Failing to Comply With NJ Rent Control Exemption May Prove Costly

What Developers Need to Know About New Jersey’s Rent Control Exemption Law to Ensure Entitlement to Exemption for Newly Constructed Multi-family Housing. 

A property owner in Jersey City is facing a $400 million federal class action lawsuit alleging that the landlord did not follow the procedural steps required to be eligible for exemption from local rent control laws. New Jersey’s Newly Constructed Multiple Dwellings Law, N.J.S.A. 2A:42-84.1(“Rent Control Exemption Law” or “Law”)) provides a 30-year exemption from rent control for newly constructed dwellings with four or more residential units.

The Plaintiffs allege that their landlord, Equity Residential, failed to submit the required documentation to claim the rent control exemption and that Equity Residential has illegally charged market rents without local rent board oversight. The litigation is ongoing, and the Portside Tenants Association has advocated strongly for Jersey City to aggressively enforce the procedural requirements of the Rent Control Exemption Law.  

The landmark suit is believed to be the largest rental control class action lawsuit in history. The case is also significant in that it could establish precedent for similar rent control lawsuits currently pending in Jersey City and across New Jersey. The procedural requirements of the Rent Control Exemption Law are straightforward, but the consequences of getting it wrong can be astronomical.

New Jersey’s Newly Constructed Multiple Dwellings Law

New Jersey does not have a statewide rent control law. However, municipalities may adopt ordinances regulating the amount and frequency of rent increases within their specific municipality. The Rent Control Exemption Law provides a process by which developers can claim an exemption from local rent control laws for 30 years after issuance of a certificate of occupancy.

The Law is meant to encourage development of new housing, but developers are required to comply with certain procedural requirements to become eligible.

The exemption law aims to encourage development of new housing stock, which aligns with broader findings showing how relaxing land use restrictions drives down housing costs and increases supply.

Specifically, a developer seeking exemption from local rent control under the Rent Control Exemption Law must:

1. Provide written notice to the municipal construction official at least 30 days before a certificate of occupancy for the property is issued. This notice must detail the exemption, its start date, and the number of rental units in the building.
2. Include a rent control exemption provision in the lease. This requirement applies to all leases offered to prospective tenants through the duration of the exemption.

Developers must coordinate with municipal construction officials throughout the building process, making it critical to understand construction law requirements that intersect with rent control exemption filings.

If the notice requirements are satisfied, new construction residential properties will be exempt from local rent control or rent leveling ordinances for 30 years following the completion of construction or during the period of amortization of the property’s initial mortgage loan, whichever is less.

What Happens When a Rent Control Exemption Notice Isn’t Timely Filed

The Portside Tenants Association litigation stems from a claim by the Plaintiff that the landlord did not timely file a notice of exemption with the construction official and are therefore ineligible for the exemption.  The Plaintiffs’ claim is not without merit. Willow Ridge Apartments, LLC v. Union City Rent Stabilization Board, the Appellate Division held that even a subsequent owner who did not originally develop the building may not claim exemption from local rent control if the previous owner did not follow the procedural requirements for exemption.

The Appellate Division further held that the burden of proving that a claim for exemption was properly filed lies with the owner. In so ruling, the court emphasized that any lack of due diligence by the subsequent owner “should not be visited upon the municipality.”

The exemption law aims to encourage development of new housing stock, which aligns with broader findings showing how relaxing land use restrictions drives down housing costs and increases supply.

How Scarinci Hollenbeck Can Help

Scarinci Hollenbeck represents developers, landlords, and other property owners in Jersey City and across the state, with a proven track record of successfully navigating the most complex real estate development projects. We will make sure that eligible developments properly file for the exemption, and we can help with due diligence on the purchase of an existing building to ensure you do not purchase a building that could expose you to massive liability If you didn’t send the required rent control exemption notice when it was due, or don’t know if timely notice was provided, we can help. Contact a member of our Real Estate Development & Land use Practice today.