The ruling came after Raul Perez, a renter at the Tea Building at 15th and Washington Street, officially challenged his rent.
Even though Toll Brothers is converting some of the lofts to condos, renters may stay indefinitely. But Perez argued that Toll Brothers was de facto evicting his family through excessive rent increases.
The board sided with Perez and ruled that Toll Brothers could only charge market rents that increase with annual federal cost of living increases, normally 2 or 3 percent.
History of the project The Tea Building, a former Lipton Tea factory, is Hoboken's most high-profile condo conversion. The luxury property is home to Gov. Jon Corzine and several professional athletes.
The two main factory buildings in the complex were renovated and converted into rental apartments in 2000 by the previous owner, BDLJ Development. In November of 2004, Toll Brothers, a national residential developer, announced that they had bought the complex with a plan to convert it into high-end condos.
According to Toll Brothers, at the time the condo conversion was announced in November of 2004, the building was 97 percent occupied.
Regarding possible evictions, Toll Brothers' conversion was allowed to follow two paths.
The first option was an eviction plan for which, according to state law, the owner must give tenants a three-year notice to vacate the rental unit or to buy it.
The second option is a non-eviction plan where current tenants could continue to rent indefinitely. This was a choice given to tenants of the Tea Building complex.
But there was a catch. Soon after the announcement, the tenants said they were told that they would have to pay a substantial rent increase - 8 percent for the next year - to keep their apartments.
Rent Leveling Board member Ines Garcia Keim noted that that such a large rent increase could force tenants to leave well before they wanted to.
"It may be a non-eviction plan on paper, but there are few people that are going to be able to afford such large rent increases," Garcia Keim said.
An 8 percent rent increase on a $1,500-per-month apartment would bring it to $1,620 per month.
Some new buildings are exempt Buildings in Hoboken constructed before 1987 fall under the city's 1972 Rent Control Ordinance, which limits rent increases to the Cost of Living Adjustment. There are exceptions, including for improvements to the building and for occasional vacancy de-control.
Because the Tea Building complex was a nearly complete gut and rehabilitation, the buildings' former owner received a 30-year rent control exemption in the 1990s from the state, under a plan designed to attract rental housing.
In court recently, Randy Sawyer, the lawyer for Toll Brothers, argued that the rent control exemption was still valid even though the property changed hands. He said that the exemption is tied to the property, not the property's owner.
The Rent Leveling Board's attorney, Daniel Ganz supported this position, but the board members did not. In a written report, Ganz concluded that the exemption from rent control should remain in effect through the conversion.
But Perez argued that because the original mortgage had been paid off and the property changed hands, the rent control exemption should be invalid. He also argued that the intent of rent control exemptions is to encourage more rental units. He said that it would be against the intent of the law to allow Toll Brothers, which plans on selling the units as individual condos, to continue to benefit from a rent control exemption.
In the end, the Rent Leveling Board went against their own lawyer's advice and sided with the tenant. The board ruled that Perez's unit now falls under the rent control law and that Toll Brothers could only charge market rate plus cost of living increases. The ruling could open the door for other Tea Building tenants to challenge their rents before the board.
According to Carole McLaughlin, head of the city's Rent Control office, there are several property owners who were waiting to see the outcome of this case before they move forward with their conversions.
Toll Brothers now has the option to appeal the case to the City Council or to go directly to the state Superior Court.