Thankfully, owners of rental apartments in Texas need not be concerned about government-mandated rent controls. But for those with investments in other areas that have such laws, the ramifications of a current challenge to rent control, aka “rent stabilization,” may be profound.
The most egregious example of rent control is found in New York City, with less onerous versions on the West Coast. In NYC, it is common to find apartments leased at a fraction of market rent, due to city limitations on annual increases, one of many Byzantine aspects of the statute. Additionally, there are many instances in which tenants illegally sublease to others without notifying ownership.
Now comes one James Harmon and wife Jeanne, who own a townhouse on the Upper West Side of Manhattan. As outlined in a recent article in The Wall Street Journal by New York University law professor Richard A. Epstein, the Harmons became fed up with being unable to lease their apartments at market levels and litigated on the theory that rent control is the taking of property for which just compensation must be paid, as set forth in the “takings clause” of the 5th Amendment to the U.S. Constitution.
The Second Circuit found against the Harmons, as there was not a “permanent physical occupation.” The Harmons apparently found this to be curious reasoning, and have filed a petition for certiorari with the U.S. Supreme Court. The Court has requested responses from both the City of New York and the tenants, suggesting that the case will be heard.
In a similar matter involving rent control, Justice Antonin Scalia expressed views that auger well for the plaintiffs. The New York papers have been abuzz with stories largely sympathetic to the Harmons’ case.
Governmental entities have long argued that “down-zoning,” wetland designation, and the like are regulatory takings and thus not compensable. If the Harmons prevail, the ruling may have implications for property right abridgement beyond rent controls. This one bears watching.
Steve Crosson is chairman and CEO of Crosson Dannis Inc., which provides real estate appraisal and consultation services. He also serves as chairman and editor in chief of The Appraiser Journal.