New Jersey presents a particular challenge for multifamily owners and managers. Unlike New York City, which has clearcut laws governing rent control, New Jersey has more than 100 municipalities, each with its own rent control ordinances. Multifamily purchasers and managers can unknowingly violate the ordinances unless they are aware of the requirements.
These municipal rent control ordinances differ in many ways, including the types of properties regulated; the maximum allowable rent increases; deadlines for municipal registration and notice to tenants of rental increases; and the penalties that may be issued against an owner for violating the ordinances.
However, there is one state law that does affect all rent-controlled properties. Under New Jersey’s Newly Constructed Multiple Dwellings Law a new constructed building may be exempt for up to 30 years from a local rent control ordinance if located in a rent-controlled municipality. Notwithstanding this new construction benefit and exemption, purchasers must ensure that such a building complies with the statute. There are municipal submissions and tenant notices required in order to qualify for the exemption. A purchaser should demand confirmation from any seller who is attempting to sell a property in a rent-controlled municipality claiming the property is not subject to rent control (i.e., a “market rent building”).
Additionally, rent-control ordinances are subject to new interpretation and are ever-changing. The City of Hoboken, for example, has recently proposed an amendment to clarify legal rent calculation practices and maximum annual rental increases for owner-occupied units amongst other modifications to its existing law.
Acquisitions and sales of rent-controlled buildings continue to cause complex issues for buyers, sellers, and investors. If you are purchasing a multi-family building, you must first confirm the municipality does not have a rent-control ordinance. If it does, you must confirm the property complies with the ordinance. If the property is located in a rent-controlled municipality and being offered as “market,” then a purchaser must obtain written confirmation of the new construction exemption.
Tenants have become savvier and more sophisticated in ensuring owner compliance with an applicable rent-control ordinance. Owners violating a rent-control ordinance can face significant municipal fines and potentially be liable to tenants for significant damages. Property owners must ensure they receive copies of all municipal filings, as the onus for proof of filings and notice remains on the owner and not the local government agencies.
The local legal know-how becomes even more important when buyers, sellers, and investors are utilizing tax-deferred exchanges and need to ensure that municipal regulations and compliance will not interfere with their 1031 transaction (remember – you’re on the clock on a 1031 exchange).
