NYC Rent Stabilization Rules Beat Challenges by Landlords (1)

Tenant-friendly changes made to New York City’s rent stabilization rules in 2019 were constitutional, a federal appeals court ruled Monday, turning back a pair of challenges brought by landlords.

The US Court of Appeals for the Second Circuit upheld amendments to the New York City Rent Stabilization Law, saying they complied with due process and the takings clause of the Fifth Amendment, which requires the government to pay fair market value when it seizes property for a public purpose.

Judge Barrington D. Parker, writing for the appeals court, cited a “long line of consistent authority” from the US Supreme Court, which has repeatedly upheld rent stabilization and rent control measures against similar claims over the past century.

“We understand that many economists argue that rent control laws are an inefficient way of ensuring a supply of affordable housing,” but “the caselaw is exceptionally clear that legislatures enjoy broad authority to regulate land use,” Parker wrote.

A representative of the landlord groups, in a statement to Bloomberg Law, said late Monday that they plan to take the case to the US Supreme Court. The groups “always recognized” their claims were a long shot under Second Circuit precedent, according to the statement.

“Multiple decisions of the US Supreme Court undermine those prior Second Circuit rulings and clearly signal that laws like this place an unconstitutional burden on property owners,” the spokesperson said. “We always expected these issues to be decided by the Supreme Court and look forward to moving the case forward.”

“Restrictive rent laws like New York’s produce less, not more, housing,” according to the landlord groups’ statement.

Physical or Regulatory Taking?

The appeals court rejected wide-ranging arguments advanced by the landlord groups leading the parallel cases, one taking broad aim at the statute and the other claiming more narrowly that it’s unconstitutional under the circumstances.

The rent law reflects neither a traditional “physical taking,” which occurs when the government deprives an owner of all of its rights toward a piece of property, nor a “regulatory taking,” which involves property use restrictions that go too far, the court found.

That reasoning applies both to eviction limits and to rules requiring landlords to let renters pass on their leases to family members under some circumstances, Parker said. He noted that both provisions require a host of conditions to be met before they apply.

“It is well settled that limitations on the termination of a tenancy do not effect a taking so long as there is a possible route to an eviction,” the judge wrote.

‘Beyond Dispute’

The court acknowledged that landlords who made their investments before the changes “may be legitimately aggrieved” by lowered return expectations. But “given the RSL’s ever-changing requirements, no property owner could reasonably expect” any particular set of rules to continue in perpetuity, Parker said.

He also rejected the due process claims, saying rent stabilization rules—whether wise or not—have a direct link to the concerns lawmakers were seeking to address, such as homelessness, transience, and the displacement of low-income residents, including essential workers.

“A rational basis review is not a mechanism for judges to second-guess legislative judgment even when, as here, they may conflict in part with the opinions of some experts,” Parker wrote. “It is beyond dispute that neighborhood continuity and stability are valid bases for enacting a law.”

Judges Guido Calabresi and Susan L. Carney joined the the opinions. The rulings upheld a decision by Judge Eric R. Komitee of the US District Court for the Eastern District of New York.

New York City and the state were represented by their own attorneys. The landlords were represented in one case by Mayer Brown LLP and in the other by Covington & Burling LLP.

The cases are Comm. Housing Imp. Prog. v. City of New York, 2d Cir., No. 20-3366, 2/6/23 and 74 Pinehurst LLC v. State of New York, 2d Cir., No. 21-467, 2/6/23.