US Supreme Court Declines to Hear NY Rent Control Challenge

In the opening days of its new term, the US Supreme Court has declined to hear an appeal from landlord groups to New York’s rent stabilization law.

In May, landlord groups that had filed two lawsuits against New York’s 2019 state rent-stabilization law filed a petition asking the nation’s highest court to consider the case after several lower courts ruled against them.

The petition was filed on behalf of the Rent Stabilization Association (RSA), the Community Housing Improvement Program (CHIP) and several individual landlords who argued in their lawsuits that the 2019 law, which regulates rents for about 1 million apartments in NYC, violates the US Constitution.

In their petition, the landlords claimed they are forced to provide “public assistance” to tenants through low rents that have created a “widening gap” between owner costs and regulated rents.

Zachary Rothken, an attorney with Rosenberg & Estis, called the Supreme Court’s decision not to hear the appeal “another disappointing chapter for property owners.”

“The denial is another disappointing chapter for property owners operating within a system that is unsustainable in its status quo,” Rothken said, in a statement.

“New York’s rent stabilization laws were instituted at a very different time to address a very different problem. They have been pushed, exploited and abused to the limit and neither the legislature nor the courts can continue to ignore the problem,” Rothken said.

“Bad laws and disregard for property rights are not good for anyone. They’re not good for landlords, they’re not good for tenants, and they’re not good for the economy. Until a realistic solution is on the table, we will continue to see litigation,” he added.

Now that the Supreme Court has spoken-or, in this case, decided not to speak-any revisions to NY’s rent stabilization law will have to come from the same legislature that adopted it in 2019.

The plaintiffs had argued in their lawsuits, one of which was brought by CHIP and RSA and the other by building owners Dino, Dimos and Vasiliki Panagoulias, that the Housing Stability and Tenant Protection Act of 2019-the official name of NY’s rent reform law-violates the Fifth Amendment’s “takings clause” governing property seizures and the Fourteenth Amendment’s due process clause.

In February, a panel of three Second Circuit federal judges affirmed a September 2020 ruling in NY’s Eastern District Court that had dismissed the lawsuits.

The federal appeals court agreed with the lower court’s decision that building owners had failed to prove in their arguments that the 2019 rent reform law was an unconstitutional infringement on their property rights. The 2019 law limited when and how a landlord can increase rents on stabilized apartments. The reform also allowed tenants of any income to lease rent-stabilized apartments.

The appeals court found that New York State “has broad authority to regulate land use without running afoul of the Fifth Amendment.”

“The legislature has determined that the [rent law] is necessary to prevent serious threats to the public health, safety and general welfare,” the appeals court ruling stated. “No one can seriously contend that these are not important public interests, and courts are not in the business of second-guessing legislative determinations.”

The appellate judges noted that some property owners “may be legitimately aggrieved” by the value of their rent-stabilized apartments compared to market-rate units but said the plaintiffs had failed to prove that the rent reform law had caused economic harm to every owner of buildings with rent-stabilized units.

During the pandemic, the rent board froze rents multiple times. Last year, it increased rents in stabilized units by 3.25% on one-year leases and 5% on two-year leases.

Earlier this year, the Rent Guidelines Board issued a report that 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 at current levels for landlords.

In June, in a 5-4 vote at Hunter College’s Assembly Hall, 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 in May. In a preliminary vote in May, 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 seven-percent rent increase is clearly beyond what renters can afford and what I feel is appropriate this year.”