Second Circuit rules against landlords’ rent law challenge

Plaintiffs plan to petition the Supreme Court next

From left: CHIP’s Jay Martin, RSA’s Joseph Strasburg and the Second Circuit Court (Getty, CHIP, RSA)
From left: CHIP’s Jay Martin, RSA’s Joseph Strasburg and the Second Circuit Court (Getty, CHIP, RSA)

If landlords’ legal strategy was indeed to fail upwards, their plan is on track.

A federal appeals court on Monday ruled against two lawsuits challenging New York’s rent stabilization law, affirming the New York’s Eastern District Court’s dismissal of the cases in September 2020. A panel of three Second Circuit judges agreed that building owners failed to demonstrate that the law amounted to an unconstitutional taking of their properties.

The decision is a setback for landlords, but an expected one. The Community Housing Improvement Program and Rent Stabilization Association, landlord groups leading one of the lawsuits, have long made clear that their hopes rested with the nation’s highest court, as they anticipated being denied by lower venues.

“We always expected these issues to be decided by the Supreme Court and are confident we will ultimately prevail, and finally compel leaders around the country to create real and fair solutions for our nation’s housing challenges,” a spokesperson for the groups said in a statement.

The high court’s conservative edge may play in landlords’ favor, though the cases might well never be heard by it. The Supreme Court accepts only 100 to 150 of more than 7,000 cases that land on its doorstep annually and has previously declined to review rent control cases.

Tenant groups do not think the landlords’ cases stand much of a chance. 

“These lawsuits were meritless from the outset,” Legal Aid, Legal Services NYC and Selendy Gay Elsberg, parties in the case defending the rent law, said in a joint statement. “They have failed in both the district court and the court of appeals, and we’re confident that any further attempts at appeal will fail as well.”

Sign Up for the undefined Newsletter

The cases, one brought by CHIP and RSA, the other by owners Dino, Dimos and Vasiliki Panagoulias, argued, among other things, that the Housing Stability and Tenant Protection Act of 2019 violates the Fifth Amendment’s “takings clause” and the Fourteenth Amendment’s “due process clause.”

The law severely limited when and how a landlord can increase rents on stabilized apartments. Building owners have said thousands of units can no longer be profitably rented because the cost of bringing them to code cannot be recovered by raising rents, as they could previously.

CHIP and RSA have framed their case as a challenge to not just the 2019 amendments to New York’s rent laws, but to rent stabilization as a concept, saying it deprives owners of the use of their properties while failing to provide a solution to New York’s shortage of affordable housing. The reform allowed tenants of any income to lease rent-stabilized apartments.

In Monday’s decision, the judges acknowledged that “some property owners may be legitimately aggrieved by the diminished value of their rent-stabilized properties as compared with their market-rate units,” but found that CHIP and RSA did not show that every owner of such properties suffered economically.

The judges also agreed that the state has “broad authority to regulate land use without running afoul of the Fifth Amendment.”

“The legislature has determined that the [rent law] is necessary to prevent “serious threats to the public health, safety and general welfare,” the ruling states. “No one can seriously contend that these are not important public interests and courts are not in the business of second-guessing legislative determinations.”

Rent stabilization covers about 900,000 apartments in New York City and additional rentals in its suburbs.