As the expenses associated with property ownership continue to escalate, many landlords have begun to pass their expenses onto their tenants through the use of rent increases. Since tenants very often cannot afford to pay the requested increases, New Jersey tenancy Courts are trying an alarming number of contested rent increase cases. In this week’s article, we will discuss some of the guidelines that may be employed by a Judge in determining the fairness of a proposed rent increase.
What Constitutes an Unconscionable Rent Increase?
Under New Jersey law, the burden of proof is then upon the landlord to demonstrate that a proposed rent increase is not unconscionable. The question then becomes how to define the word “unconscionable.” In the matter of Fromet Properties Inc. v. Buel, et. al., 294 N.J. Super 601 (App. Div. 1996), the Court set forth the following 5 factors in determining the unconscionability of a rent increase:
1. The amount of the proposed rent increase;
2. The landlord’s expenses and profitability;
3. How the existing and proposed rents compare to rents charged in similar rental properties in the area;
4. The relative bargaining position of the parties 5. Based on the Judge’s knowledge, whether the rent increase would shock the conscience of a reasonable person
The first factor, which looks at the amount of the proposed rent increase, is no longer given as much weight as it previously was, primarily because it would essentially force a landlord, who had given a “sweetheart deal” to a tenant in the past, to continue to subsidize the tenant into perpetuity. While it has been widely believed by many tenants that rent increases are limited to a certain percentage per year, the New Jersey legislature has not enacted any such statute. However, some municipalities do have rent control ordinances, and landlords owning property in those towns should familiarize themselves with the ordinances before sending any proposed rent increase notifications to their tenants.
With regard to the third criterion, which is given an overwhelming amount of deference at the rent increase trials I have been a part of, it is clear that the best evidence of comparable rents is other rents from within the same building or complex. The apartments within a complex tend to be similar in quality, amenities and certainly in location. But very often, the rent increase trial involves a stand alone unit such as a house, or an apartment over a store. In these cases, landlords should be prepared to present testimony of rents from comparable rental units within the same general geographic location. Sometimes, it may be cost effective to hire a real estate appraiser to prepare a market analysis and testify at trial.