of the remaining inventory. Put simply, the landlord will never be able to recover increased costs.
In prior decisions, New Jersey Courts have routinely held that a rent increase in excess of the limits set forth under a municipality’s rent control ordinance constitutes Consumer Fraud Therefore, achieving fair increases is limited to the landlord’s ability to persuade the rent leveling board that the rent increase is fair and necessary. Our office previously challenged the rent control ordinance in Trenton, to obtain fair market rents for a multiple dwelling building. In that matter, the Rent Leveling Board considered the landlord’s expenses, as well as the rents for similar units.
Finally, we note that income properties are generally appraised and assessed based upon the income stream that is derived from that property. Appraisers speak in terms of internal and external factors that affect value. When the value of a property is negatively impacted by an external factor that is outside of the control of the property owner, the property is said to suffer from external obsolescence. Since rent control ordinances will ultimately result in reduced income from the properties, we anticipate that several tax appeals will be filed as the net operating incomes continue to drop for these properties. Please keep in mind that the filing deadline for Monmouth County Appeals has been changed to January 15. Please contact our office to discuss filing your tax appeals.