Federal Appeals Court Denies Landlords' Constitutional Challenge to Rent Stabilization Law

Shortly after HSTPA was enacted in June 2019, the Community Housing Improvement Program (CHIP), Rent Stabilization Association of NYC (RSA), and several individual landlord entities sued the City of New York, the DHCR, and other government entities in two cases challenging the Rent Stabilization Law (RSL). The plaintiffs claimed that the RSL violated the Constitution's takings clause, contracts clause, and due process provisions.

The court dismissed the case as against New York State, the DHCR, and the DHCR's Commissioner based on the Constitution's 11th Amendment immunity provisions. The court also largely dismissed plaintiffs' Fifth Amendment claims, but as to regulatory taking as-applied challenges, two of the landlord plaintiffs adequately alleged that the RSL violated their reasonable investment-backed expectations and could proceed with these claims.  The court also found that the HSTPA amendments to the RSL didn't violate the due process clause of the Constitution's 14th Amendment because the RSL was justified to alleviate NYC's housing shortage, and to allow people of low and moderate income to remain in residence in NYC when they otherwise might not be able to. The court also found that the legislative purposes of the RSL were valid and dismissed the claim of some plaintiff landlords that the HSTPA amendments violated the Constitution's Contracts Clause. (See LVT #31025).

Landlords appealed and lost. The appeals court found that no provision of the RSL effected, facially, a physical occupation of landlords' properties in violation of the Fifth Amendment Takings Clause because landlords voluntarily invited tenants to use their properties. The RSL regulated land use rather than resulting in a physical occupation. Also, the RSL didn't effect a regulatory taking because landlords didn't plausibly claim that every owner of a rent-stabilized property suffered an adverse economic impact, and they failed to prove that the RSL interfered with every owner's investment-backed expectations. Finally, the character of the regulation didn't support the conclusion that the RSL effected a regulatory taking. The state legislature determined that the RSL was necessary to prevent serious threats to the public health, safety, and general welfare.

Community Housing Improvement Program v. City of New York: 59 F.4th 540 (US Ct. App. 2d Cir.; 2/6/23; Parker, CJ)