Opinion ID: 2347469
Heading Depth: 2
Heading Rank: 2

Heading: Capital improvement costs

Text: Plaintiffs next challenge the ordinance on the grounds that it obliges a landlord to maintain minimum standards without allowing him to pass on to his tenants the cost of capital improvements. We agree that unless landlords receive adequate compensation they may be forced to forego necessary repairs and improvements to their property. Apparently cognizant of this danger, New Milford imposes penalties on any landlord who fails to maintain current standards of service and maintenance. [21] As a result, plaintiffs argue that the landlord faces legal sanctions imposed by the ordinance if he does not make capital improvements and financial distress if he does. What plaintiffs are in fact contending is that by failing to provide for a capital improvement surcharge, the Borough's ordinance trangresses constitutional guarantees of due process and prohibitions against confiscation. Constitutional principles do not require that rent control regulations take any one particular form. Hutton Park, supra, 68 N.J. at 569. We cannot say a priori that New Milford's ordinance will necessarily leave a landlord with inadequate revenue for normal maintenance or for necessary capital improvements to maintain the building. He may well be able to recoup the necessary funds from gross rental income or from additional rent increases obtained pursuant to the ordinance's hardship provision. Moreover, we cannot say that the failure to provide additional surcharges for capital expenditures vitiates the reasonableness of the relationship between the regulations and the Borough's goal of stabilizing rental levels. Therefore, we do not find the ordinance to be confiscatory per se or facially violative of due process. As noted above, it is still open to plaintiffs to allege and prove that due to the Borough's failure to provide for a capital improvement surcharge, its ordinance is confiscatory as applied. If plaintiffs attempt to do so, their contentions with respect to capital improvements should be subsumed under the more generalized allegation that the ordinance is confiscatory; they are not to be deemed distinct contentions. As we said in Troy Hills Village, reasonable improvement costs are one factor in the overall calculus for determining whether a landlord is realizing a just and reasonable return. Troy Hills Village, supra, 68 N.J. at 628. If capital improvements increase the investment, net income thereon is still required to provide a just and reasonable return. There is no separate constitutional requirement that the landlord realize increased income separately allocable to such capital improvement. Hutton Park, supra, 68 N.J. at 569.