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Issue
Whether rent controls and similar regulations placed on landlords qualify as unconstitutional takings and so require just compensation under the Takings Clause of the Fifth Amendment. Also, whether such rent control schemes violate the Contract Clause of Article I, Section 10, which prohibits states from “impairing the obligation of contracts.”
Facts
In 1969, the New York City Council established the Rent Guidelines Board RGB. The council passed the Rent Stabilization Law RSL, which capped the percentage by which rent could be increased. In 1974, the state government amended the RSL, granting city councils throughout the state the authority to declare “housing emergencies,” by which property owners were required to set prices based on rent guidelines in their respective counties. For twenty years after the law was passed, New York City consistently declared housing emergencies, and owners were consistently forced to adjust their rent prices based upon the guidelines established by the RGB. Further, once apartments were designated rental property within the RSL, owners were required to keep them in the rental market. Tenants enjoyed legally protected, lifetime tenure in the apartments. Owners were thus legally obligated to continue offering rental property without the power to negotiate government-established rental rates.
James D. Harmon was the owner of a five story apartment building in the Central Park West Historic District of New York City. He and his wife lived on the first floor and rented out six apartments on the other floors. Three of the renters were paying market price and three were paying a subsidized price due to the RSL. Harmon reported that the renters who qualified for rent control were paying 59 percent below market price. In 2010 Harmon filed a complaint against the city, claiming primarily that the RSL violated the Takings Clause of the Fifth Amendment by failing to provide just compensation for the taking of property. He also argued that the law violated the Due Process Clause, the Contract Clause, the 13th Amendment, and the Equal Protection Clause.
The Court Below
The United States District Court for the Southern District of New York was the first to hear the case. The court ruled in favor of Kimmel, holding that the RSL did not deprive Harmon of the economically viable use of his property. See opinion below:
Harmon v. Markus, 08 Civ. 5511 BSJ S.D.N.Y. 2010
Harmon appealed to the Second Circuit Court of Appeals. The court affirmed the decision of the court below, holding that the RSL did not affect the permanent physical occupation of the landlord’s property, nor did it violate the Contract Clause. See opinion below:
Harmon v. Markus, 412 Fed.Appx. 420 2nd Cir., 2011
Harmon appealed to the Supreme Court, which denied certiorari.
Question before the Court
Does rent control under the RLS scheme amount to an unconstitutional regulatory taking, defined by a deprivation of the plaintiffs’ economically viable use of their property?
CCJ filed an amicus curiae in support of Harmon
Summary:
The Second Circuit Court overturned numerous precedents set by the Supreme Court and misapplied others. First, the lower court incorrectly relied on Yee v. City of Escondido 1992 in dismissing the Harmons' “physical takings” claim. Also, it erroneously overturned a precedent set by Stop the Beach Renourishment, Inc. v. Fla. Dep't of Envtl. Prot. 2010, in which the Court held that state regulation of property qualifies as a taking under the Takings Clause if it “forces a property owner to submit to a permanent physical occupation.” Second, the decision below is also in conflict with this Court’s ruling in Palazzolo v. Rhode Island 2001, in which the Court held that governments cannot create new laws that prohibit challenges to unconstitutional takings, which would in effect put an illegal “expiration date” on the Takings Clause.
The lower courts relied upon a flawed portion of the decision of Yee, in which the Court erroneously held that once a property owner agrees to rent out his land he has willingly chosen to allow others to occupy his land indefinitely. In doing so, the Court disregarded the premise of term leases. Under a vast majority of contracts, renters are invited onto the owner’s land for a pre-determined amount of time, after which the lease can either be renewed or terminated. Upon termination of the lease, both common law and state laws require leasees to vacate the property. Yee held that once an owner rents out his property once, he has chosen indefinitely to allow renters onto his property, regardless of the term declared within the contract. By preventing the landlord from retaking possession, the state was taking the property from the landlord.
The Second Circuit Court misapplied Yee in its decision. Yee held that states and cities could prevent mobile home park owners from evicting mobile home owners from their “pads” after the termination of their leases. The Court in Yee based its decision on the “unusual economic relationship between park owners and mobile home owners.” Mobile home owners invest as much or more in the property than park owners, and the cost of moving a home is often a large portion of what the home is worth. The leverage held by the park owners over their tenants led to the unique decision in Yee that park owners be prohibited from evicting mobile home owners. Apartment owners, on the other hand, have far less leverage than mobile home park owners because the cost of moving is far less for renters, and apartment renters invest far less in the property than do owners. Other significant differences between Yee and this case include: The city ordinance upheld in Yee allowed property owners to take their property off of the market while the RSL required owners to keep the apartments available. Furthermore, under the RSL, renters could pass the lease down to following generations, so the lease could go on indefinitely.
Next, the decision of the court below overturned precedent set in Palazzolo, in which the Court protected important principles of individual liberty enshrined in the Fifth Amendment. Palazzolo held that property owners qualify for compensation under the Takings Clause even if they knew about the restrictions placed on the property when they purchased the property. The circuit court in Harmon v. Marcus held that the owners of the apartment building purchased the property knowing that the RSL was in effect, claiming they were unable to claim compensation under the Taking Clause. Palazzolo rejected this concept as a “critical alteration to the nature of property.”
Loretto v. Teleprompter Manhattan 1982 stated that a government regulation that imposes a permanent physical occupation of private property “is perhaps the most serious form of invasion of an owner's property interest.” The Founders believed that the role of government was to protect an individual’s life, liberty, and property, and allowing the government to take private property would be contradictory to its purpose. The Fifth Amendment was passed to safeguard the people against this possibility. William Blackstone, who influenced James Madison’s views in drafting the Fifth Amendment, stated that the regard for private property must remain elevated to the point that the government not violate it, “not even for the good of the general community.” Madison went on to say that any government that takes property without compensation is an unjust government. The ruling of the court below undermined the Fifth Amendment and threatened to transform the government from protector to thief.
Final Outcome
The Supreme Court refrained from granting certiorari, upholding the decision of the Second Circuit Court of Appeals. In opposition to CCJ’s argument, the Court ruled that the RSL was constitutional under the Fifth Amendment and the Contract Clause.
