Monday, May 7, 2012

JC Rent Control Ordinance Applies to Rentals, 5 or more unit buildings only. Should Hoboken follow suit?

Like Hoboken JC has a rent control ordinance.  JCs rent control ordinance is more typical in that it applies to rental properties that are 5 units or more.  Hoboken's Rent Control Ordinance applies to all rentals except those that applied for an exemption based on being new construction or an industrial to residential conversion after 1992.

This gives the small property owner in JC more flexibility and control over his/her property.  The idea of applying the Ordinance to larger rental buildings, is the notion that a larger property operator can absorb an unprofitable unit.  Also, when it comes to enforcement, cities like JC would have to enforce the ordinance with a relatively small set of commercial, professional property owners.

According to Joe Hottendorf, Executive Director of the Liberty Board of Realtors, Hoboken's Ordinance applicable to all rentals, was put in place as a result of political horse trading back in the 80's in order to garner enough votes to push a certain Councilman into office.  At the time, Hoboken had a handful of Landlords who operated the vast majority of rentals.  This made the Ordinance manageable from an administrative and enforcement perspective.

He also stated. "when taking action to resolve ...[issues between Landlords and Tenants], no one is addressing the negative impact their municipal legislator actions may have on the makeup of the City’s housing stock, or the effect it may have on the very people they are trying to help. One such example is that there are 18 percent fewer apartments available to rent today then there were in 2000 in buildings with three and four units. Today there are seven percent fewer apartments in two family buildings. Rent Control is not the main cause of the decline in apartments available in two through four-family buildings but it is an important factor in the decline." 

It would be great to see the empirical data on this.  The housing stock has grown tremendously since 1980.  It would be interesting to look at how many units were added by type.  I would not be surprised if rentals shrank both as % of total inventory and in absolute terms.  Maybe in the Summer when things are a little slower I will pull this data from the MLS.

Another key factor, more recently, is that there are many who can no longer qualify for a mortgage.  Frand/Dodd and other legislation have forced banks to be much more conservative in their lending criteria.  I feel this is warranted as we all saw what happened when the banks were left to their own devices - predatory lending practices.  On top of those with damaged credit from the mortgage crisis, those that just cannot qualify today, there are a lot of people who no longer see home ownership as part of the dream.....they want to hedge their bets and rent.  There are not enough rentals.  Landlords are able to push all the costs of marketing a unit onto the Tenant.  This was not always the case.  I see this as an indicator that it's a Landlord's market.

I see many buildings that are condo'd that in my opinion shouldn't be.  They are too small.  They people who are willing to occupy them often lack the maturity or stability to properly manage the building.  See my article on "What can a basement tell you about condo financials".  The building referred to in that article was a small building, 8 unit condo building? where there was no one at the helm, no functioning board.  The building was not maintained by the board and the units were eventually sold for pennies on the dollar to a developer who rehabilitated the building as it should have been all along and then turned around and sold them.  The developer wanted nothing to do with renting them out.

I have pulled rent control files for my clients who were considering buying a rental building (the whole file - not a legal rent calc).  I can tell you from personal experience SOME of these files are, in fact, a hot mess.  I know this is a hot button but I believe calling a spade a spade is important.  I have seen files with registration forms that were not dated by the registrant AND you could not read the time stamp.  This is not what someone else told me but what I have seen first hand.

By getting a legal rent calc from the city, the city is essentially taking the liability if it's wrong.  That is, if a Landlord gets a legal rent calc when buying a property, charges rents based on that and it's proven later by scrutinizing the file or other evidence that the legal rent calc was wrong, I can only imagine that the Landlord could not be held liable for at least the treble damages.  I would imagine that if the Landlord were sued, he/she could produce the Legal Rent calc and say hey, this is what the city attested to.  I don't know if the Landlord would be able to successfully sue the city as it's very hard to hold the city accountable for errors but if a Landlord bought the property based on supposed verified rents, the Landlord would have a mighty case against the city.

I would do a valuation of the property based on the rent roll and go after the city for the difference between the inflation/appreciation adjusted value paid and the valuation based on the legal rent roll.

Get a legal rent calc when purchasing whether you are moving in immediately or buying it as an investment. In the attorney review process, demand the stamped OPRA form.  Make sure it's stamped and you can read it. Demand and keep the Legal rent calc.  Make sure it's stamped and you can read it. 

 Keep copies of all of your leases. I would make sure you have originals meaning you have a copy of the lease with original inked signatures. This paperwork is evidence if you ever have to go to court to prove that you had a right to raise the rent under the vacancy de-control rules. Original Leases can be valuable when you go to sell. This documentation is an asset that you can offer to prospective buyers that can help you garner a better price when you go to sell.

Since the Ordinance has been put in place, the number of Landlords has proliferated because multi-family rentals have been converted to condominium.  Once condo'd, many owners have decided to rent them out.  That means that there are many more landlords not necessarily more rentals.  The majority of which are those that own one or two rentals often times as the result of buying and not willing to sell when it's time to move.  This large group, of largely unaware (being unaware is not an excuse for not following the law) small Landlords, often don't register their properties and are often unaware that Hoboken has a rent control ordinance that applies to them.

Landlords in Hoboken who have units subject to rent control can increase the rent according to a Consumer Price Index schedule that is available through the rent leveling office.  This is a government issued index that is often subject to political pressure as many things are based on it.  For example, social security is based on the CPI.  Landlord's can pass tax increases onto their Tenants but often cannot pass on increased maintenance.  They can try to pass on capital improvements but an application has to be made and they must go in front of the rent leveling board.  Often times, Landlords see the increase not worth the application and legal costs.  I don't believe that ongoing regular maintenance is considered.  Keep in mind this is a legal panel and like any legal panel how they interpret the ordinance when reviewing a case has a lot of impact on individual results.

Please be aware that a seller's agent or a transaction broker not only has no obligation to proactively warn buyers about rent control or any other local issue, the sellers' agent has a fiduciary responsibility to the seller to put the properties best foot forward..... They can't lie but they don't have to proactively raise anything.  A Transaction broker has no OBLIGATION to advocate for the seller or the buyer.  He is paid by the SELLER to bring prospective buyers to the sale and to facilitate the paperwork.  That's it.

In order to EXPECT a real estate agent to PROACTIVELY raise the existence of rent control or any other local matter (remediation, flooding issues, proximity to a hazardous site, etc), the buyer must sign a BUYER'S AGENCY AGREEMENT, in order to have a legally binding relationship with that agent.  Under agency law, the agent would then be LIABLE for representing and advocating for the buyer.  The rub typically is is that buyers' don't want to commit to a specific agent and don't want to have to pay fees in the off chance that the seller is not offering a commission to buyers agents or is offering less than what is agreed to in the Buyer's Agency Agreement.  If you want to EXPECT and DEMAND this type of representation from an agent you must hire them via this contract otherwise....caveat empter....When using a Transaction Broker there is an underlying assumption that the Buyer is doing his/her own due diligence.

See the Consumer Information Link at the top of my home page at

Here is JCs Ordinance itself?  What do you think?  Are their paragraphs that Hoboken should consider?  Are there aspects of Hoboken's or Bayonne's ordinance that JC should consider?

This has been added to the site and is now available on the right nav bar.  Whenever you want to refresh yourself, just scroll down until you see the JC Corporate Seal.

Below are links to other articles written on rent control.

Other municipalities are considering the financial and safety impacts of having a rent control ordinance. Holding down rents generally encourages Landlords to do the bare minimum in terms of upkeep.

Bayonne's Ordinance passed in November of last year but was challenged by petitioners.  They made an error early on in their filing and when they got to the petition deadline they were short 85 signatures to put a referendum on the ballot.  On April 5th, the Clerk informed the petitioners that they failed to gather enough signatures by the deadline and they used their one opportunity to cure their petition so the battle was over.

Bayonne's ordinance now allows property owners to get off of the rent control list when their Tenants vacate and they voluntarily bring the units/buildings up to current codes.

JC Rent Control Ordinance

Other articles on rent control:

Bayonne proposes new rent control ordinance
CPI used to in rental increases
Hoboken has Rent Control - What should you consider when buying

Signing a Lease? Things to Consider including Hoboken's Rent Control Law
Lease Terms Can be More Complicated than a Sale!
Rent Leveling Disclosure Issued by the City

Information Provided by Donna Antonucci
Prudential Castle Point Realty