Landlords Strike Back, Suing to Dismantle Rent-Regulation System

Responding to tighter laws passed in Albany, real estate groups argued that rent regulations are unconstitutional.


CreditCreditDemetrius Freeman for The New York Times

Luis Ferré-Sadurní

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New York landlords are striking back at new rent laws, filing a lawsuit on Monday night intended to dismantle the entire rent-regulation system, which dictates the rents of about 2.4 million tenants who live in nearly 1 million apartments.

They are betting that the tighter laws passed in June will bolster their claims that the rent-stabilization system — which subjects units to government-mandated caps on rent increases — is unconstitutional and amounts to an unlawful taking of property.

The New York real estate industry, long one of the most dominant in Albany, suffered a crushing defeat last month when newly emboldened Democratic lawmakers passed landmark legislation to strengthen tenant protections.

The sweeping changes to the rent laws — which the industry said would cripple landlords — stunned real estate lobbyists, who had mounted an expensive but unsuccessful campaign to fend off the legislation.

Now landlords are taking to the courts to fight back.

Two real estate trade groups — the Rent Stabilization Association, a prominent landlord group which represents 25,000 landlords, and the Community Housing Improvement Program, a trade association representing about 4,000 building owners — and seven landlords filed the lawsuit in federal court in Brooklyn.

The new rent laws, signed by Gov. Andrew M. Cuomo, abolished provisions that let building owners deregulate apartments, closed loopholes that permit them to raise rents and allow other localities with housing shortages to fashion their own regulations.

The lawsuit was filed in part against New York City; the Rent Guidelines Board, the nine-member board that decides rent ceilings; and the state agency that administers and oversees rent-regulated apartments.

The lawsuit argues that rent regulations violate the 14th Amendment’s due process clause and the takings clause of the Fifth Amendment, which says private property shall not be taken for public use without just compensation.

As of 2018, only four states — California, Maryland, New Jersey and New York — and Washington, D.C., had localities with some type of rent control. A few months ago, Oregon became the first state to implement statewide rent control.

The first notable constitutional challenge to rent controls came after Washington, D.C., and New York City adopted them following World War I. Since then, numerous suits have challenged regulations across the country, but the Supreme Court has ultimately upheld rent regulations.

The plaintiffs, however, have their sights on taking the suit to the Supreme Court, where they hope a new conservative majority will rule in their favor and recent rulings will buttress their case.

The suit has also been fast-tracked because of a Supreme Court ruling last month that allows plaintiffs to sue in federal court as soon as state and local governments take property without just compensation. An earlier ruling had required plaintiffs to sue in state court.

Still, reaching the Supreme Court could take years and chances are slim: The court accepts 100 to 150 of the more than 7,000 cases it is asked to review each year.

“We’re going into the court system clearly with an eye of getting to the Supreme Court,” Joseph Strasburg, the president of the Rent Stabilization Association, said. “And we recognize that this is a long journey.”

The lawsuit drew immediate criticism from tenant advocates and progressive politicians who championed the new rent laws and vowed to fight back.

A spokeswoman for Mayor Bill de Blasio said the city would review the lawsuit. Letitia James, the state attorney general, said in a statement she would do everything in her power to defend the law.

Michael McKee, the treasurer of the Tenants PAC, an advocacy group, said that tenant groups could try to intervene by asking the court to add them as a party in the lawsuit and that landlords would have a tough time demonstrating their buildings were not profitable because of regulations.

“Every time the real estate lobby has challenged the constitutionality of New York rent control, they have lost,” Mr. McKee said. “They have lost in state courts and lost in federal courts.”

Judith Goldiner, head of the Legal Aid Society’s civil law reform unit, said the lawsuit was “an ironic symbol that underscores the fact that landlords’ profits are exorbitant if they are willing to waste their money on frivolous litigation such as this.”

Rent stabilization has been in effect for over half a century with the purpose of providing affordable housing and alleviating New York’s housing crisis.

But the suit says the rent-stabilized system was unconstitutional even before the new laws were signed, calling it arbitrary and irrational, and a burden on the rights of property owners.

It says that rent regulations exacerbate the city’s housing shortage and that, because there are no restrictions on the incomes of rent-regulated tenants, the system allows wealthy New Yorkers to benefit unfairly.

“We think it’s time for the law itself to have its day in court,” said Jay Martin, the executive director of the Community Housing Improvement Program. “Let’s have a real discussion about whether or not this is the best system to provide affordable housing in New York.”

The takings clause of the Fifth Amendment has been an age-old source of scholarly debate and contentious dispute.

Most recently, in 2012, the Supreme Court declined to hear a case brought by the owners of a five-story brownstone in the Upper West Side. Some of the apartments were rent stabilized, meaning they were subject to caps on rent increases and usually allowed tenants to renew their leases indefinitely.

The landlords, James D. Harmon Jr. and Jeanne Harmon, argued that tenants paid around $1,000 a month, or about 60 percent below market rate. They said that regulations forcing them to accept below-market rents represented an unconstitutional taking of their property.

The case attracted widespread attention, particularly from libertarian groups who regarded the regulations as government interference in the marketplace and as not only unconstitutional, but also counterproductive.

“We still believe that the Constitution does not allow the government to force us to take strangers into our home at our expense for life,” Mr. Harmon said after the court turned down his case.

The year prior, the United States Court of Appeals for the Second Circuit, in New York, had ruled against the Harmons, saying the couple knew what they were getting into when they acquired the building.

A three-judge panel said the couple had important rights under regulations: They could demolish the building as long as they did not replace it with housing; they could in some cases reclaim the apartments for their own use; and they could “evict an unsatisfactory tenant.”

As a result, the panel said, the city’s regulations did not amount to “permanent physical occupation of the Harmons’ property.”

Mr. Harmon, 75, said in an interview this week that he has since sold the brownstone. He said he believed his family would have won the case had the Supreme Court taken it up.

“My view was once you get the case into the Supreme Court you win because this law was so obviously a problem,” Mr. Harmon, a retired prosecutor, said.

He added, “No matter what is done in the other courts, the game here is the Supreme Court.”

Read more about New York rent laws

Luis Ferré-Sadurní writes about housing in New York City for the Metro Desk. He joined The Times in 2017 and is originally from San Juan, Puerto Rico. @luisferre

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