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Constitutional Challenge to Rent Laws Underway

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RSA and CHIP in Joint Effort to Invalidate Rent Laws

As you know by now, RSA, together with CHIP and individual property owners, filed a lawsuit challenging the constitutionality of the New York Rent Stabilization Law (RSL) and actions by the State and City of New York under that law.
The suit charges that the rent laws violate the Due Process and Takings clauses of the United States Constitution. The suit was filed in the United States District Court for the Eastern District of New York. The complaint, more than 120 pages in length, sets forth in detail why the RSL violates the Constitution. RSA and the other plaintiffs are seeking declaratory and injunctive relief against future enforcement of the rent stabilization scheme, which will not only halt the deprivation of the constitutional rights of property owners but will force the government to get serious about real policy solutions to address the causes of housing unaffordability, such as increasing development of rental properties and having more units available to rent.

The RSL, first enacted in 1969 and revised numerous times – most recently in June – has, in over 50 years, never achieved the objectives claimed by its proponents, which include providing affordable housing to low income families, ameliorating the city’s housing crisis and maintaining socio-economic and racial diversity in the city. The suit will also alleviate New York’s constrained housing market and will force New York City and State governments to adopt fairer and more efficient means of providing housing to those most in need.

The lawsuit details three major ways that the RSL violates the Constitution. First, it violates the federal Constitution’s Fourteenth Amendment guarantee of Due Process. The RSL does not in any way target its relief to low-income populations. There is no financial qualification standard at all for retaining or obtaining a rent stabilized unit. Rather, stabilized units are awarded to those who have the good fortune to either find an available stabilized unit or to have a relationship with someone who resides in one. As frequent news reports demonstrate, and studies confirm, hundreds of thousands of stabilized units are rented by New Yorkers who can afford to pay market rents. And the 2019 Amendments eliminated both high-rent vacancy decontrol and also high-income, high-rent decontrol. This expansion, and the program’s other characteristics, makes clear the RSL is in no way rationally related to providing affordable housing for low-income individuals or families.

Moreover, the RSL is not rationally related to decreasing the housing shortage in New York. The law has had the opposite effect, operating only to further reduce the availability of vacant apartments. Rent stabilization effectively prevents property owners from redeveloping properties to create additional apartments by constructing replacement buildings making full use of permissible zoning density. The RSL also incentivizes tenants to stay in their apartments, even if those apartments are no longer appropriately sized for the tenants’ needs. The result is reduced turn-over and availability of apartments in New York, exaggerating the very condition—low vacancy rates—the law was purportedly intended to address.

The vacancy rate has remained below 5% City-wide for the entire 50 years the RSL has been in effect—a vacancy rate similar to most other major metropolitan areas around the country —confirming the lack of any rational relationship between the RSL and alleviation of a housing shortage.

Also violating Due Process is the New York City Council’s declaration of a housing emergency every three years for the past 50 years, most recently in 2018. Those arbitrary and irrational emergency determinations are made without any meaningful support for or analysis of whether a housing emergency actually exists that would be ameliorated by “regulating and controlling residential rents.”

Second, the RSL effects a physical taking of the property subject to rent stabilization regulation in violation of the Takings Clause of the Fifth Amendment to the U.S. Constitution. The RSL deprives property owners of their core rights to exclude others from their property and to possess, use, and dispose of their property. Through the RSL, the government mandates the continued, indefinite occupation of rental properties by tenants.

Further exemplifying the physical nature of the taking is the change to the conversion rules. Property owners used to be able to convert buildings into cooperatives or condominiums by obtaining purchase agreements for 15% or more of the units from any bona fide purchasers, including but not limited to the tenants, as long as the conversion would not result in the eviction of any tenants. The 2019 Amendments now require purchase agreements for 51% of the units only from tenants and no other potential purchasers for a non-eviction plan. That effectively transfers from the property owner to the tenants the power to decide whether to dispose of the property through a co-op or condo conversion.
Finally, the RSL is an uncompensated regulatory taking of private property, further violating the Constitution’s Taking Clause. The RSL has a significant adverse economic effect on property values. A study assessing the impact of the law prior to the 2019 Amendments found buildings with predominantly rent-stabilized units have 50% of the value of buildings with predominantly market-rate units. Even the City’s property assessment guidelines concede unregulated properties have a significantly greater value than regulated properties.

The 2019 Amendments will further increase the economic burden on regulated properties, because they—among other things—impose restrictions on recovering the cost of improvements that by their express terms prevent owners from recovering anything close to the real cost of those improvements—even improvements required by law to, for example, comply with the City’s housing code. Recovery for improvements to individual apartments, for example, is limited to $15,000, even if the actual cost was two, three, or four times that amount.

The New York Court of Appeals has authoritatively determined “a tenant’s rights under a rent-stabilized lease are a local public assistance benefit… the rent-stabilization laws do not provide a benefit paid for by the government, they do provide a benefit conferred by the government through regulation aimed at a population that the government deems in need of protection.” Because the RSL is basically a public assistance benefit program paid for by a discrete group of property owners, who themselves receive no benefit at all from the program, the facts weight heavily in favor of a finding of a taking. The core principle of the Takings Clause is to prevent government from forcing some people alone to bear public burdens which in all fairness and justice should be borne by the public as a whole.

RSA and the other plaintiffs are represented by the law firm of Mayer Brown. Andrew Pincus, lead counsel from Mayer Brown, stated that “New York’s Rent Stabilization Law clearly violates the United States Constitution. The RSL ‘solution’ of forcing some property owners to subsidize housing costs for some tenants is arbitrary and irrational. It does not in any way target its benefits to people with limited means and it is constraining rather than expanding the supply of apartments in New York. Irrational government action violates the Fourteenth Amendment’s Due Process Clause. Furthermore, the RSL’s real-world effects are to take property without compensation, in violation of the federal Constitution’s Takings Clause. Recourse to federal court is the only way to reform the system and increase available housing for all New Yorkers.”

The lawsuit will be an uphill battle and we certainly expect it to be a lengthy legal process. We will keep you apprised of any developments along the way. 

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