The U.S. Supreme Court’s recent ruling protecting rent stabilization in New York City is a victory for tenants, who have narrowly escaped a likely scenario of skyrocketing rental costs. The high court relied on lower-court rulings that found rent control does not violate landlords’ Fifth Amendment rights that say the government cannot appropriate property without just compensation. In the court’s eyes, tenants’ rights to not be forced from their homes by speculative rental increases trumps landlords’ rights to market profiteering. Other cities that have let such controls lapse, like Boston, have experienced serious problems with rent spikes and tenant displacement. For more on this continue reading the following article from JDSupra.
In a victory for tenants, the U.S. Supreme Court has let New York City’s hallowed rent stabilization law stand, refusing to hear an appeal by the landlords of two townhouses on West 76th St. who challenged the constitutionality of the law.
The decision is a rejection for landlords, who have challenged the city’s rent regulations for decades. The effect is to support rent-control laws found nationwide, including in many cities in California, New York, New Jersey.
“I would say as a question of public policy and from my view morally, a person’s right to remain in their home trumps a person’s right to make money off of real estate,” said New York City lawyer David Hershey-Webb.
Rent has a hot legal issue since the 2006 real estate crash, which diverted home buyers into renting. As a result, many cities have adopted rent-control laws, capping rents at or below market rate. No city’s rent control controversy boils as fiercely as New York’s, where the high court affirmed a ruling by a landlord’s challenge to the law the Supreme Court declined to hear.
Pursuing a Losing Case for Years
Landlord James D. Harmon Jr., pursued his losing case through the federal courts for years, arguing that the city unconstitutionally took their property, by forcing them to accept rents well below the market rate. The federal Court of Appeals in New York disagreed, stating the couple could reclaim apartments for their own use, or demolish the building as long as it wasn’t replaced by housing, or they could evict an “unsatisfactory” tenant. Therefore, the law didn’t violate the Fifth Amendment, which says that private property shall not “be taken for public use, without just compensation.”
While the Harmons took their attack on rent control to the Supreme Court, some landlords and developers have devised slippery means to slide around the policy — and some of these methods can be challenged in court.
Raising the Rent
There are two types of rent control in New York City, according to Hershey-Webb, who is a tenants’ attorney.
- The older form caps rents altogether. “There are less than 70,000 unite of rent-controlled apartments left out of about 2 million units in the city,” he says.
- The primary form is known as “rent stabilization, which guarantees landlords regular rent increases. It’s one of the things that the lower courts looked at (in the Harmon case). It’s the form of rent regulation that has a lot of benefits to the landlords. And they can get additional rent increases if they have capital increases with renovations, and if they can show less than 8 percent profit,” he says.
The policy is a huge benefit for tenants. “It caps rent increases. The reason the law was enacted was to avoid speculative and onerous rent increases, which the legislature was found was leading to displacement of tenants. It gives a tenant the right to renew a lease, which market tenants don’t have.”
“If you look at social values, people have the right to make money out of buying and selling real estate, and that could be a good thing. The other social value is letting a person staying in their home, and maintaining stable communities — investment in schools, in the community, all the reasons home ownership is something of value. The rent increases are set by the city to ensure that the owner has enough funds to take care of his building and make 8 percent profit,” the Hershey-Webb adds.
Besides being one of the most sought-after places to live on the globe, Manhattan is unique because people from totally different economic backgrounds can be neighbors. Hershey-Webb says the middle class is shrinking and income gaps are widening. He sees rent stabilization as a way of maintaining the new diversity — it’s not about race or ethnicity anymore, it’s about socio-economic status. This way Manhattan doesn’t end up being an island of millionaires.
Boston had controls until recently, and when they let the laws lapse, Hershey-Webb says, rent went through the roof.
Developers and landlords work to circumvent rent-control laws, when they buy out rent-stabilized tenants for tens of thousands of dollars so they can demolish a building and construct a new condo with no rent stabilization. Landlords will make many excuses to evict their tenants, who can extend rent stabilized leases nearly indefinitely. A tenant should consult an attorney if she suspects that her lease was terminated for an unfair reason. Ads for apartments will indicate whether the unit is rent-stabilized, and a tenant should know his rights and obligations before signing a lease.
Ordinarily landlords build in superior rights for themselves in leases, putting tenants at a disadvantage. Rent control laws can override leases and protect tenants.
“It’s an interesting system … the norm is that at the end of the lease the owner decides he doesn’t like the way you look, or your ceiling fell in and you complained about it, the landlord could evict you. That’s how things work in the free market,” says Hershey-Webb, who says the legal system should ensure people have places to live and their needs met — something the free market is not likely to do. As for economic disparity, he says, “At this moment in history the question is, how great is the push-back going to be? How far are we going to let this go? We have the worst inequalities since the 1920s.”
This article was republished with permission from JDSupra.