Federal Court Largely Dismisses Landlords' Constitutional Challenge to RSL and HSTPA

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, DHCR, and other government entities in two cases challenging the Rent Stabilization Law (RSL). 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.

As to the takings clause, plaintiffs claimed both physical and regulatory takings of property without just compensation in violation of the Fifth Amendment. The court found that no physical taking occurred and also dismissed the regulatory takings claim as premature. A regulatory scheme may cause a taking if it "goes too far," and there was some question as to whether the post-breach relief provisions enacted by HSTPA to amend RPAPL Sections 749 and 753 drafted a landlord who was no longer subject to any enforceable contract at all when a tenant was in breach to provide an additional benefit in an eviction case of up to one year's housing because of the specific tenant's life circumstances. But there was no argument that any named plaintiff in the lawsuit had been harmed by application of these provisions. 

However, as to the regulatory taking as-applied challenges, two of the landlord plaintiffs adequately alleged that the RSL violated their reasonable investment-backed expectations. These plaintiffs bought their properties at the dawn of the rent-stabilized era and claimed that the 2019 HSTPA amendments not only frustrated their expectation to a reasonable rate of return but also their expectation that some units wouldn't remain rent regulated. These claims could proceed.  

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 dismissed the claim of some plaintiff landlords that the HSTPA amendments violated the Contracts Clause by repealing the RSL's "preferential rates" provision. The court ruled that the legislative purposes behind the RSL were valid.

Community Housing Improvement Program v. City of New York: Index Nos. 19-cv-4087, 19-cv-6447, 2020 U.S. Dist. LEXIS 181189 (EDNY; 9/30/20; Komitee, J)