Policy Issues Alert! Removing Heavy Burdens From A Rent Control Ordinance

Sunday, January 1, 2006 - 00:00

The Editor interviews Charles X. Gormally, Partner, WolfBlock.

Editor: What was the status of rent control in Morristown prior to the 2005 election?

Gormally: Morristown has had a rent control ordinance since the 1970s. Most multi-family property owners can operate effectively under a rent control ordinance in other municipalities. Landlords in Morristown, however, have been heavily burdened because Morristown did not have a vacancy decontrol provision.

Vacancy decontrol means that when a unit becomes vacant, the landlord is free to negotiate a market-based rent with the new tenant. When the new tenant occupies the property, the unit returns to the protection of rent control, which limits future rent increases for that tenant.

Editor: How did you begin the political process of securing a vacancy decontrol provision for Morristown?

Gormally: I organized a group of multi-family property owners called the Morristown Property Owners Association comprised of nearly all of the large multi-family properties in Morristown constructed before 1981. I then filed a lawsuit on the group's behalf against Morristown challenging the overall constitutionality of rent control as it has evolved in the municipality.

Editor: What was the cornerstone of your constitutional claims?

Gormally: An ordinance enacted by Morristown in 1981 permanently exempts new construction from rent control. As a result, properties constructed after 1981 have been able to charge free market rents. This created two classes of housing within Morristown that are very different economically for no rational basis. This disparity became the cornerstone of our constitutional challenge to rent control.

Editor: How did the property owners' lawsuit progress?

Gormally: While the case was pending, the town moved for summary judgment three times. The court denied each of these motions and the matter was proceeding on to trial. We retained an expert housing economist who studied the housing market in Morristown and provided a written report detailing the impermissible impact of the rent control ordinance.

Between the second and third motions for summary judgment, we determined that it was likely, even though we had survived the town's attempt to dismiss the lawsuit, that ultimate success would not be achieved by litigation alone. What we really wanted was not an end to rent control, but the adoption of vacancy decontrol.

Editor: Did you ask the town council to adopt a vacancy decontrol provision?

Gormally: We appeared at nearly every council meeting and advocated both a resolution to the litigation and an amendment to the rent control ordiance. We lacked enough political mass to get serious consideration from the council. I think that was because the council members erroneously believed that the majority of voters would be opposed to vacancy decontrol. Our analysis was that the council was wrong. On a point-for-point basis in the debate about vacancy decontrol, everybody in town wins.

Our clients' properties had been systematically undervalued because they are rent controlled. Valuation for tax purposes of multi-family property is based on its income. If the income is artificially suppressed, the property gets an artificially low valuation. That translates to a low tax burden on our clients' properties and a disproportionately high tax burden on single-family property owners. We knew we could develop strong support for the proposal among single family property owners if the issue was framed as a property tax relief issue.

Understanding the impact that rent control had on lower property values, the single-family homeowners in Morristown would be strongly motivated to favor a vacancy decontrol provision.

Editor: How did you develop strong support for vacancy decontrol among the town's tenant population?

Gormally: First, we retained a Public Relations consultant. We selected Ron Simoncini of Axiom Communications, because of the firm's familiarly with the real estate issues involved. Our strategy was to make it widely known that vacancy decontrol would not adversely impact any existing tenant. Any tenant of a rent-controlled property would continue to enjoy rent control. Next, we communicated that tenants' existing conditions would improve with vacancy decontrol. Most property owners that we represented contemplated making substantial improvements in their buildings' common elements - such as windows, lobby carpets and heating systems - if vacancy decontrol were enacted. Landlords had deferred improvements because they couldn't be justified on an income basis.

A few months after we started to send these messages out, we polled our constituency to determine if we needed to redirect our public relations efforts. We discovered a vibrant constituency growing among the tenant population in favor of vacancy decontrol.

Prior to the election we held information sessions on site at the multi-family properties. I participated in a number of these meetings and was very encouraged to see the level of support, particularly among long-standing tenants.

Editor: How did vacancy decontrol fare in the election?

Gormally: The election results confirmed that our strategy was right on the money. In fact, in the most tenant-dominated districts, the initiative received about 50 percent of the vote. It wasn't an overwhelming victory, but we had computed before the election that if we captured 20 percent of the tenants, we would win. Overall the public question to enact vacancy decontrol received 60 percent voter approval - more than the successful mayoral candidate who opposed the issue.

Please email the interviewee at cgormally@wolfblock.com with questions about this interview.