Landlords take NY rent-control fight to federal court

Landlord groups will argue in federal court that the state’s new rent-control laws violate their constitutional rights, following through on a promise to challenge New York’s recent reform measures.

A lawsuit filed Monday night in federal court says the rent laws approved last month violate the Fifth and Fourteenth Amendment rights of New York property owners. Specifically, the suit says the expanded rent-control laws violate the Fifth Amendment Takings Clause, which states that private property cannot “be taken for public use, without just compensation.”

The landlord groups are betting that the Supreme Court will hear their challenge. The court considered hearing a case challenging New York’s rent laws in 2012 but ultimately let stand a U.S. appeals court decision on the matter. In that case, a landlord had similarly argued that rent control represented an unconstitutional taking of property but was ruled against by the Court of Appeals for the Second Circuit in New York. But the Supreme Court is more conservative now than it was then.

The Community Housing Improvement Program and Rent Stabilization Association, along with seven landlords, filed the latest lawsuit in U.S. District Court for the Eastern District of New York. The city, its Rent Guidelines Board and the state commissioner of Homes and Community Renewal are named as defendants. The 125-page complaint was first reported by The Real Deal.

The suit also argues the state’s Rent Stabilization Laws violate due process rights by depriving  rent-controlled landlords of property “without any rational relationship between that deprivation and a legitimate government interest.”

Rather than maintaining diversity in the city and responding to a city-declared housing crisis, the landlord representatives argue, the laws exacerbate a housing shortage. The laws also make market-rate apartments more expensive and deter property owners from making improvements, the lawsuit says.

Democratic leaders in the state Legislature called the new rent laws the strongest in history before they were signed into law by Gov. Andrew Cuomo on June 14. The Housing Stability and Tenant Protection Act of 2019 dramatically increased the price protections for the city’s stock of 1 million regulated apartments.

Included in the legislation is a clause that does away with a 20% increase landlords could add to a regulated apartment when it is vacated. Luxury decontrol, a process by which an apartment can be converted to market-rate if the regulated rent and tenant’s income exceed certain thresholds, was scrapped. The allowed rent increases tied to capital improvement to units and apartment buildings are also much more limited under the new law.

The bill’s passage represented a significant loss to the city’s once-powerful real estate lobby. Landlords are now asking for injunctive relief that would block the city and state from enforcing the rent regulation. It would also improve things for tenants, their lawsuit argues.

“Declaratory and injunctive relief against future enforcement of the rent-stabilization scheme will not only halt the deprivation of the constitutional rights of property owners,” the lawsuit argues, “but will result in increased development of rental properties, better housing for a larger universe of renters, the amelioration of a 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.”

https://www.crainsnewyork.com/real-estate/landlords-take-rent-control-fight-federal-court