Landlord groups kick-started their fight against New York’s new rent law on Monday, filing a lawsuit that claims the measure violates the U.S. Constitution.
It’s not the first legal action to argue that rent stabilization rules fly in the face of private property rights. Back in 2012, the Supreme Court declined to hear a case brought by Manhattan landlords James Harmon Jr. and Jeanne Harmon, who alleged that restrictions on rent increases represented an illegal seizure of their property, in violation of the Fifth Amendment. The complaint filed by the Rent Stabilization Association, the Community Housing Improvement Program and three landlords (operating seven entities in total) on Monday takes a broader approach, arguing that rent stabilization contravenes the Fifth and Fourteenth Amendments on several different grounds.
The complaint is, in part, a response to sweeping reforms to the state’s rent regulation law that Gov. Andrew Cuomo signed on June 14. Leading up to the bill’s passage, landlords argued that proposed changes would drive away investors and lead to a decline in New York City’s housing stock. Monday’s lawsuit furthers some of those claims and introduces others.
Here are the key details in the 125-page complaint:
1) The rent law doesn’t do what it says it does, lawsuit claims.
The complaint alleges that the law is “not rationally related to promoting socio-economic or racial diversity” and doesn’t help address the city’s “housing emergency” (we’ll get to this next). The complaint points to the law’s elimination of income-based decontrol, which allowed a landlord to deregulate an apartment once the rent exceeded $2,775 per month and the tenant’s income hit $200,000 or greater. The disconnect between the government’s stated goals and the consequences of the law allegedly flouts the Fourteenth Amendment’s due process clause.
“Due process requires that there’s a rational relationship between the goals and the
means,’ Andrew Pincus, an attorney for the plaintiffs, told The Real Deal. “For that
reason it violates due process.”
2) “Housing emergency.”
The lawsuit accused the City Council of arbitrarily declaring a “housing emergency” every three years for the past 50 years. Such determinations, according to the complaint, are based on the fact that the city’s vacancy rate has sat below 5 percent. The landlord groups argue that the vacancy rate isn’t enough to establish a housing emergency under a 1974 state law, so such declarations violate due process rights. The complaint repeatedly notes that at least 18 of the country’s top 75 metropolitan areas have recorded vacancy rates below 5 percent between 2015 and 2017.
3) Taken: A physical taking of private property
Back in 2017, Mayor Bill de Blasio drew the ire of property owners when he said he’d deflate private property rights if given the opportunity.
“If I had my druthers, the city government would determine every single plot of land, how development would proceed,” he told New York Magazine. “And there would be very stringent requirements around income levels and rents. That’s a world I’d love to see.”
That statement, according to the lawsuit, was a sign of what was to come.
“It is no accident that the law has evolved—with the capstone of the 2019 Amendments—to deprive owners of all the rights of ownership, and to eliminate property owner’s right to use their property for anything other than the compelled use of stabilized rental,” the complaint states.
The complaint alleges that the law “has fundamentally constricted to the point of nonexistence the property owner’s ‘right to exclude,’ a fundamental stick in the bundle of the tenant’s property ownership rights” because owners can’t refuse to renew a lease “except in very narrow circumstances.” The law also further restricts how landlords can go about converting rental buildings into condominiums. Both restrictions, according to the lawsuit, represent a violation of the Fifth Amendment’s taking clause, which bars seizure of private property without “just compensation.”
4) Taken 2: A regulatory taking of private property
The elimination of vacancy decontrol and vacancy bonuses, along with the new
restrictions on Major Capital Improvements and Individual Apartment Improvements, will
diminish the value of rental buildings, representing a regulatory taking of property, the
lawsuit alleges. The complaint cites a previous case that defined rent stabilization as a
“a local public assistance benefit,” and notes that it’s “impermissible” to fund such a
benefit by placing “substantial burdens on a subset of property owners” without
providing proper compensation.
5) But it’s not just the new law. The lawsuit takes issue with rent stabilization as a
concept.
Though partially triggered by the reforms enacted in June, the lawsuit maintains that rent
stabilization has long hampered property values.
“By requiring rents to remain at below-market averages for an indefinite period, and imposing its other regulatory restrictions, the RSL significantly reduced the value of regulated properties and deprived building owners of a reasonable market return on their investment, even prior to the 2019 Amendments,” the complaint says.
6) The state is not a defendant. Technically.
The Eleventh Amendment prevents states from being sued in federal court. However, the
complaint names State Home and Community Renewal Commissioner RuthAnne
Visnauskas as a defendant, which means the state agency that administers and enforces
the rent law is being sued.
7) CHIP and RSA are tired of spending money on the rent law.
According to CHIP and RSA, the “time and money CHIP and the RSA have spent helping
their members address the Rent Stabilization Laws has prevented them from spending
those same resources assisting their members with other matters.”
8) Rent stabilized properties are under developed, plaintiffs say.
RSA and CHIP conducted an analysis of 100 random properties in
Manhattan. According to the lawsuit, it found that 50 of the properties were 75 percent or
more rent stabilized, and were underbuilt by an average of 20 percent. If built out like their
non-regulated counterparts, these properties could have an additional 420,487 square
feet of residential space.
9) Instead of rent stabilization, why not more housing subsidies?
The lawsuit also suggests an expansion of the senior citizen rent increase exemption
(SCRIE) and the disability rent increase exemption (DRIE) programs, something RSA
president Joe Strasburg pushed during the rent law hearings. It also proposes offering
tax credits to tenants who spend more than 30 percent of their income on
rent.
10) The lawsuit wants to stop the enforcement of the rent law.
It seeks to enjoin the application and the enforcement of the rent law. “I don’t think we’re saying that every possibly variant of regulation is unconstitutional,” Pincus said. “But this package of regulations goes quite far over the line.”