Landlords Fight Bar on Short-Term Rentals

MANHATTAN (CN) – Landlords of “short term rentals” in New York City challenged the constitutionality of a new state law on multiple family dwellings, claiming it was enacted solely to put them out of business. At issue is the fate of a class of low-cost, short-term rental apartments in and around the city that many see as unsavory, but which the plaintiff landlords say provide vital services, jobs for thousands of New Yorkers, and an important source of tax revenue for the city.

     “The law makes it illegal for owners and lessees of residential properties to rent residential units in those properties for periods shorter than 30 days, thereby outlawing a lawful and time-honored practice that had played an important and beneficial role in the history of New York City,” plaintiffs Dexter 345 Inc., Dexter Properties LLC and Esplanade 94 LLC say in their federal complaint.
     Gov. David Paterson signed the bill into law on July 16, 2010. It is to take effect on May 1.
     The law purports to “clarify the definitions of terms used to describe the legal occupancy of class A multiple dwellings, to improve the ability of enforcement agencies to curtail the improper use of class A dwelling units as transient hotels, and to provide a pathway for the legalization of certain class A dwelling units constructed before 1929 for uses other than permanent purposes,” according to the complaint.
     The plaintiffs call it unconstitutional: a regulatory taking of their property interests “in clear violation of the takings clause of the Fifth Amendment of the U.S. Constitution.”
     The claim “the law destroys the plaintiff’s reasonable investment-backed expectations because, among other things, plaintiffs purchased and/or extensively renovated properties with the reasonable expectation that they would be able to use them in part as short-term rentals – a practice that had never before been illegal in New York.”
     “The law, if it were to be come effective, would cause the plaintiffs and others similarly situated significant economic harm and force them, and them alone, to bear a burden that – if it is to be borne at all – must be borne by all taxpayers.”
     As described in the complaint, the putative purpose of the law is to defend the hotel industry from unfair competition, to protect permanent occupants from the inconveniences of hotel-type occupancy in their buildings, to ensure compliance with fire and safety codes for transient use, and to preserve the dwindling supply of affordable permanent housing in New York City.
     But the plaintiffs say that even if one accepts those rationales as true, “the measure as written does nothing to advance those goals. Indeed, because the law is designed to apply (or be enforced) only against a small subset of short-term rental operators, its drafters have ensured that the law will be ineffective.”
     As a result, the law is “arbitrary and capricious,” because it punishes those whose operations comply with the present law.
     “The law’s drafters provide no justification for this preferential treatment afforded those residential buildings with 51 percent or more of their units devoted to transient use. This arbitrary discrimination is without rational basis, plainly inconsistent with the law’s stated goals, and therefore a violation of plaintiffs’ rights to due process and equal protection,” the complaint states.
     The plaintiffs ask the court to declare the law unconstitutional, to affirm that rental contracts entered into before the law was enacted are valid, and damages for constitutional violations.
     They are represented by Richard Leland with Fried, Frank, Harris, Shriver & Jacobson.

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