Appellate Court Upholds New York City’s Rent Stabilization Law, Next Stop: SCOTUS

The ruling affirms the lower court’s decision in CHIP v. NYC, ruling against constitutional challenges brought about by housing providers.

4 minute read

Key Takeaways

  1. On February 6, 2023, the U.S. Court of Appeals for the Second Circuit upheld New York City’s rent stabilization law, affirming judgement of the lower court ruling in CHIP v. NYC.
  2. The Second Circuit’s decision rules against the appellant owners and operators and upholds 2019 NYC rent stabilization amendments.
  3. The property owners in the case have ninety days to petition the United States Supreme Court for a review of the Second Circuit’s ruling.

Update (7/5/2023): The Community Housing Improvement Program filed a Petition for a writ of certiorari on May 8, 2023, asking the Supreme Court to hear their case and review the Second Circuit’s decision.

The National Apartment Association filed an amicus brief on June 9, along with the National Association of Home Builders, the National Association of Realtors and the Mortgage Bankers Association, asking the Supreme Court to grant certiorari and reverse the lower court’s decision.

The City of New York was granted an extension until July 24 to file their response.

Original Article (2/8/2023): In the Community Housing Improvement Program v. NYC (“CHIP v NYC”) decision, the U.S. Court of Appeals for the Second Circuit examines New York City’s Rent Stabilization Law and New York State’s Emergency Tenant Protection Law (“RSL”). The RSL limits housing providers’ ability to evict residents and increase rent. The parties challenging the RSL are “individual property owners and not-for-profit trade associations whose members include managing agents and property owners of both rent-stabilized and non-rent-stabilized properties.” This case, which originated in the Eastern District of New York, challenged the RSL, arguing it constitutes a physical and regulatory taking and violates due process.

A taking refers to the government, either federal or local, infringing upon or occupying personal property. We have seen this argument before, including in friend of the court briefs previously filed by NAA in the United States Supreme Court in Guggenheim v. City of Goleta, originally argued in the U.S. Ninth Circuit Court. In CHIP v. NYC, the takings claim against New York City alleges the government, through the RSL statute, unjustly exercises eminent domain by taking property owners' rights to freely to operate their rental businesses. The 2019 amendment to the RSL removed pathways for deregulation and placed additional restrictions on property owners’ abilities, including limitations on rent increases for individual apartment improvements and capital improvements and stricter eviction regulations. The property owners argued the unconstitutionality of these additions to the RSL based on the Supreme Court’s 6-3 ruling in Cedar Point Nursery v. Hassid, where a California law requiring employers allowing union organizers to enter their property to solicit members was ruled an unconstitutional physical taking. In CHIP v. NYC, the lower court granted a Motion to Dismiss the claim of physical taking and ruled the Cedar Point Nursery precedent does not apply to the RSL and therefore it does not constitute a regulatory taking.

The February 6 opinion from the Second Circuit Court of Appeals affirmed the lower court’s decision. This ruling also applied to the related case of 74 Pinehurst LLC. v. State of New York. The Court ruled the RSL does not constitute a physical taking because of the available eviction remedies set forth in the RSL statute and cites the states’ ability to govern landlord tenant relationships. Though the Court “acknowledge[d] that some property owners may be legitimately aggrieved by the diminished value of their rent-stabilized properties as compared with their market-rate units” it disagreed with the argument of an economic impact stating “most, if not all, current landlords purchased their properties knowing they would be subject to the RSL.” The Court also denied the violation of due process citing it does not protect economic liberties.

Given previous rulings regarding the RSL, one ultimate goal of this lawsuit is to bring the issue before the United States Supreme Court. The property owners have ninety days to petition the Supreme Court to hear their case, at which time other parties can weigh in and ask for the Court to grant the petition. The NAA Legal Affairs Department will continue to follow this issue and provide additional updates as they become available.

Should you have any questions, please contact Ayiesha Beverly, NAA General Counsel at [email protected].