SPONY Sues New York Over Rent Stabilization Law

After several lawsuits tried and failed to overturn New York’s rent-stabilization law, a new complaint is taking a different approach.

The lawsuit, filed by the Small Property Owners of New York and a few individual landlords, takes aim at how the state law applies to vacant apartments. The complaint alleges that capping rents on vacant units violates the takings clause in the Fifth Amendment of the U.S. Constitution because it “directly takes from the value of the apartment’s leasehold.”

That, the lawsuit alleges, results “either in a complete taking (by making it economically impossible to rent the leasehold) or a partial taking of the leasehold’s value.”

Attorneys for the landlord said that, unlike previous lawsuits challenging the state’s rent law, this complaint would not disrupt existing tenants. They hope this will help the case succeed where its predecessors have failed.

“We’re not challenging the government’s ability to protect existing tenants,” said Robert Johnson, an attorney with the libertarian-leaning nonprofit Institute for Justice, which is representing the plaintiffs pro bono. “When an apartment is vacant, there is no tenant to protect, and it doesn’t help anybody to have these units sit off the market.”

The lawsuit, which was filed in federal court in Manhattan this week, seeks to halt the application of rent stabilization rules on vacant apartments and calls for damages equal to the income lost by rent limitations on such apartments. The case names the city, the Rent Guidelines Board, the state and the Division of Homes and Community Renewal as defendants.

The complaint follows several other legal challenges to the state’s rent law in recent years, including one filed by the Rent Stabilization Association and the Community Housing Improvement program, two groups that have since merged to form the New York Apartment Association. Those groups, as well as plaintiffs in at least four other lawsuits targeting the law, tried to take their cases to the U.S. Supreme Court, which repeatedly declined to take up the issue.

“For over 50 years, rent stabilization laws have kept rents affordable for millions of New York families, and state and federal courts have repeatedly upheld these laws, including as recently as last year,” a City Hall spokesperson said in a statement.

Ellen Davidson, an attorney with the Legal Aid Society, which intervened in the previous rent law cases on behalf of tenants and plans to do so in this lawsuit, said the latest case rehashes the arguments of the previous lawsuits, albeit with a focus on a subset of apartments.

“It’s the same thing with new wrapping paper,” she said.

Similar to SPONY’s suit, previous cases also alleged violations of both the takings and due process clauses in the 14th Amendment. The latest case also claims that the law defies the privileges and immunities clause, which “protects their right to take, hold, and dispose of property,” and the equal protections clause, “because the owners of some vacant apartments are free to rent at market rates, while others are subject to crushing limitations.”

“Keeping apartments empty is not the business model of small property owners,” Ann Korchak, board president of SPONY, said in a statement. She said owners who can’t raise the rents to levels that would help pay for necessary renovations are essentially forced to keep the units off the market.

The lawsuit describes different vacant apartments at 81 Cabrini Boulevard, a 30-unit building in Hudson Heights owned by brothers Pashko and Tony Lulgjuraj, who are plaintiffs in the case through an operating entity, RPN Management.

The brothers are keeping two of the building’s apartments vacant “because the regulated rent is so low that it does not make sense to put the units on the market,” according to the lawsuit. The legal rent for one of those units is $710 per month, while an identical apartment the floor below (also stabilized) is renting for $2,595.

The second vacant unit has a legal rent of $860 per month, while a similar regulated apartment on the floor above it is being rented out for $3,000. The owners estimate that bringing the vacant units up to code would cost more than $100,000 per unit.

An entity tied to Bipin Mathew, which owns a six-unit building at 1819 Cornelia Street in Ridgewood, Queens, and an LLC tied to Ilan Rabinovitch, which owns a four-unit building at 135 West 78th Street, are also listed as plaintiffs in the lawsuit.

Before the passage of the Housing Stability and Tenant Protection Act of 2019, landlords could increase rents on stabilized apartments in more ways. They could also deregulate apartments when they became vacant if rents reached a certain threshold. Davidson of the Legal Aid Society said returning the ability of landlords to deregulate vacant apartments would incentivize owners to drive tenants out of stabilized apartments.

“Our experience with pre-2019 rules is that anyone who lived in their apartment for more than 10 years had a target on their back,” she said.

Landlord groups have also tried to convince the state legislature to allow one-time rent resets for apartments that are vacated after a long tenancy, but lawmakers have shown little appetite for such changes. The state budget last year, however, increased the amount that owners can increase rents after renovating stabilized apartments, but landlord groups argue that the change barely makes a dent in the capital needs for these buildings.

In an interview, plaintiff Pashko Lulgjuraj said he is hopeful that the SPONY lawsuit’s approach will succeed.

“We’re not looking to bring down rent stabilization as we know it,” he said. “This is very narrow, very focused.”