Landlord Groups Eye Supreme Court After Appeals Panel Rejects Rent Stabilization Challenge

Two lawsuits launched by landlord groups challenging New York's 2019 rent stabilization laws have been rejected by a federal appeals court.

New York’s Eastern District Court dismissed two cases brought by a coalition of rent-stabilized landlords in 2020 that hoped to dismantle the Housing Stability and Tenant Protection Act by challenging its constitutionality, The Real Deal reported.

But the federal court’s rejection of the suits has set landlord groups up for their stated aim: bringing the rent stabilization laws, which are wildly unpopular in the city's real estate industry, in front of a conservative Supreme Court.

“​​We always recognized that it was likely that the Second Circuit would follow its prior decisions upholding the Rent Stabilization Law,” a spokesperson for the plaintiffs, including rent-stabilized landlord lobbying groups Community Housing Improvement Program and the Rent Stabilization Association, said in a statement to Bisnow. “In our view, multiple decisions of the U.S. Supreme Court undermine those prior Second Circuit rulings and clearly signal that laws like this place an unconstitutional burden on property owners.”

The 2019 law provides expanded protections for renters and limits how much regulated rents can be raised, as well as how much property owners can spend on renovating their units and when units can be removed from stabilization. 

The lawsuits, filed by a landlord entity known as 74 Pinehurst LLC alongside several other landlords, CHIP and the RSA, sought to prove that restricting the income that rent-stabilized landlords could extract from their properties was an unconstitutional burden because it amounted to taking away landlords’ rights to their properties.

The rent stabilization law is “invasive” and “​​effectively precludes property owners from controlling who occupies their property,” landlords argued in a brief submitted to the court, Hell Gate reported.

But the three-judge panel of the Second Circuit disagreed, ruling that changes to rent stabilization laws have at times favored landlords and at times favored tenants. Property investors have long taken “a calculated risk when they voluntarily entered the state's regulated rental market” and must accept that sometimes risk means incurring losses, the judges wrote in their opinion.

The 2019 HSTPA law prevents landlords from passing on the cost of improvements and building maintenance to rent-stabilized tenants, a concept that CHIP and RSA have spent years arguing is unfair and results in landlords warehousing apartments. CHIP and RSA say nearly 1 in 10 rent-regulated apartments don't meet livable standards, although the claim hasn't been verified by a government-led inspection. 

CHIP and RSA also hope to challenge rent stabilization as a concept, using the Supreme Court as a venue, TRD reported.

“We always expected these issues to be decided by the Supreme Court and look forward to moving the case forward,” a spokesperson for the landlords said in a statement to Bisnow. “Restrictive rent laws like New York’s produce less, not more, housing. Making clear that such laws are unconstitutional will finally compel leaders around the country to create real and fair solutions for our nation’s housing challenges.”