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SCOTUS Declines to Hear Appeal of NYC Rent Control Law

For the second time in its current term, the U.S. Supreme Court has declined to hear an appeal of a lower court's ruling upholding New York City's rent stabilization law.

The top court on Tuesday declined to hear appeals of lawsuits filed by two multifamily property owners, Pinehurst 74 LLC and 335-7 LLC, who argued that NYC's Housing Stability and Tenant Protection Act of 2019 violates the Fifth Amendment's "Takings Clause" governing property seizures.

A year ago, a panel of three federal judges on the U.S. Court of Appeals for the Second Circuit affirmed a September 2020 ruling in NY's Eastern District that dismissed the owners' case and another lawsuit filed by two associations representing landlords.

In October, the Supreme Court also declined to hear an appeal in the case filed by the associations, the Rent Stabilization Association (RSA) and the Community Housing Improvement Program (CHIP). The court's decisions not to hear the appeals leaves intact NYC's 2019 rent control law, which regulates about 1 million apartments in the city.

The high court's decision this week was not accompanied by any statement from the court as a whole. However, a brief statement issued by Justice Clarence Thomas left open the possibility that a challenge to rent control eventually may be heard by the nation's highest court.

In a statement accompanying the decision not to hear the appeal, Thomas wrote that the constitutionality of NYC's rent control law "is an important and pressing question," adding that "in an appropriate future case, we should grant certiorari to address this important question."

In order to evaluate the constitutionality of the rent stabilization law, Thomas said the court would need to consider whether specific regulations "prevent petitioners from evicting actual tenants for particular reasons" and to provide a "clear understanding of how New York City regulations coordinate to completely bar landlords from evicting tenants."

Experts on NYC's rent regulations said they expect to see more legal challenges to the rent law, which originally was enacted in 1969 and then expanded in the 2019 reform.

"The door is still open for further challenges to these laws that have unfairly targeted property owners from their inception and have driven many into a corner, unable to keep up with their expenses or maintain their properties," Zachary Rothken, an attorney with Rosenberg & Estis, told GlobeSt.com.

"It is an unsustainable system and despite decision, the constitutionality of New York's rent stabilization laws remains a major hurdle to the state's economic progress," Rothken added. "I expect we will continue to see challenges by way of litigation until a realistic solution is on the table."

The plaintiffs in the NYC case had argued that the city's rent law allowed an unconstitutional taking of property by preventing owners from terminating a lease at the end of a fixed term "except on grounds outside the owner's control."

In February 2023, the Second Circuit appeals panel ruled that the case didn't meet the standard for violating the Takings Clause because the owners had entered the market voluntarily and could still evict residents for breaching their leases.

Prior to the 2019 law, apartment building owners were allowed to enact permanent rent increases, capped at 6% annually, for stabilized apartments whose properties underwent building-wide improvements. The 2019 rent reform rolled the cap on those increases back to 2% and placed a 30-year limit on them.

The 2019 law also repealed the owners' right to deregulate vacated stabilized units if rents had surpassed a certain threshold or when rents in occupied units had surpassed that threshold and occupant incomes reached a certain level.

NYC's rent stabilization law requires landlords to renew leases except in limited circumstances, including a failure to pay rent, and lets family members take over a lease if they have lived in the unit for at least two years.

The law also gives the city's Rent Guidelines Board (RGB) the authority to set maximum rent increases every year. The law applies to buildings that were built before 1974 and have six or more units.

Last June, the RGB narrowly gave its final approval to rent increases that apply to leases signed on or after Oct. 1, 2023. In a 5-4 vote, the board approved a maximum rent increase of 3% on one-year leases, and a maximum rent increase of 2.75% in year one and 3.2% in year two on two-year leases.

The two-year maximum extrapolates to slightly less than the 7% maximum the board said it was considering a few weeks earlier. In a preliminary vote, the board recommended rent hikes of 2% to 5% on one-year leases and 4% to 7% on two-year leases.

The switch to the lower two-tiered rent increase for two-year leases came after Mayor Eric Adams criticized the preliminary recommendation, issuing a statement that said "a 7% rent increase is clearly beyond what renters can afford and what I feel is appropriate this year."

In Q1 2023, the RGB issued a report which indicated that rents would have to rise by as much as 8.35% for one-year leases and 15.75% on two-year leases to maintain net operating income for landlords.
Reprinted with permission from the Wed, 21 Feb 2024 04:29:24 EST online edition of GlobeSt © 2024 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or reprints@alm.com.