Opinion ID: 2442682
Heading Depth: 1
Heading Rank: 6

Heading: is the ordinance confiscatory?

Text: Finally, Appellants contend that the City's method for calculating the rent ceiling, on its face, cannot possibly ensure a fair return on landlords' investments and, for that reason, is impermissibly confiscatory. A number of courts have found that rent control regulations may be considered to have a confiscatory effect if no rent adjustment mechanism is provided and the terms of the rent control ordinance will not permit those who administer it to avoid confiscatory results in its application to the complaining parties. Apt. Ass'n of Greater L.A., 30 Cal.Rptr.2d at 232; see also Richardson v. City and County of Honolulu, 802 F.Supp. 326, 332-33 (D.Haw.1992) (noting that a municipal rent control ordinance may be facially confiscatory where it provides no meaningful mechanism for obtaining relief when the lease rent formula results in a confiscatory rate). For example, in Brunetti, the New Jersey Supreme Court observed that an ordinance may be confiscatory where it is so restrictive as to preclude facially any possibility of a just and reasonable return for landlords. 350 A.2d at 27. In that case, however, the court determined that the rent control ordinance at issue, which fixed rents at a given base level and permitted annual increases in rental charges, was not confiscatory facially because, although the annual increases were not unlimited, the ordinance permitted landlords to apply for unlimited rental increases in the event that he or she could demonstrate that he or she could not realize a reasonable profit from his or her investment. Id. Thus, in the court's eyes, the ordinance did not preclude facially the recovery of a just and reasonable return and, for that reason, was not impermissibly confiscatory. Id. On the other hand, in Helmsley v. Borough of Ft. Lee, 78 N.J. 200, 394 A.2d 65 (1978), the court invalidated as confiscatory a rent control scheme which limited any rent increases to 2.5% of the base rent and contained a lengthy and burdensome hardship relief mechanism, noting that, where a municipality desires to enact rent control, it must be prepared to protect the landlords' interests by providing prompt, fair, and efficacious administrative relief if imposition of the ceiling results in confiscatory rates of return. Id. at 81, 85-86. The Ordinance here accounts clearly on its face conceptually for landlords to receive a fair return on their investment. [18] For example, where a landlord petitions the Board for an upward adjustment in the permissible annual rent increase, the Board is required to take into account the landlord's rate of return. § 127-7.C(1)(h). That section provides that individual upward adjustments in the rent ceilings on units be made only when the landlord demonstrates that such adjustments are necessary to provide the landlord with a fair return on investment. § 127-7.C(2) (emphasis added). Furthermore, § 127-7.I states that [n]o provision of this Chapter shall be applied so as to prohibit the Board from granting an individual rent adjustment that is demonstrated necessary by the landlord to provide the landlord with a fair return on investment. § 127-7.I. It is clear that, on its face, the Ordinance balances the City's goals of capping rent levels while maintaining an avenue for a landlord to obtain a fair return on his or her investment. Absent proof by Appellants that application of the Ordinance's rent ceiling and the Ordinance's related adjustment procedure results in unreasonably limited rates of return (no such facts admissible in evidence exist in this record), we cannot say that the Ordinance is confiscatory on its face. [19]