rent control referendum

Mile Square Taxpayers Association

Official Position on Ballot Question 2 -- VOTE NO.  

Summary

Hoboken’s rent leveling ordinance has been the subject of nearly 2 years of intense scrutiny and debate, leading to a 9-0 vote by the Council to adopt an amendment (Z-88) to correct administrative and legislative issues that led a judge to conclude the ordinance was “arbitrary, capricious and unconstitutional” and that the rent leveling office’s records are unreliable. 

Rescinding the Council’s action would return Hoboken to a chaotic rent control environment in which property owners would be subject to liabilities despite that they were complying with the ordinance as it was administered at the time, leading to continued litigation and a frozen market for rent control properties in Hoboken. 

Background

The Council researched the ordinance and held 9 hearings within an 18-month time period beginning in September of 2009.  Z-88 is the result of that process, during which tenants’ and landlords’ arguments were considered and helped shape the amendments that were passed by the Council unanimously 9-0.  Subsequently, the Council rejected a petitioner’s motion to rescind the amendment, leading to the question appearing on the ballot.

Amendment (Z-88) Overview

The amendment has five essential components:

Requires Disclosure to Tenants

Z-88 adds an important protection for tenants, for the first time requiring that they are notified of their right to request a legal rent calculation from the rent leveling board.

Allows Alternative Evidence

The central problem that caused the rent leveling ordinance to be deemed unconstitutional was the requirement of a vacancy decontrol form to be on file at the rent leveling office to qualify for increases in rent.  This form was never produced by the rent leveling office – rent leveling board administrators testified in depositions for a Superior Court case that they had regularly instructed property owners to note decontrols on their registration statements.  More recently, the rent leveling office changed this policy, producing a form and requiring it.  The Court found that landlords could not be expected to file a form that was not accepted by the rent leveling office, and the Council subsequently adopted the Z-88 amendment to re-establish the constitutionality of the law.  Elementally, allowing accused persons to provide evidence in their own defense is an inalienable right.  In a circumstance where the rent leveling board’s records were deemed unreliable, accepting and assessing evidence provided by landlords, who are in possession of leases that demonstrate their compliance with rent increase standards, is the intent of this Z-88 component.

Implements Time Limits

Z-88 provides a tenant with a 2-year period of repose to request a legal rent calculation and provides for a 2-year maximum refund of overpaid rent, which would be tripled under the Consumer Protection Act and result in 6-years of refund of overpaid rent.  Rents would still be rolled-back as far as 1985 if found to be over-charged.  This is the most generous return-of-rent and repose period in Hudson County. 

Empowers Rent Leveling Board Rulings

Currently, most violations of the rent leveling ordinance result in cases in Superior Court.  The Z-88 amendments provide some powers to the rent leveling board to adjudicate matters – but those powers do not exclude any party from appealing to Superior Court.  In instances where the rent leveling board makes a ruling that is abided by both parties, significant legal expenses are saved by the city, the landlord and the tenant.  More than $500,000 in rent control related legal fees have been borne by Hoboken in the last year. 

Creates a base year of 1985

This is the first year record keeping of rent registration was formalized and is the earliest, although still unreliable, opportunity to assess legal rents. 

Policy and Legal Implications

Litigation motivation

Tenant attorneys working on contingency fees in Hoboken exploit the administrative gaps in the law and rent leveling office to create “phantom violations” in which a property owner may be charging a legal rent but is still not in compliance with the technical language of the law.  Under the Consumer Protection Act, it is impossible to overcome the flaws in the ordinance -- in fact, the current owner of the property is liable to return rents they did not even collect.  Settlements and awards have routinely been in the hundreds of thousands of dollars, with lawyers soliciting entire buildings that are then driven into bankruptcy by the findings.  And, once the rent is rolled back, the buildings are virtually valueless.  This is not the intention of the rent control law, and more elementally, it is unethical to knowingly take property from one person and hand it to another with no legitimate exchange of value.  The single impact from the Z-88 amendment is to prevent that abuse.  Z-88 does not eliminate any tenant legitimate protection, it eliminates an attorney’s windfall. 

Condo conversion manifest

Without Z-88, property owners are encouraged to convert rental properties to condominium to avoid liabilities.  This is the most serious threat to maintaining affordable rental stock in Hoboken. 

Inequitable tax burden

Poorly functioning rent control laws further burden single-family homeowners with higher taxes (because rent control restricts income to buildings, they pay less in tax than they otherwise might).  By unnecessarily and unfairly rolling back rents, single-family homeowners must pick up the burden for town expenses.  By incurring increased legal expenses, single-family homeowners must pick up the burden, because rent control properties only pay tax on an income basis and their taxes cannot be increased unless their revenues are increased.  =

Threats of judicial action

Ultimately, if Council action does not cure the problems in the Hoboken rent leveling ordinance, judges will continue to do so, perhaps naming landlords the prevailing party in a pending class action against the city which has financial implications in the hundreds of millions of dollars. 

Implications of poorly administered law 

The biggest problem in Hoboken is that the rent leveling office is managed in arrears rather than affirmatively.  If, at the point of registration, rents were assessed for compliance by the rent leveling office there would be no need for legal rent calculations.  Poor procedures and poor record keeping have resulted in poor outcomes for tenants, landlords and the city.  Without the administrative capacity to mange the city’s ordinance affirmatively – which is what almost all other municipalities do – the amendment is necessary in order to establish an authoritative and functional rent leveling office, which is clearly the intent of the Council and should be the goal of any successful municipality. 

Conclusion

Maintaining Z-88 is essential for a normal functioning rent control environment in Hoboken, as it:

- restores constitutionality to the rent leveling ordinance;

- overcomes unreliable record keeping by providing ability to supply alternative evidence;

- protects tenants by providing them notice of their rights;

- eliminates “phantom violations” that place unfair liabilities on property owners;

- removes the title clouds from buildings, thawing the real estate market;

- motivates property owners to maintain rental property rather than convert to condominiums ensuring greater access to affordable rental stock in Hoboken;

- supports the public discourse, Council research, and the democratic process that took place over 18 months that resulted in a unanimous 9-0 vote to implement the amendment.