Owners Have the Right to Choose Who Lives on Their Property

By Thomas A. Berry and Alexander Khoury of Cato.

"New York City has maintained a system of rent control since the 1940s. Property owners in the city are subject to a thicket of regulations that affect their ability to lease and limit their right to exclude—arguably the most fundamental right in the “bundle” of property rights. The cornerstone of the city’s rent control regime is the Rent Stabilization Law, or RSL.

There are approximately one million units under the purview of the RSL, comprising half of all New York City apartments. The RSL authorizes a government board to set annual maximum rent increases for these “stabilized” units. This board is required to consider tenants’ ability to pay as one factor in setting rents, alongside owners’ costs and housing affordability.

The RSL severely limits property owners’ rights to occupy, use, change the use of, and dispose of their property. The RSL requires owners to renew tenants’ leases in perpetuity with very few exceptions, and those exceptions are entirely beyond the owners’ control. Additionally, these renewal rights may be passed on to any member of a tenant’s family who has lived in the tenant’s apartment for two years.

Once a tenant occupies a stabilized unit, an owner may not retake possession of the apartment for personal use. Only upon a demonstration of “immediate and compelling necessity” may an owner reclaim just one of his or her units. And the RSL also severely restricts owners’ rights regarding the buildings themselves. Owners may not withdraw their buildings from residential use, change their units to commercial rentals or cooperatives, leave their property vacant, or demolish their property.

A group of individuals and business entities that own rent‐​stabilized apartments in New York City sued to challenge several 2019 amendments to the RSL in federal court. However, the Second Circuit upheld the law. Now the owners are petitioning the Supreme Court to take their case, and Cato has filed an amicus brief supporting that petition.

Our brief makes three key points. First, the Supreme Court’s recent opinion in Cedar Point Nursery v. Hassid (2021) casts serious doubt on the constitutionality of the RSL, since New York City has appropriated building owners’ right to exclude and granted that right to third parties. All of the Supreme Court’s precedents addressing the constitutionality of rent‐​control statutes long predate the per se rule for physical takings articulated in Cedar Point, which calls for those precedents to be reexamined.

Second, there is already a circuit split between the Eighth and Second Circuits over whether property owners can allege that rent control effects a per se taking under Cedar Point. We argue that the Eighth Circuit correctly followed the Supreme Court when it held that a per se takings claim could proceed against an eviction moratorium, while the Second Circuit erred here in denying plaintiffs’ claim against New York.

Finally, we argue that the Supreme Court should take this opportunity to reconsider the approach to regulatory takings that it established in Penn Central Transportation Co. v. New York City (1978). The Penn Central test has proven to be unworkable, and it lacks grounding in both the text and history of the Constitution. A regulatory takings doctrine rooted in the common‐​law understanding of compensable takings would be more consistent with the Constitution and would better protect property rights. For all these reasons, the Supreme Court should take the case and ultimately reverse the Second Circuit."