The United States Supreme Court recently declined to review a property rights’ challenge to rent stabilization laws in New York City. The laws at issue limit rent increases and generally require landlords to renew a tenant’s lease. The denial of certiorari by the Supreme Court has significant implications for the countless rental unit owners and tenants in New York City, where approximately one million homes are subject to rent regulation, and could have serious ripple effects for rental owners and tenants in California.
In the underlying Second Circuit litigation, the petitioner landlords argued that New York’s rent control laws impose unconstitutional restrictions on the use of their property. See 74 Pinehurst LLC, et al. v. State of New York, et al., No. 21-467 (2d Cir. 2023); 335-7 LLC, et al. vs. City of New York, et al., No. 21-823 (2d. Cir. 2023). Specifically, petitioners argued that the rent stabilization laws grant tenants and their successors an indefinite, infinitely renewable lease terminable only for reasons outside of the landlord’s control, which is a per se taking—a violation of the Takings Clause of the Fifth Amendment and the Due Process Clause of the Fourteenth Amendment.
The Second Circuit ultimately rejected these claims, holding, among other things, that any property investor could reasonably expect limits on the use of their rental properties, such as those imposed by rent stabilization laws, and such limits are not a Due Process Clause violation. The circuit court also held that the doctrine of sovereign immunity barred petitioners’ claim under the Takings Clause because the state provided its own remedy for the alleged violation.
The landlords’ petition for the Supreme Court to hear the matter was subsequently denied, leaving the Second Circuit’s ruling in place. The Second Circuit decision, while not binding on the Ninth Circuit or its District Courts, is nonetheless persuasive authority that surely will be considered by California litigants and sister Circuits across the country.
While the Second Circuit decision may be persuasive authority now, the issue of constitutionality of rent regulation laws like those in New York City will likely be before the Supreme Court again. Justice Clarence Thomas filed a two-page statement regarding the Supreme Court’s denial of certiorari indicating that the constitutionality of rent regulation laws like those in New York City is “an important and pressing question.” See 74 Pinehurst LLC, et al. v. State of New York, et al. and 335-7 LLC, et al. vs. City of New York, et al., 601 U.S. __ (2024), Statement of Justice Thomas respecting the denials of certiorari. He explained that while this case may not be suitable to consider those constitutional questions—because the landlord petitioners’ filing “primarily contain generalized allegations about their circumstances and injuries” and do not provide “a clear understanding of how New York City regulations coordinate to completely bar landlords from evicting tenants”—the Supreme Court should, in his view, grant certiorari to address this important question “in an appropriate future case.” Justice Thomas also highlighted the circuit split, noting that while the Second Circuit rejected petitioners’ takings claims at the pleading stage, at least one other Court of Appeals has accepted similar claims. See Heights Apartments, LLC v. Walz, 30 F.4th 720, 733 (8th Cir. 2022) (“Heights has sufficiently alleged that the Walz Defendants deprived Heights of its right to exclude existing tenants without compensation. The well-pleaded allegations are sufficient to give rise to a plausible per se physical takings claim…”).
Practice Tips
California is home to many local rent control laws, including several in Los Angeles County. Those wishing to initiate or defend a lawsuit related to these rent control laws in federal court should familiarize themselves with this recent denial of certiorari by the Supreme Court, as well as the circuit split as to the landlords’ takings claims.
KF&C will continue to monitor advancements in this field of law. For questions or comments on the content of this post, please email Matt Cave at [email protected] or Charles Cardinal at [email protected].
