NJ Appeals Court Upholds Ordinances Imposing Landlord Fees

In Christopher C. Cona v. Township of Washington, the Appellate Division upheld a local ordinance imposing certain landlord fees. In reaching its decision, the appeals court distinguished the matter from Timber Glen Phase III v. Township of Hamilton, which struck down an ordinance requiring landlords to be licensed and pay a licensing fee. landlord fees

Appellate Division Decision in Timber Glen

In Timber Glen, the Appellate Division struck down a residential apartment licensing ordinance which required the annual registration and licensing of apartment units in the Township of Hamilton. According to the Appellate Division, the ordinance fell outside the authority granted to municipal governments under the Licensing Act.As such, the ordinance was deemed to be invalid because it was ultra vires and thus unenforceable.

In reaching its decision, the Appellate court concluded that the authority granted by the State to license rental properties is constrained by the provisions of the Licensing Act. As such the court rejected the Township’s argument that its general police power encompasses the authority to license residential rental units.

As to the Licensing Act, the Appellate Division adopted a narrow interpretation of the statute’s licensing provisions regarding rental housing. The court held that: “We conclude the Legislature chose to limit municipal licensing authority to short-term lease arrangements. If that interpretation is incorrect, the Legislature will act to provide further clarification.”

Lastly, in a footnote, the Appellate Division states that its opinion is “confined to the authority to license and does not address Defendant’s regulatory or inspection authority granted by other statutes designed to assure rental premises remain safe, building and fire code compliant and structurally sound.”

Facts of the Cona Case

The three consolidated cases all involved municipal ordinances dealing with apartment rentals. While the ordinances varied by municipality, they generally required annual registration and the payment of a fee before the issuance of a license permitting the rental of a unit. Additionally, the ordinances required the units to pass inspection in order to safeguard the health, safety, welfare of the occupants as well as the general public. The ordinances stated that the inspections were needed to verify that the units were in compliance with various zoning and housing regulations.

In their complaints the landlords alleged the municipalities violated the New Jersey Civil Rights Act (CRA) and that the ordinances requiring the payment of license fees were ultra vires pursuant to the ruling in Timber Glen. However, the trial court judges found that the challenged ordinances were readily distinguishable from the ordinance invalidated in Timber Glen, reasoning that the fees were permissible under a municipality’s regulatory powers in order to defray costs for inspections or registration of rental units.

Appellate Division Decision

On appeal the Appellate Division affirmed. “We conclude from our de novo review that all of the plaintiffs’ complaints were properly dismissed under Rule 4:6-2(e), as none of the challenged ordinances were ultra vires in that the fees charged under them were reasonably related to the municipalities’ exercise of their obligation to promote the safety and welfare of their residents,” the court held. In coming to this decision, the Appellate Division differentiated between a fee charged by a municipality to offset costs of regulation and a fee charged simply to generate revenue, stating that a municipality may charge fees to defray the costs of regulation, but may not charge a fee solely for revenue generation purposes.

While the Appellate Division largely relied on the lower court’s opinions, it did clarify the reach of its decision in Timber Glen. “The prohibition against requiring licenses did not abrogate a municipality’s power to regulate rental property within its jurisdiction, including requiring that they be inspected before being occupied by a new tenant or its ability to ‘charge a fee to fund the costs of the inspections and the issuance of the certificates,’” the court emphasized.

The court specifically emphasized that a municipality may regulate rental units and buildings as a whole, and the combination might involve some degree of overlap. As its opinion explained:

For example, a rental unit is inspected for compliance with tenancy regulations, and the building in which it is located is inspected to insure it is sound and constructed in accordance with required building permits. See N.J.A.C. 5:23-2.23A. That overlap does not limit a municipality’s ability to offset its costs for providing those services by charging fees, as long as they are not simply exercises in revenue production. We discern no such exercise in these cases as we did in Timber Glen.

The Appellate court further clarified that the fact that an ordinance calls for additional information to be provided for registration than what the State mandates and charges a reasonable, associated fee does not deem the ordinance ultra vires. In support, the court noted that “the Legislature has empowered [municipalities with the authority] to adopt an inspection and certification scheme for rental housing and it is within a municipality’s authority to charge a reasonable fee to defray the costs it incurs in carrying out that authority” (internal citations omitted).

The court did acknowledge however that “a municipality calling the fees being properly charged ‘license fees’ flies in the face of Timber Glen and causes considerable confusion.” Accordingly, the Appellate Division remanded the cases back to the trial courts for the entry of orders directing the defendant municipalities to “strike the reference to their fees as license fees and changing the designation of any requirement for registration or inspection from being part of a licensing requirement.”

This recent Appellate Division decision provides some guidance as to what landlord fees a municipality may impose. This is all depending on whether the fee funds the costs of inspections and regulatory compliance or whether it generates money for the municipality only as a tax. It remains to be seen whether the plaintiffs will appeal to the New Jersey Supreme Court.

For more information about the court’s decision or the legal issues involved, we encourage you to contact a member of Scarinci Hollenbeck’s Government Law Group.

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