This story originally appeared in Real Estate Weekly.
By Sabina Mollot
Seven New York landlords have joined the Rent Stabilization Association (RSA) and Community Home Improvement Program (CHIP) to sue over new rent regulations they claim are ‟unconstitutional.”
The 125-page complaint, filed in the U.S. District Court, Eastern District of New York, names the city, the Rent Guidelines Board along with each of its members, and the state Homes and Community Renewal Commissioner RuthAnne Visnauskas as defendants.
“The main complaint is that, after 50 years of rent stabilization, it is clear that the system doesn’t work,” said the RSA’s general counsel, Mitch Posilkin.
“If the supposed housing emergency continues to exist, maybe there’s something wrong with the system, and we believe the system violates the United States Constitution.”
The regulations that were enacted a month ago restrict or eliminate various ways landlords can raise rents, including vacancy bonuses, vacancy decontrol, individual apartment improvements (IAIs) and major capital improvements (MCIs) as well as high-income deregulation.
“They have locked in a system that won’t even help the people it’s intended to help,” said Posilkin, “which is low income and maybe moderate income people.”
Previously, an apartment could be deregulated if the rent exceeded $2,774 and the tenant’s income was at least $200,000. Keeping those apartments stabilized is one of the changes in the new law, referred to as the Housing Stability and Tenant Protection Act.
CHIP executive director Jay Martin said the rent regulations will make the affordability issue worse.
“It does not promote socio-economic or racial diversity and in fact, it does not in any way target its relief to low-income populations,” said Martin.
“The law actually makes New York’s affordable housing shortage worse by preventing the construction of new apartments, and improvements to existing apartments in properties subject to the law — leading to a lower quality of housing for almost 50 percent of New York’s housing stock.”
An employee for the RGB said the board hadn’t yet seen a copy of the lawsuit.
HCR’s Visnauskas, said, “HCR has and will continue to both enforce the rent laws and investigate those who violate the law to protect tenants and the housing stock. HCR does not comment on pending litigation.”
TenantsPAC spokesperson Mike McKee called the legal challenge pointless, noting that prior attempts to fight rent regulations through litigating have been unsuccessful.
“They have so much money they’re going to sue even when they know they’re going to lose,” said McKee.
“I’m familiar with the argument of takings and landlords have been trying this argument for 100 years when New York State first enacted rent control. They tried for years to say rent regulation and eviction (protection) is an unconstitutional taking and they lost every single time.”
According to McKee, under the new law, owners will still see a return on MCIs, just not as much as before. Previously, it was around 20 percent, whereas now it will now be six percent. “That’s a nice return on an investment,” said McKee, adding that tenants would be “defending this law vigorously,” and that Attorney General Letitia James and the Legal Aid Society are expected to get involved.
Industry attorneys who spoke with Real Estate Weekly said that while they couldn’t guess the outcome of the suit, they believe it makes solid arguments.
Martin Heistein, a partner at Belkin Burden Wenig & Goldman, said, “I think it truly has a shot at changing something. Nothing’s going to change overnight, but any objective person can see that there are some changes made that definitely act egregiously to the real estate industry. Whether or not those changes will be deemed unconstitutional on the taking of property is up to the court, but it is a very serious lawsuit.”
Specifics in the law Heistein believes could be vulnerable are related to the fact that the rent law is now permanent as opposed to sunsetting every four years as it had in the past.
He said a new restriction that limits an owner reclaiming units of a property for his or her own use to a single unit may also have merit.
Other issues, such as the restrictions on MCIs and IAIs “might be an example of overreaching by the legislature,” the attorney added.
Luise Barrack of Rosenberg & Estis said that while prior challenges to the rent laws have been unsuccessful, this time it may be different.
“It puts owners, particularly small owners, in a position where they can’t improve their properties even if they wanted to,” she said of the new regulations.
“If an owner can repair a boiler, they’re going to repair it, but they’re not going to put in a new one. It’s going to impact the construction industry and it’s going to impact the quality of life of New Yorkers.”
She also said the regulations are now so burdensome they make it a far more difficult task for owners to recoup rent from non-paying tenants.
“They’re making it so difficult it’s practically impossible. I don’t know how small owners in New York are going to survive this.”
One of Rosenberg & Estis’ own attorneys, Patti Stone, has been named in the lawsuit as one of the RGB member defendants, but other than that the firm has no involvement in the case.
Jamie McShane, a spokesman for REBNY, said that while the board was not in a position to comment on the legal merits of the case, “it is clear that our rent stabilization laws have not addressed the City’s affordable housing crisis or provided meaningful assistance to those tenants who most need help.”
The seven owners party to the suit are Constance Nugent-Miller; MYCAK Associates LLC; Vermyck LLC; M&G MYCAK LLC; Cindy Realty LLC;Danielle Realty LLC; and Forest Realty LLC.