MANHATTAN (CN) – Ruling against a coalition of landlords, the Second Circuit affirmed Monday the constitutionality of New York’s newly amended rent-stabilization law.
Signed in June 2019, the Housing Stability and Tenant Protection Act expanded protections for New York renters and firmly limited the opportunity for regulated rents to rise at rates higher than annual limits posted by the Rent Guidelines Board.
A landlord entity known as 74 Pinehurst quickly filed suit, but the Brooklyn-based U.S. District Judge Eric R. Komitee sided with the city, concluding that no physical or regulatory taking had occurred, and dismissed the suit for failure to state a claim.
Having signaled their reluctance at oral arguments last February to strike down the rent protections, a three-judge panel of the Second Circuit affirmed Monday.
"In light of this well settled case law that affords municipalities considerable flexibility in addressing landlord-tenant relationships, we conclude that Pinehurst has not plausibly alleged that the [Rent Stabilization Law] effects a taking in all of its applications and that it is thus facially unconstitutional,” U.S. Circuit Judge Barrington Parker wrote for a three-judge panel.
Later in that opinion, Parker noted how the Rent Stabilization Law has been amended over the years "in ways that, at times, favored landlords, and, at other times, tenants."
"These varying changes mean that, on occasion, a savvy investor might receive a windfall because subsequent regulations reduced restrictions on rent-stabilized units,” he added. “Other investors might suffer losses because regulations become tighter. Still others would receive returns that existed when they purchased their properties, because regulations remained essentially unchanged. ... For decades New York landlords have taken a calculated risk when they voluntarily entered the state’s regulated rental market. In such circumstances, the fact that this risk then results in a loss does not constitute a taking."
The appeal by 74 Pinehurst had been consolidated with a similar challenge in which The Community Housing Improvement Program alleged that New York’s rent stabilization protections violated the Takings Clause of the Fifth Amendment on the grounds that private property shall not “be taken for public use, without just compensation.”
In their briefing, the coalition of landlords and property owners argued that the rent-control protection deprives apartment owners whose units are rent-stabilized of their “rights to use, possess, and exclude others from their property,” which they claim “results in a physical occupation, and thus a physical taking of regulated apartments.”
In a separate opinion on Community Housing Improvement Program’s appeal, Parker rejected the claim that rent-stabilization law constitutes a “physical taking.”
“The statute sets forth several grounds on which a landlord may terminate a lease. These include failing to pay rent, creating a nuisance, violating provisions of the lease, or using the property for illegal purposes,” he wrote. “It is well settled that limitations on the termination of a tenancy do not effect a taking so long as there is a possible route to an eviction.”
Senior U.S. Circuit Judges Guido Calebresi and U.S. Circuit Judge Susan Carney joined Parker in both opinions.
A spokesperson for the plaintiffs in Community Housing Improvement Program’s case, which also include Rent Stabilization Association of N.Y., and other small property owners, said they are confident we will ultimately prevail before the highest court.
"While we always recognized it was likely that the Second Circuit would follow its prior decisions upholding the Rent Stabilization Law, it is nevertheless disappointing that the court failed to follow the multiple decisions of the U.S. Supreme Court that undermine those prior Second Circuit rulings and clearly signal laws like this place an unconstitutional burden on property owners,” the spokesperson said Monday afternoon. “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.”
Rent-stabilization laws protecting New York City tenants from sharp, annual increases were first enacted in 1969. The state’s rent stabilization and rent control system governs rental increases and evictions in about 1 million units in New York City and some suburbs, typically in older, multi-unit buildings.
Last year, New York City’s Rent Guidelines Board voted to increase rents for the city’s approximately 1 million stabilized apartments — proposing 2%-4% hikes for one-year leases and 4%-6% hikes on two-year leases.
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