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Union City Quietly Amends Rent Control Ordinance to Include 3 Family Houses

Published On: July 26th, 2018Categories: Landlord-Tenant
Union City Ordinance

But don’t look online, as of this writing their online ordinances are still not updated! When I first heard about this I searched on NJ.com and even the City Website, I couldn’t find any information on this. Still can’t as of the time of this writing.

So if you are not a local, “in the know”, you could easily enter into a contract to buy a building that you did not know was now rent controlled. In fact this very nearly happened to a client of mine! His offer price to purchase a house was based on the rent he thought he would be able to get down the line, years from now, with reasonable annual increases. Fortunately we discovered this ordinance change at the last minute, and were able to get out of the contract. In fact, this ordinance killed two real estate purchases I was working on. The sale price just was not justified by the rents my clients could now get, due to this ordinance change. The sellers now will get a much, much lower price for their house than they would have gotten even 6 months ago before this ordinance change. Hope they weren’t counting on it for their retirement, because out of nowhere their property lost $100,000.00 of actual value!

The rent control ordinance used to apply to 4 family non-owner occupied buildings and up. Now, it applies to 3 family non-owned occupied buildings as well. But why is expanding rent control such a bad thing? Here are some reasons:

  • 1. It lowers property values, often unexpectedly. Remember, investors base their purchase price on the expected return on investment or “cap” rate. If they can’t charge the market rent, then the price they will pay for a property decreases accordingly. Imagine if you were the seller in the deal I mentioned earlier, expecting a market price for the 3 family house you lived in for the past 20 years so you could pay off the mortgage and retire with the proceeds. Out of nowhere, the ordinance quietly changes and your property is worth much less than you were relying on for your retirement. Doesn’t matter that you have paid your taxes and mortgage for 20 years, your property just lost tens if not hundreds of thousands in value literally overnight.
  • 2. Lower property values mean less tax revenue for the Town. Property taxes are based on value, and value is based largely on rental income. If 3 families are now worth less money, they will pay less in taxes as well, and everyone else’s taxes will therefore have to go up to cover the difference.
  • 3. Rent control takes away a landlord’s incentive to invest in his/her property. The allowed CPI increases are laughable and generally lower than inflation. They are also usually lower than the increases in the property tax rate. Union City, unlike Hoboken, does not allow a landlord to pass on tax increases to the rent controlled tenants so it becomes a loss. In the end there is no extra money left over to invest in making the property nicer, rather it is a zero sum game of trying to avoid an annual loss by keeping overhead as low as possible.
  • 4. Rent control can be arbitrary and unfair. Many buyers don’t know the property they are buying is rent controlled, and in many cases couldn’t possibly have known. I have seen this happen. Some landlords never registered the rents, and after selling the building the tenants decide to demand a rent calculation going back to the 70’s and their rents get cut in half, causing the buyer to risk losing the property due to an inability to pay the mortgage and taxes with the low rents. Remember, the buyer of a 3-family house is not generally some sophisticated big-time investor!

There are many more reasons expanding rent control is a bad idea, but the way the City rolled out the change to the ordinance means that many don’t even know it ever happened and can be taken advantage of. Don’t be one of those people! Attached is a copy of the ordinance, courtesy of a colleague who OPRA’d it. There is nowhere else online you can get this ordinance as far as I know.

Buyers of 3-family houses in Union City be aware! Landlords too! Union City pays free attorneys for tenants who WILL bring this up if you try to charge a market rent in your 3-family investment property.

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