Articles Posted in Real Estate

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:

In 2004, the New Jersey Legislature revised the Rent Security Deposit Act. Under the revised Act, there are three major components, which are very often misinterpreted by inexperienced landlords, tenants and their attorneys. In this week’s article we will discuss and explain those provisions.

Initial Notification
The first component to the Act is initial notification. Within 30 days of being given a security deposit, the landlord must deposit the funds in an interest bearing account, containing no funds other than the tenant’s security deposit, and the landlord must provide the tenant with written notice of the name of the bank, the rate of interest, the account number and the type of account. If the landlord fails to comply with any of these requirements within the specified time period, the tenant may apply his or her security deposit toward rent, with no further Notice or opportunity to cure to the landlord.

Annual Notification
Each year on the anniversary date of the lease, the landlord must send the tenant a reminder of the same information required in the initial notification. The landlord must also disburse any interest earned to the tenant. Under the annual notification requirement, there is no automatic forfeiture for non-compliance. Instead, the tenant must first provide the landlord with notice of the non-compliance. If the landlord still fails to provide the required notice or disbursement of interest within 30 days of the notice from the tenant, the security will be applied toward rent. Landlords should be forewarned under both of these provisions, that once the security deposit is applied toward rent, the landlord is not permitted to require the security deposit to be restored.

Disbursement upon move-out
Within 30 days of the tenant moving out, the landlord must either return the entire security deposit, along with any interest accrued to the tenant, or if there are any deductions, the landlord must provide the tenant with a written notification of why the appropriate portion has been withheld. In the event that a portion of the security deposit is wrongfully withheld, the tenant may bring suit against the landlord for double the portion of the deposit which was wrongfully withheld, plus any attorney fees.
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One unique aspect of New Jersey tenancy law is the notion that a residential tenant is a “tenant for life” who cannot be evicted simply by letting the lease run out. In fact, even in cases where the residential lease states that the tenant must vacate on a certain date, such provision is considered void and unenforceable. Residential landlords are then faced with the problem of how to evict an undesirable tenant who is not in violation of the lease.

One method that has been commonly employed is the use of rent increases. But the law regarding rent increases requires that the landlord can prove that the increase being sought is “not unconscionable.” Therefore, several landlords who wish to rid themselves of a tenant have begun to employ the “personal occupancy” provision of the Anti-Eviction Act. This provision, which allows the owner of a dwelling to evict a tenant upon two months written notice, is considered to be the only one of the 17 causes for eviction under the Act that does not require cause. In other words, in order to evict a tenant for personal occupancy, it is not necessary to demonstrate that the tenant did anything wrong. Landlords should note, however, that this particular cause for eviction is only available in dwellings with not more than 3 apartments. Therefore, an owner of an apartment building would not be able to evict one tenant on the ground that he or she wanted to occupy that unit.

Our office will not accept any matter where we suspect the landlord is attempting to use the “personal occupancy” provision in a fraudulent manner. However, as one may expect, this cause of action is subject to abuses by landlords who have no intention of occupying the home from which they have evicted a tenant. Accordingly, N.J.S.A. 2A:18-61.6 provides substantial penalties for wrongful eviction in cases where the landlord who evicted the tenant fails to occupy the premises for at least 6 months (or fails to execute contract of sale) and permits occupancy by another tenant. Due to the confusing wording of the Statute, many Judges mistakenly disregard the second requirement.

In 2000, the International Code Council developed a comprehensive set of property maintenance regulations designed to provide municipal code enforcement officials with guidance on a variety of issues concerning the construction and occupancy of structures. Like its predecessor, the BOCA Maintenance Code, nearly all municipalities in the State of New Jersey have incorporated the International Property Maintenance Code (IPMC) into their housing regulations.

Under the IPMC, Section 404.4, a bedroom must measure at least 70 square feet for a single occupant. Additional occupants shall require an additional 50 square feet per person. The IPMC further states that occupants of one bedroom should not have to cross through another bedroom in order to access a bathroom (or to access their own bedroom). Under the regulations set forth by the IPMC, it would seem that there is really no limit to the number of adults that can occupy a 1 bedroom apartment, so long as that one bedroom is large enough to accommodate 70 square feet for the first occupant and 50 square feet for each occupant thereafter.

The regulations, however, become more complicated when children are introduced into the dwelling. The Division of Youth and Family Services has also promulgated regulations concerning children. Generally, children of opposite sex cannot share a bedroom with each other or an adult. Therefore, families with children will very often need to rent apartments with more bedrooms, even in cases when a single bedroom would have been large enough to accommodate the size of the family.

In a previous blog, we discussed some of the potential consequences for landlords who have acquired title from their tenants. The main issue at hand, was the fact that landlords who have acquired title from their tenants may lose the advantage of having their eviction actions heard in Landlord Tenant Court. The consequences, however, may have just gotten worse. In a recent decision, in Bergen County Superior Court, decided by Judge Ellen Koblitz, landlords who acquire title from their tenants, with the promise of eventually selling the property back to the tenants, may be exposed to the harsh penalties of New Jersey’s Consumer Fraud Act. Under New Jersey’s Consumer Fraud Act, the alleged victim may be entitled to treble damages as well as attorney fees and other sanctions in the event that the Court finds a violation.
In the pendent matter, Ricardo Maldonado, a self proclaimed business man, with a ninth grade education rode around with a sign on his car that said, “I buy houses.” One such house that Maldonado purchased was owned by a Garfield couple. Maldonado promised to hold the home for the couple for one year and then allow the couple to purchase it back. After one year, Maldonado refused to allow the couple to purchase back their home. A Court action ensued in Bergen County Chancery Division. In ruling on this case, Judge Koblitz was not convinced by Maldonado’s argument that he was not covered by the Consumer Fraud Act.

As a result of unsound real estate purchasing and borrowing decisions, coupled with the recent epidemic of losses of income, many property owners have found themselves in severe risk of foreclosure. Some owners have looked for creative ways to avoid the possibility of losing the home, which they cannot afford to pay for. This has led to an influx of landlords who have seized upon the opportunity to purchase these distressed properties and “save the owners from foreclosure.” However, landlords who have acquired title to their properties from their tenants should be forewarned that their right to evict those tenants is in jeopardy.

Under ordinary circumstances, a New Jersey landlord can expect that an action filed for non-payment of rent will result in a Judgment for Possession within about 4 weeks of the time the action is filed. The expediency of this process is attractive to most landlords who are often struggling to pay their own bills, and cannot afford to subsidize a tenant who is not paying rent. At an eviction trial, the Judge reads a preliminary set of instructions, which includes the statements that (1) he or she may not force the landlord to wait for rents, and (2) all outstanding rents must paid by the day of Court or the tenant will be evicted. However, Landlords who have acquired title to the property from the tenant, and Landlords who have given the tenant an Option to Purchase may not have the right to have their case heard in New Jersey Landlord Tenant Court.

The body of the Tenancy Complaint has been recently amended to include an inquiry as to whether the Landlord acquired title to the property from the Tenant, or alternatively, if the Landlord gave the tenant an Option to Purchase the Property. Since both of these conditions would substantially affect the equitable property rights of the tenant, the cases brought under these conditions are not easily resolved on a summary basis. To put it simply, Judges in Tenancy Division, who are often swamped with a heavy caseload of relatively simple matters, are reluctant to make the factual inquiries necessary to resolve a dispute when the ultimate issue affects the ownership of the property. Under New Jersey Statute 2A:18-52, the Tenancy Court is simply not permitted to make decisions affecting title to property.

The unfortunate result is that these matters are routinely transferred out of Tenancy Division into the Law Division (or even worse, the Chancery Division), where the parties can spend the next 12 months exchanging discovery, attending Court Ordered mediations, and waiting for trial. More importantly, the Tenancy Judge very often orders that the tenant does not need to pay rents to the Landlord until the Law Division has an opportunity to rule of the issues of the case. Under the Rules of Court, the Transfer out of Tenancy Division can be requested by the Judge, sua sponte (on his own initiative), or by one of the parties (usually the tenant).
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The Section 8 Program was designed to enable the government to assist low income families with their rent by paying a subsidy directly to the landlord. There are currently about 60 Public Housing Authorities in New Jersey administering Section 8 Housing Vouchers and Certificates for approximately 60,000 households. The rules and regulations of the Program are vast and often complex. In this month’s newsletter, we will discuss some of these rules, as well as the consequences for landlords who participate in the program.

To Accept or Not to Accept
We are still surprised at the number of landlords who claim that they do not accept Section 8 tenants. In 1999, the State Supreme Court ruled that a Landlord may not discriminate against a prospective applicant based on source of income. Under this ruling, Section 8 assistance is deemed to be a source of income. In September 5, 2002, Governor McGreevey signed the Section 8 Anti-Discrimination Bill, which imposes substantial penalties for landlords who refuse to rent to tenants based upon their Section 8 status. Under the law, a landlord who discriminates can be fined up to $10,000 for a first offense and up to $25,000 for a second offense. Notwithstanding this edict, many landlords are not comfortable with the constraints of the Section 8 program, some of which are detailed in this newsletter.

Selection of a Section 8 Tenant
We encourage all landlords to adopt uniform standards for the selection of all prospective tenants. Generally, these standards typically include a credit check and a minimum income requirement. For purposes of screening Section 8 tenants, the latter is very often inappropriate. However, credit-worthiness still remains a valid reason to reject tenants whether they receive a Section 8 subsidy or not. The important thing to remember is that a landlord should not have different standards for accepting a Section 8 tenant than it has for accepting a non-Section 8 tenant.

Late Fees and Legal Fees
Historically, the Section 8 Certificate Program limited a family’s rent to 30% of its annual income. In Atlantic City Housing Authority v. Taylor, the State Supreme Court decided that in light of the apparent restriction on rents, a landlord should not be entitled to evict based on non-payment of other charges such as late fees or legal fees. Following the Taylor decision, the Certificate Program was replaced by the Housing Choice Voucher Program, which limits rents to 40% during the initial year of tenancy, but without restriction thereafter. Despite the change in circumstances, Taylor remains unchallenged. Essentially, this means that a Section 8 tenant can continuously wait until the day of Court to pay all rent arrearages, leaving the landlord no recourse. It should be noted, however, that the landlord may still, sue the Section 8 tenant for unpaid late fees and legal fees in another venue, such as Small Claims Court, but not in Tenancy Court.
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