What the industry is saying about the federal rent law challenge

The lawsuit is the culmination of 18 months of research
By Georgia Kromrei | July 17, 2019 09:45AM

RSA president Joe Strasburg and CHIP executive president Jay Martin (Credit: iStock)

RSA president Joe Strasburg and CHIP executive president Jay Martin (Credit: iStock)

A lawsuit filed late Monday night by the Rent Stabilization Association and the Community Housing Improvement Program comes just one month after Gov. Andrew Cuomo enacted a radical expansion of tenant protections. Since then, everyone with an attorney and a checkbook has been poring over those changes— but the 125-page complaint is the result of many months of research to not just strike the recent amendments to the rent law, but to challenge the very idea of the rent stabilization law.

The research for the lawsuit was initiated 18 months ago, in case “things went south in Albany,” according to Rent Stabilization Association president Joe Strasburg.

“The tenant protection act of 2019 was so egregious in terms of how far they went that we believe there are provisions that are unconstitutional,” Strasburg said.

The undertaking to find a weakness in the rent law to challenge in the Supreme Court was the brainchild of Community Housing Improvement Program’s former president, Pat Siconolfi. The members of CHIP were initially hesitant, according to CHIP’s current president, Jay Martin.

Andrew Pincus of Mayer Brown (Credit: Mayer Brown)

Andrew Pincus of Mayer Brown (Credit: Mayer Brown)

“I’m told it took a lot of convincing. Some were skeptical of the idea, as we’ve seen: they said it would be just another lawsuit. But after an exhaustive search for a firm that had an excellent record in front of the Supreme Court, and after Mayer Brown laid out possible arguments, many owners said this is something that hasn’t been done before. It preceded me, and it drew me to this organization.”

Then in June, when the Supreme Court ruled that the government violates the Fifth Amendment when it takes property without compensating the owner, and that an owner can make a federal claim without first pursuing a state claim— it was a stroke of luck no one on the legal team expected.

“We take the opportunities when they come. We were researching everything— that’s always ongoing when we go to litigation,” Strasburg said. “We look for cracks in laws that are enacted.”

The challenge to the 1974 rent law, said Sherwin Belkin of Belkin Burden Wenig & Goldman LLP, has been a long time coming, and is only strengthened by the recent expansion of tenant protections.

“Rent regulation has real vulnerabilities for both physical and regulatory takings,” Belkin said. “And I think as now modified by these most recent amendments, the notion of takings’ interference with contract, and a violation of civil rights have only been magnified.”

Sherwin Belkin of Belkin Burden Wenig & Goldman (Credit: Belkin Burden Wenig & Goldman, LLP)

Sherwin Belkin of Belkin Burden Wenig & Goldman (Credit: Belkin Burden Wenig & Goldman, LLP)

And after decades, the gig is up — what was originally intended as a stopgap measure has stretched on for far too long, according to Belkin.

“I’ve never quite understood why a global challenge hadn’t been mounted before. NYC’s rent regulations were enacted as a World War II mechanism to address a housing shortage to help returning GIs, and now it’s been continued as a ‘temporary emergency’,” Belkin said.

The current makeup of the Supreme Court also works in the plaintiffs’ favor— and if anything, Cozen O’Connor’s Ken Fisher said the nation’s highest court is likely to become even more conservative.

“The Supreme Court has been more respectful of property rights and more skeptical of the heavy hand of government over the last few years— that’s a trend that’s anticipated to continue,” Fisher said. “[The case] might not have had legs 10 years ago.”

George Azrt

George Azrt

The Real Estate Board of New York did not join RSA and CHIP as a co-plaintiff on the lawsuit. In a statement to TRD, Jamie McShane, a spokesperson for REBNY, said that rent laws have failed to solve the affordability crisis. “We aren’t in a position to comment on the legal merits of the case, but it is clear that our rent stabilization laws have not addressed the City’s affordable housing crisis or provided meaningful assistance to those tenants who most need help,” he said.

George Arzt, a longtime politico and Extell Development’s lobbyist, said that both RSA and REBNY feel the future of the industry is in jeopardy. And while the lawsuit focuses on rent stabilization laws overall, and not just on the recent changes, Arzt said that was likely a concession to the members of RSA and CHIP. “[CHIP and RSA] were listening to their members. They feel that the lawsuit and possibly an injunction on the package of bills that passed the legislature are the only way to go.”

Though tenant activists see the lawsuit as a cynical last-ditch effort to preserve landlord profits at the expense of the working poor, Martin said that this lawsuit hopes to be an answer to the affordable housing crisis. By bringing a case to the Supreme Court, and using the City’s own data to make their case, Martin said RSA and CHIP seek a neutral third-party arbiter to determine if rent stabilization does what it was meant to do— or if it makes things worse.

The realities of the current capitalistic system aren’t going to change anytime soon, according to Martin. The housing market, which he describes as the “lifeblood” of New York City, is not sustainable, he noted.

According to Strasburg, he doesn’t take issue with public assistance — but programs with a government mandate should be paid for collectively. That’s one area where the current rent stabilization program falls short, according to Strasburg.

“There is already precedent for government assistance programs like SCRIE and DRIE, but everyone participates in the cost of those programs— versus programs where the burden is placed on a singular entity or business.”

While “locked in private system,” subsidized by private owners, the regulatory framework should allow owners to invest, continue to make some profits, and incentivize the creation of affordable units, Martin said.

“I understand the other side wants to decommodify housing, but until we get there, we need more units,” Martin said. “The only way to do that is to incentivize folks to build is allowing them to make a little bit of profit, unless the government is ready to build massive housing projects. And that hasn’t gone so well.”