74 N.Y.2d 92 | NY | 1989
Lead Opinion
OPINION OF THE COURT
Local Law No. 9 prohibits the demolition, alteration, or conversion of single-room occupancy (SRO) properties and obligates the owners to restore all units to habitable condition and lease them at controlled rents for an indefinite period. Plaintiffs, real estate developers who own SRO properties, challenge the law as an unconstitutional taking of private property without just compensation. Defendants, the City of New York and various officials, contend that the law is a valid effort to help prevent homelessness by preserving the stock of low-rent SRO housing. In our view, Local Law No. 9 is facially invalid as both a physical and regulatory taking in violation of the Federal and State Constitutions and we, therefore, declare it null and void.
I
After years of encouraging the demolition and redevelopment of SRO properties — which the City of New York considered substandard housing — the City abandoned its policy when it found that the stock of low-cost rental housing was shrinking at an alarming rate (see, Blackburn, Single Room Occupancy in New York City, at 1-4 to 1-7).
Plaintiffs commenced separate actions challenging Local Law No. 22 as violative of the "Takings” Clauses of the Federal and State Constitutions. Supreme Court consolidated the actions and declared the law invalid to the extent that it imposed affirmative obligations on property owners to rehabilitate and then rent vacant units (134 Misc 2d 187). The City did not perfect an appeal; it did, however, alter the provisions of Local Law No. 22 by enacting Local Law No. 1 on February 2, 1987, which, in turn, was amended and reenacted as Local Law No. 9 on March 5, 1987. Local Law No. 9 extended the prior moratorium for an initial five-year period with the possibility of unlimited renewals. The law retains most of the features which were contained in Local Law No. 22 but also provides for certain "exemptions” for otherwise obligated property owners.
The main provisions of Local Law No. 9 are as follows:
Moratorium. The conversion, alteration and demolition of SRO multiple dwellings are prohibited (Administrative Code of City of New York § 27-198.2); the moratorium extends for five years and is renewable for additional five-year periods as the City Council deems necessary (Local Laws, 1987, No. 9 of City of New York §7).
Rehabilitation and Antiwarehousing. SRO property owners must rehabilitate and make habitable every SRO unit in their buildings, and lease every unit to a "bona fide” tenant ("rent-up” obligation) at controlled rents (Administrative Code § 27-2151 [a]); an owner is presumed to have violated these requirements if any unit remains vacant for a period of 30 days (§ 27-2152 [d]).
Penalties. Noncompliance is punishable by fines including $150,000 for each dwelling unlawfully altered, converted or demolished, with an additional $45,000 per unit for reducing the total number of units (§ 27-198.2 [g] [2] [5]); a $500 per unit penalty is provided for each unit unrented to a bona fide tenant (§ 27-2152 [e]).
Buy-Out and Replacement Exemptions. An owner may purchase an exemption from the moratorium by payment of
Hardship Exemption. The amount of payment or the number of replacement units required for an exemption may be reduced at the discretion of the Commissioner, in whole or in part, if "there is no reasonable possibility that such owner can make a reasonable rate of return”, defined as a net annual return of 8Vi% of the assessed value of the property as an SRO multiple dwelling (§ 27-198.2 [d] [4] [b]).
Plaintiffs instituted the present action challenging Local Law No. 9 on the same grounds that they had earlier challenged Local Law No. 22. Supreme Court, in another thorough opinion by Justice David B. Saxe, held that the so-called "buyout”, "replacement”, and "hardship” exemptions failed to save Local Law No. 9 from the infirmities of its predecessor, and concluded that the law was invalid as a taking without just compensation in violation of both the Federal and State Constitutions. The Appellate Division disagreed, declaring the law constitutional in all respects. For the following reasons, we now reverse.
II
"The Fifth Amendment’s guarantee that private property shall not be taken for a public use without just compensation was designed to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole” (Armstrong v United States, 364 US 40, 49). The corollary to this oft-quoted proposition is that "government action that works a taking of property rights necessarily implicates the 'constitutional obligation to pay just compensation’ ” (First Lutheran Church v Los Angeles County, 482 US 304, 315, quoting Armstrong v United States, supra, at 49). The question here, as in any case where government action is challenged as violative of the right to just compensation, is whether the uncompensated obligations and restrictions imposed by the. governmental action force individual property owners to bear more than a just share of obligations which are rightfully those of society at large.
In our opinion, the provisions of Local Law No. 9, which not
A
Plaintiffs contend that Local Law No. 9 has resulted in a physical occupation of their properties and is, therefore, a per se compensable taking (see, Loretto v Teleprompter Manhattan CATV Corp., 458 US 419, 427). We agree. As emphasized by Professor Michelman in his article quoted with approval in Loretto, "[t]he one incontestable case for compensation (short of formal expropriation) seems to occur when the government deliberately brings it about that its agents, or the public at large, 'regularly’ use, or 'permanently’ occupy, space or a thing which theretofore was understood to be under private ownership” (footnotes omitted) (Michelman, Property, Utility, and Fairness: Comments on the Ethical Foundations of "Just Compensation” Law, 80 Harv L Rev 1165, 1184 [1967]).
Whether the mandatory "rent-up” obligations of the antiwarehousing provision effect a physical taking depends upon the nature and extent of their interference with certain essential property rights. Here, the claimed physical taking is the City’s forced control over the owners’ possessory interests in their properties, including the denial of the owners’ rights to exclude others. Local Law No. 9 requires the owners to rent their rooms or be subject to severe penalties; it compels them to admit persons as tenants with all of the possessory and other rights that that status entails; it compels them to surrender the most basic attributes of private property, the rights of possession and exclusion. This, plaintiffs contend, constitutes a physical occupation of private property for public use, similar to encroachments on structures or land such as the mandated installation of CATV cables and fixtures (see, Loretto v Teleprompter Manhattan CATV Corp., supra), the
Under the traditional conception of property, the most important of the various rights of an owner is the right of possession which includes the right to exclude others from occupying or using the space (see, Loretto v Teleprompter Manhattan CATV Corp., supra, at 435). Thus, in Loretto, the Supreme Court relied upon this classical view of property— "the rights 'to possess, use and dispose’ ” (458 US, at 435, quoting United States v General Motors Corp., 323 US 373, 378) — to hold that the required installation of the CATV cables and equipment on plaintiffs building was a per se physical taking. This right to exclude "has traditionally been considered one of the most treasured strands in an owner’s bundle of property rights.” (Loretto v Teleprompter Manhattan CATV Corp., supra, at 435, citing Kaiser Aetna v United States, 444 US 164, 179-180; see also, Restatement of Property § 7 [1936]; Radin, The Liberal Conception of Property: Cross Currents in the Jurisdiction of Takings, 88 Colum L Rev 1667, 1671-1672.) As the court noted in Loretto, "an owner suffers a special kind of injury when a stranger directly invades and occupies the owner’s property”, and "property law has long protected an owner’s expectation that he will be relatively undisturbed at least in the possession of his property” (see, Loretto Teleprompter Manhattan CATV Corp., supra, at 436 [emphasis in original]; see also, Michelman, op. cit., 80 Harv L Rev, at 1165, 1228, and n 110). Moreover, to constitute a physical taking, the occupation need not be by the government itself, but may be by third parties under its authority (Loretto v Teleprompter Manhattan CATV Corp., supra, at 432, 433, n 9).
Defendants argue, nevertheless, that a physical taking re
Although the Supreme Court has not passed on the specific issue of whether the loss of possessory interests, including the right to exclude, resulting from tenancies coerced by the government would constitute a per se physical taking, we believe that it would. Indeed, it is difficult to see how such forced occupancy of one’s property could not do so. By any ordinary standard, such interference with an owner’s rights to possession and exclusion is far more offensive and invasive than the easements in Kaiser Aetna or Nollan or the installation of the CATV equipment in Loretto (see, Michelman, Takings, 1987, 88 Colum L Rev 1600, 1609, n 46; see also, Hall v City of Santa Barbara, 833 F2d 1270 [9th Cir], cert denied 485 US 940 [an ordinance imposing
Contrary to defendants’ contentions, the decisions of the Supreme Court and this court upholding rent control and similar regulations of housing conditions and other aspects of the landlord-tenant relationship (see, e.g., Bowles v Willing-ham, 321 US 503, 517-518; Loab Estates v Druhe, 300 NY 176, 180; see also, cases cited in Loretto v Teleprompter Manhattan CATV Corp., supra, at 440) do not undermine plaintiffs’ claims of per se physical takings. Indeed, those decisions have no bearing on the question here — whether forcing plaintiffs to rent their properties to strangers constitutes a physical taking. It is the nature of the intrusion which is determinative— i.e., that it deprives the owners of their rights to possession and exclusion — not the beneficial purpose of the regulation or the extent of the police power which authorizes it. Thus, the Loretto court, in referring to Bowles v Willingham and similar cases, dispelled the notion that its physical-taking holding would affect "the government’s power to adjust landlord-tenant relationships”; the court was quick to distinguish landlord-tenant cases from those in which "the government authorize[d] the permanent occupation of the landlord’s property by a third party” (458 US, at 440).
The rent-control and other landlord-tenant regulations that have been upheld by the Supreme Court and this court merely involved restrictions imposed on existing tenancies where the landlords had voluntarily put their properties to use for residential housing. Unlike Local Law No. 9, however, those regulations did not force the owners, in the first instance, to subject their properties to a use which they neither planned nor desired. The local law at issue in Loab Estates, for example, barred the eviction of residential tenants unless provisions had been made for their relocation (300 NY, at 179). And the Federal rent-control statute in Bowles explicitly
The City, however, argues that, although the owners are compelled to rent their units, there can be no physical taking here because they have not been divested of all control over the selection of tenants and the rental terms. But this minimal authority retained by the owners over their own properties does not distinguish the City’s action here from other physical takings. It is the forced occupation by strangers under the rent-up provisions of the law, not the identities of the new tenants or the terms of the leases, which deprives the owners of their possessory interests and results in physical takings.
We conclude that Local Law No. 9 has effected a per se physical taking because it "interfere[s] so drastically” (Nollan v California Coastal Commn., supra, at 836) with the SRO property owners’ fundamental rights to possess and to exclude (see, Loretto v Teleprompter Manhattan CATV Corp., supra, at 435-436). The law requires nothing less of the owners than "to suffer the physical occupation of [their] building[s] by third part[ies]” (id., at 440; see also, Kaiser Aetna v United States, supra, at 179-180).
B
Even if Local Law No. 9 were not held to effect a physical taking, it would still be facially invalid as a regulatory taking.
(1)
Putting aside for the moment a discussion of the buy-out, replacement, and related hardship exemptions, the significant effects of Local Law No. 9 on the SRO property owners are: (1) to prohibit them from altering or demolishing their buildings or converting them to any other use; (2) to compel them to restore any uninhabitable unit to "habitable condition”; and (3) to require them to keep all their units occupied as SRO
If analyzed with respect to its effect on property owners’ basic rights " 'to possess, use and dispose’ ” of their buildings (Loretto v Teleprompter Manhattan CATV Corp., supra, at 435, quoting United States v General Motors Corp., supra, at 378; see also, Restatement of Property § 5, comment e, at 11; 2 Nichols, Eminent Domain § 5.01 ["What Constitutes Property”]), it is evident that Local Law No. 9 abrogates or substantially impairs each of the three rights. As previously discussed, the coerced rental provisions deprive owners the fundamental right to possess their properties (see, part II A, supra). Moreover, these mandatory rental provisions — together with the prohibition against demolition, alteration and conversion of the properties to other uses, and the requirement that uninhabitable units be refurbished — deny owners of SRO buildings any right to use their properties as they see fit. Unquestionably, the effect of the law is to strip owners of SRO buildings — who may have purchased their properties solely to turn them into profitable investments by tearing down and replacing the existing structures with new ones (as plaintiffs claim they have) — of the very right to use their properties for any such purpose. Owners are forced to devote their properties to another use which, albeit one which might serve the City’s interests, bears no relation to any economic purpose which could be reasonably contemplated by a private investor.
Finally, Local Law No. 9, particularly in those provisions prohibiting redevelopment and mandating rental, inevitably impairs the ability of owners to sell their properties for any sums approaching their investments. Thus, the local law must also negatively affect the owners’ right to dispose of their properties. By any test, we think these restrictions deny the owners "economically viable use” of their properties.
The effect of Local Law No. 9 is unlike that of the Landmarks Law in Penn Central, which denied the owner of Grand Central neither the continued full use of its property nor a reasonable return on its investment.
There can be no question that the development rights which have been totally abrogated by the local law are, standing alone, valuable components of the "bundle of rights” making up their fee interests (see, Michelman, op. cit., 80 Harv L Rev, at 1233 [prospective continuing use "is a discrete twig out of (the owner’s) fee simple bundle” of rights]). Indeed, in French Investing Co. v City of New York (39 NY2d 587), we recognized that development rights "are an essential component of the value of the underlying property” and that "they are a potentially valuable and even a transferable commodity and may not be disregarded in determining whether the ordinance has destroyed the economic value of the underlying property” (id., at 597; see also, Matter of Keystone Assocs. v Moerdler, 19 NY2d 78 [invalidating the imposition of an uncompensated 180-day delay on the right of the purchasers of the old Metropolitan Opera House to demolish and redevelop the property]; Forster v Scott, 136 NY 577).
Defendants’ argument that plaintiffs have not been deprived of "economically viable use” presupposes that the effect of
As stated by Justice Saxe at the nisi prius court, the moratorium and antiwarehousing provisions "place[ ] petitioners in a business, force[ ] them to remain in that business and refuse[ ] to allow them to ever cease doing [that] business.” (Seawall Assocs. v City of New York, 134 Misc 2d 187, 197, supra.) By any criterion — whether the property rights abolished or impaired are considered alone, as in Hodel and Nollan, or the values of these rights are compared with the values of the properties as a whole, as in Penn Central and Keystone — the conclusion is inescapable that the effect of the provisions is unconstitutionally to deprive owners of economically viable use of their properties.
(2)
We agree with plaintiffs, moreover, that Local Law No. 9
Of course, the end sought to be furthered by Local Law No. 9 is of the greatest societal importance — alleviating the critical problems of homelessness.
Defendants contend that by increasing the availability of SRO units the antiwarehousing and moratorium measures will provide more available low-cost housing and, thereby, further the aim of alleviating homelessness; this relationship between means and ends, they argue, supplies the required "close nexus”. The City’s own Blackburn study, however, acknowledges that a ban on converting, destroying and warehousing SRO units would do little to resolve the homeless crisis. Indeed, the SRO units are not earmarked for the homeless or for potentially homeless low-income families, and there is simply no assurance that the units will be rented to members of either group (see, Blackburn, Single Room Occupancy in New York City, op. cit., at 5-6). While, of course, any increase in the supply of low-cost housing would benefit some
The heavy exactions imposed by Local Law No. 9 must "substantially advance” its putative purpose of relieving homelessness. No such showing of this required "close nexus” has been made. Rather, the nexus between the obligations placed on SRO property owners and the alleviation of the highly complex social problem of homelessness is indirect at best and conjectural. Such a tenuous connection between means and ends cannot justify singling out this group of property owners to bear the costs required by the law toward the cure of the homeless problem. Indeed, by equating the "cure” with dollars — i.e., permitting "buy-out” payments of $45,000 per SRO unit in lieu of keeping the units available for rent (see, discussion of "buy-out” exemption, infra) — the terms of Local Law No. 9 itself demonstrate that the obligations placed on a few property owners are just the kind which could, and should, be borne by the taxpayers as a whole.
Finally, the questionable nexus between means and ends in Local Law No. 9 cannot be compared with the clearly defined means-ends relationships in the statutes upheld in Penn Central, Keystone and Andrus — the decisions on which defendants rely. In Penn Central, the Landmarks Law had the direct and immediate effect of saving a historic landmark, Grand Central Station, the law’s very purpose. Likewise, in Keystone, the Subsidence Act prevented the very hazards to public health, safety and the environment that it was intended to address by prohibiting the mining operations that caused them. Indeed, the court in upholding the act noted that it fell within the "nuisance exception” — i.e., that "the State has not 'taken’
Ill
The question remains whether the added features of Local Law No. 9 — the buy-out, replacement, and hardship exemptions
If, as we hold, the effect of the moratorium and antiwarehousing measures is unconstitutionally to deprive owners of their basic rights to possess and to make economically viable use of their properties, merely allowing them to purchase exemptions from the law cannot alter this conclusion. In effect, the City, in the buy-out and replacement exemptions, is saying no more to the owners than that it will not do something unconstitutional if they pay the City not to do it. But if the initial act amounts to an unlawful taking, then permitting the owners to avoid the illegal confiscation by paying a "ransom” cannot make it lawful. Indeed, the stark alternatives offered by Local Law No. 9 — either submit to an uncom
Nor can the hardship exemption make a difference. It can do no more than permit the Commissioner — in the event that an owner could ever come within its provisions
Finally, defendants’ efforts to uphold Local Law No. 9 miss a key feature of the law here and the one that distinguishes it from the Landmarks Law in Penn Central, the Subsidence Act in Keystone, and the Eagle Protection Act in Andrus. Unlike the regulatory actions in those cases, which simply limited the owners’ conduct, Local Law No. 9 not only prohibits conduct but affirmatively requires that the owners dedicate their properties to a public purpose. They must maintain their properties as SROs, they must rehabilitate them, and they must keep them fully rented (see, discussion of significant distinction for purposes of takings analysis between "affirmative easements or servitudes” [as, for example, in Kaiser
In short, the City, by affirmatively requiring the owners to put their properties to a public use, "is acting in its enterprise capacity, where it takes unto itself private resources in use for the common good” (Lutheran Church v City of New York, 35 NY2d 121, 128-129; see, French Investing Co. v City of New York, supra, at 593; Sax, Takings and the Police Power, 74 Yale LJ 36, 62-63). No one disputes the City’s authority, under the police power, to require the SRO owners to put their properties to this use. As an exercise of this authority, however, the stringent obligations imposed by Local Law No. 9 without any offsetting provision for fair payment — like the governmental actions at issue in Loretto, Kaiser Aetna, and Nollan — amount to an unconstitutional confiscation of the owners’ property.
IV
We believe it is evident from an analysis of Local Law No. 9 that the moratorium and antiwarehousing provisions inevitably force property owners "alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole” (Armstrong v United States, supra, at 49). Because the owners are, by the terms of the law, afforded no compensation, Local Law No. 9, we hold, is facially invalid,
One last point should be made. The dissent’s erroneous analogy between this case and Lochner v New York (198 US 45) furnishes a useful perspective on what is really at issue here. In Lochner, the Supreme Court — applying a laissez faire jurisprudence of "economic due process” — overturned a law prescribing maximum working hours, on the ground that it violated the freedom of contract rights of both employer and employee; the court held that the Legislature was without power to enact such a law. Here, by contrast, no one disputes the City’s power — indeed its duty — to fashion meaningful solutions to address homelessness. No one disputes that the City has the power to prohibit the demolition of SRO properties, or direct restoration of SRO units to habitable condition to be leased at modest rents for indefinite periods. The City clearly has that power. The question is who is to pay for this and, more particularly, whether the City — in accordance with constitutional mandate — must compensate property owners before it can "place [them] in a business, force[] them to remain in that business and refuse[ ] to allow them to ever
No one minimizes the tragic reality of homelessness. But the City’s response — to foist its responsibility on certain private property owners, by requiring them to remain in the SRO business or ransom their property rights — simply does not meet the requirements of the Federal and State Constitutions.
The order of the Appellate Division should be reversed, with costs, Local Law No. 9 declared to be unconstitutional as stated in this opinion, and defendants enjoined from implementing the law’s provisions.
. Local Laws, 1985, No. 59, a predecessor of Local Law No. 9, mandated a study of SRO housing in New York City by Urban Systems Research and Engineering, Inc. The report, written by Anthony Blackburn, was issued in February 1986 and recommended efforts by the City to preserve SRO units.
. The Fifth Amendment "Takings” Clause applies to the States through the Fourteenth Amendment (see, Chicago, Burlington & Quincy R. R. Co. v Chicago, 166 US 226).
. The Loretto court in dictum — referring to the navigational easement of passage permitting public access to plaintiffs privately owned marina in Kaiser Aetna stated that, although the easement constituted a physical invasion of plaintiffs property, it was not a per se taking but "a government intrusion of an unusually serious character” (458 US 419, 433). The court in Nollan apparently adopted a different view and it would seem that a physical taking of the type at issue in Kaiser Aetna would now be considered to be a per se taking to the extent of the occupation (see, Nollan v California Coastal Commn., 483 US 825, 832; see, Note, Municipal Development Exactions, the Rational Nexus Test, and the Federal Constitution, 102 Harv L Rev 992).
. It should be noted that the Hall decision preceded the Supreme Court’s decisions in Nollan, First Lutheran Church and Keystone Bituminous Coal Assn. v DeBenedictis (480 US 470). Defendants’ efforts to distinguish Hall upon the ground that the forced leases there were of indefinite duration and transferable are not persuasive. Here, the tenants will occupy the SRO units with all of the legal protection against eviction afforded by applicable landlord-tenant statutes, including those pertaining to rent control, rent stabilization and harassment. The significant point is that in Hall, as in the case at bar, the owners were deprived of their possessory interests —particularly the right to exclude strangers — the determinative factor in Kaiser Aetna, Loretto, and Nollan.
. Although not urged by the City, some amici contend that a physical taking should not be found because the interference with the owners’ rights resulting from Local Law No. 9 is not permanent. There is no merit to the argument for two reasons: (1) while not specifically made permanent, Local Law No. 9 is, by its own terms, to remain in effect indefinitely since its five-year terms may be extended for additional terms without limit; and (2) even if the local law be viewed as a temporary provision, it results in a deprivation of the owners’ quintessential rights to possess and exclude and, therefore, amounts to a physical taking. Under First Lutheran Church v Los Angeles County (482 US 304), where, as here, the governmental action resulted in a per se taking, the offending action constitutes a taking for whatever time period it is in effect.
. The Supreme Court seems also to have adopted the view that a regulation which has the effect of substantially frustrating "reasonable investment backed expectations” likewise constitutes a per se taking (see, e.g., Kaiser Aetna v United States, 444 US 164, 175; Keystone Bituminous Coal Assn. v DeBenedictis, 480 US 470, 493, 499; see also, Michelman, Takings, 1987, 88 Colum L Rev 1600, 1604, n 22, 1622). Such a factor, however, would be relevant to a challenge to the regulation as applied to particular owners, not a facial challenge.
. As outlined, supra, Local Law No. 9 provides for the imposition of a $150,000 civil fine for each room altered, converted or demolished in violation of the ordinance and an additional $45,000 per room for any resulting reduction in the total number of single-room occupancy units (see, Administrative Code § 27-198.2 [d] [4]; [g] [2], [5]).
. Moreover, the court in Penn Central pointed out that, while the
. The majority in Keystone emphasized that, under the statute there in question, the property owners could continue to engage profitably in the business for which they had invested their capital (480 US, at 485) and that the statute ultimately prevented the owners from mining only 2% of the extractable coal (id., at 493). Not surprisingly, then, the majority concluded that the owners failed to demonstrate "any deprivation significant enough” to constitute a regulatory taking (id., at 493).
. "Preventing homelessness” is what the City itself claims to be the public purpose served by Local Law No. 9 (see, municipal respondents’ brief, at 31-33; see also, Local Laws, 1987, No. 1 of City of New York § 1). We need not, therefore, apply the "close nexus” test to other, hypothetical purposes possibly advanced by the law.
. The dissenter’s claim that our ruling "authorizes the expulsion of 52,000 people” (see, dissenting opn, at 126) is utterly without basis. As we have already discussed, government has considerable latitude in regulating landlord-tenant relationships to preclude eviction in hardship, emergency and rent-control cases, and both this court and the Supreme Court have upeld such efforts (see, supra, at 105-106). The constitutional invalidity of Local Law No. 9 does not concern the protection it affords to current tenants, but its mandate that property owners rehabilitate their buildings and accept— as new residents — persons with whom they have no existing relationship whatsoever.
Finally, the dissenter’s argument that Local Law No. 9 must be upheld to prevent the disruption of tenancies is a "bootstrap”. Local Law No. 9 cannot, of course, be deemed constitutional on the ground that it would preserve tenancies which the law, in the first instance, imposes on the property owners unconstitutionally.
. See, Administrative Code § 27-198.2 (d) (4) (a). The so-called "buy-out” provisions, in effect, permit the owners to "purchase” from the City their freedom from the operation of Local Law No. 9 by paying either $45,000 per unit (e.g., $9,720,000 for a 216-unit building such as that owned by 459 West 43rd Street Corp.) or creating a replacement unit, which must first be approved by the Commissioner for any unit taken off the SRO housing rental market. In effect, the "buy-out” provisions permit the owners to repurchase the basic property rights in their buildings which the City has appropriated under Local Law No. 9. The hardship provisions (§ 27-198.2 [d] [4] [b]) permit a reduction in the "buy-out” price, at the discretion of the Commissioner, when an owner’s return on an SRO property falls below 8Vi% of assessed value. As the provisions point out, however, there are no standards or guidelines for the exercise of the Commissioner’s discretion.
. See, Administrative Code § 27-198.2 (d) (4) (b). As some of the owners argue, it is unrealistic to expect that the hardship exemption will ever be of any appreciable value to an investor in one of the Manhattan SRO properties. The level of earnings below which a given property must fall before the owner can apply for hardship relief is pegged at a mere 8 Yz% of the property’s assessed value. It is highly unlikely that any of the properties, which must be kept fully rented, will ever produce less than 8ti% of the assessed value, even though the properties are subject to rent control and rent stabilization. The assessed value generally represents only 45% of the full value assigned to the property by the City’s appraiser. Moreover, plaintiffs point out that the City’s appraisal of the property is based on their current use as low-income SRO rental housing. Thus, the City’s appraised full value will typically bear little relation to the property’s true market value for development purposes or to the amount of the owner’s purchase price.
. [5] Contrary to assertions in the dissenting opinion (see, dissenting opn, at 118,120-121), the Supreme Court and this court have long considered it entirely appropriate to adjudge the facial validity of a land use regulation when challenged by a property owner claiming an unconstitutional "taking” or other deprivation of property rights. As the Supreme Court held over 60 years ago in Euclid v Ambler Realty Co. (272 US 365), a property owner is entitled to challenge a local law regulating the use of his realty on the ground that "the ordinance of its own force operates greatly to reduce the value of [the owner’s] lands and destroy their marketability for industrial, commercial and residential uses” (id., at 386 [emphasis added]). "Assuming [the owner’s] premises”, the court explained, "the existence and maintenance of the ordinance, in effect, constitutes a present invasion of [the owner’s] property rights and a threat to continue it. Under these circumstances * * *
More recently, in Hodel v Virginia Surface Min. & Reclamation Assn. (452 US 264) and in Keystone Bituminous Coal Assn. v DeBenedictis (480 US 470) the Supreme Court repeated the distinction between a facial challenge and one based on application. A "facial challenge”, the court noted, "presentís] no concrete controversy concerning either application of the [law] to particular [activities] or its effect on specific [properties]” (Keystone, supra, at 495, quoting Hodel v Virginia Surface Min. & Reclamation Assn., supra, at 295). Numerous such facial challenges have been sustained by both the Supreme Court and our court (see, e.g., Nollan v California Coastal Commn., 483 US 825, 832, 837; Hodel v Irving, 481 US 704, 716-717; Loretto v Teleprompter Manhattan CATV Corp., 458 US 419, 434-435; French Investing Co. v City of New York, 39 NY2d 587, 590-591; Westwood Forest Estates v Village of S. Nyack, 23 NY2d 424, 427; see also, Beacon Hill Farm Assocs. v Loudoun County Bd. of Supervisors, 875 F2d 1081).
. In view of this holding, we need not decide the extent to which, if at all, the protections of the "Takings Clause” of the New York State Constitution differ from those under the Federal Constitution. Nor is it necessary to address plaintiff’s additional arguments, including their contention that the local law is also unconstitutional under the Due Process Clause of the State Constitution (NY Const, art I, § 6).
Dissenting Opinion
(dissenting). I vote to affirm the declaration of facial constitutionality of New York City’s Local Law No. 9— the Single Room Occupancy (SRO) Moratorium Law (Administrative Code of City of New York § 27-198.2).
In 1904, Justice Holmes wrote the quintessential dissenting opinion in Lochner v New York (198 US 45, 74), which presciently warned against his own court declaring unconstitutional an act of the New York State Legislature attempting to limit the working hours of children. The historical, economic, social, legal, policy and constitutional parallels to the facial jettisoning of New York City’s SRO law suggest that it would be far better to harken to that history instead of being condemned to relive it.
Justice Holmes eloquently and cogently sums up the relevancy: "[A] constitution is not intended to embody a particular economic [or property] theory, whether of paternalism and the organic relation of the citizen to the State or of laissez faire. It is made for people of fundamentally differing views * * * General propositions do not decide concrete cases. The decision will depend on a judgment or intuition more subtle than any articulate major premise. * * * I think that the word liberty in the Fourteenth Amendment is perverted when it is held to prevent the natural outcome of a dominant opinion, unless it can be said that a rational and fair man necessarily would admit that the statute proposed would infringe fundamental principles as they have been understood by the traditions of our people and our law. It does not need research to show that no such sweeping condemnation can be passed upon the statute before us” (id., at 75-76 [emphasis added]). Nor on the local law before us either!
It would seem fundamental that a law that has no real impact upon a person does not deprive that person of a constitutional right. The majority, however, ignores that the SRO law will have varied affects on different landowners. Perhaps there are properties subject to this law for which SRO operation is the highest and best use. For other SRO operations, 8ü% may be a generous rate of return. It is likely that there are SRO owners who have never intended to further develop or differently develop their property. Of course, these persons are not before the court and, if they were, their interests might well be served by upholding the SRO law. Yet, without a record or the means to assess the differing impacts and with no attempt to make this assessment, the majority holds that Local Law No. 9 facially results in a regulatory taking with respect to every SRO dwelling in the City of New York. Resisting the blanket approach and using the concrete facts of an individual case is not a novel approach, especially in this area of constitutional law (see also, Ward v Rock Against Racism, 491 US —, 109 S Ct 2746).
The legislation enjoys a presumptive threshold of constitutionality. Research reveals no cases in which the Supreme Court or our court have used the regulatory taking theory to undo a legislative act on a facial attack. Also, no precedents in the orbit of this case have previously ventured into the per se physical taking universe to declare a legislative act facially unconstitutional. It could well be that, due to the need to assess the real economic impact of this kind of law upon different property owners before a regulatory taking is decreed, no such doctrine as a facial challenge to a law as a regulatory taking will be recognized. But even if such a proposition is possible, it certainly has not been found to and should not be allowed to be applied against a law such as the challenged one which inherently impacts on widely diverse and different property owners.
In the late 1960’s, New York City enacted a policy of utilizing tax abatements to encourage the destruction of SRO’s as substandard housing. When the staggering impact on the homeless population was realized, the City adjusted its policy, recognizing SRO shelter to be a significant component to the preservation of an affordable housing stock (see, Blackburn, Single Room Occupancy in New York City, at 6-7). This court only recently upheld the 1982 repeal of the tax abatement incentives against a Fifth Amendment due process claim by a property owner (Matter of Replan Dev. v Department of Hous. Preservation & Dev., 70 NY2d 451). We noted, with pertinency here, that "the amendment evidences the Legislature’s attempt to preserve what had become recognized as an important but rapidly disappearing source of low-income housing by eliminating the tax incentive to convert SRO’s” (id., at 454-455; see also, Benson Realty Corp. v Beame, 50 NY2d 994, supra).
The repeal of the tax abatements could not alone stanch the decline in the number of SRO units. Responding to the continued trend, the City passed the first SRO moratorium law, a predecessor to Local Law No. 9, on City Council findings "that a serious public emergency exists * * * created by the loss of single room occupancy dwelling units housing lower income persons” (Local Laws, 1985, No. 59 of City of New York § 1).
Local Law No. 9 (Administrative Code § 27-198.2) builds on these emergency legislative initiatives and establishes a renewable five-year moratorium on the demolition or conversion of SRO units. Owners must make SRO dwelling units habitable, may not warehouse them, and must rent them to bona fide tenants (Administrative Code § 27-2151 [a]). Owners may avoid application of the law by showing hardship, buying out or replacing the units (Administrative Code § 27-198.2 [d] [4]). The replacement provision allows demolition or conversion if new units are created through construction, rehabilitation or by buying an existing multiple dwelling. The hardship exemption applies if the property will not produce a reasonable rate of return and the replacement exemption would substantially impair the feasibility of redeveloping the property. A reasonable rate of return is defined as an annual profit equal to 8Vz% of the assessed value of the property. Another ultimate effort at legislatively balancing the respective rights of owners with the critical public interest in low and moderate housing needs allows an owner to obtain an exemption from the local law, by exercising a buyout of units subject to the moratorium. The $45,000 buy-out money must be used to provide substitutive affordable housing.
The rebellion against this careful legislative calibration, and against the Supreme Court and our own court’s admonitions that constitutional takings claims should be resolved on a singularly analyzed, as-applied basis with concrete factual settings, is untenable (see, Pennell v San Jose, 485 US 1, 11-12; Rochester Gas & Elec. Corp. v Public Serv. Commn., 71 NY2d 313, 324, supra). The court should not
Enactments of a local law pursuant to NY Constitution, article IX, § 2 (c) (10) and Municipal Home Rule Law § 10 (1) (ii) (a) (12) enjoy a? full presumption of constitutionality. A challenger must prove the legislation unconstitutional beyond a reasonable doubt (41 Kew Gardens Rd. Assocs. v Tyburski, 70 NY2d 325, 333, supra). Additionally, when the challenge is to economic legislation, "modern substantive due process principles require that the judiciary give great deference to the [legislative body]” (Rochester Gas & Elec. Corp. v Public Serv. Commn., 71 NY2d 313, 320, supra, citing Exxon Corp. v Governor of Md., 437 US 117, 124, reh denied sub nom. Shell Oil Co. v Governor of Md., 439 US 884; see, Lincoln Fed. Union v Northwestern Co., 335 US 525; West Coast Hotel Co. v Parrish, 300 US 379; Tribe, American Constitutional Law, at 581 [2d ed]).
Statutes undergoing constitutional challenge as facially invalid in a takings context enjoy even greater deference because there is "an important distinction between a claim that the mere enactment of a statute constitutes a taking and a claim that the particular impact of government action on a specific piece of property requires the payment of just compensation” (Keystone Bituminous Coal Assn. v DeBenedictis, 480 US 470, 494). The Supreme Court routinely rejects preenforcement taking challenges — conceptually and functionally equivalent to facial attacks — to the constitutionality of legislative enactments. Relevantly and bluntly, that court recently rejected a facial challenge to a rent-control law, stating: "we have found it particularly important in takings cases to adhere to our admonition that 'the constitutionality of statutes ought not be decided except in an actual factual setting that makes such a decision necessary.’ ” (Pennell v San Jose, 485 US 1,10, supra, quoting Hodel v Virginia Surface Min. & Reclamation Assn., 452 US 264, 294-295; see also, Ruckelshaus v Monsanto Co., 467 US 986,1005; Kaiser Aetna v United States, 444 US 164,175, citing Penn Cent. Transp. Co. v New York City, 438 US 104,124, supra.)
The Supreme Court’s "admonition” is particularly pertinent in this case where the declaration of facial unconstitutionality is overinclusive and rooted in a record devoid of specific and relevant facts. The conclusion that the antiwarehousing and
The majority’s footnote 13 misinterprets what is traditionally referred to as a "facial” challenge and, as such, fails to contend with a real deficiency in its analysis. A facial challenge is an argument that concludes that the law at issue is a taking in all its applications, as to every property within the law’s ambit. Of course there have been preenforcement challenges to laws as regulatory takings as applied to a particular owner’s property, but the majority does not identify even one case that has held that a statute, in all its applications, as to every piece of property affected by the law, works a regulatory taking because it frustrates the planned use for a piece of property. It does not explain how it can hold that the SRO law works a taking wherever the law applies. Yet, the majority concludes that the SRO law is a taking because it subjects properties to a use that owners "neither planned nor desired.” (Majority opn, at 105.) Simply put, the court is without any means in this case to know what every SRO owner "planned or desired”.
Another serious consequence overlooked by the majority is that its facial decree disproportionately demolishes a legislative structure designed to protect those in dire need. It thus legally positions the property owners to seek proportionate "just compensation” from the municipality daring to take, even temporarily, their properties and depriving them of their preferred uses (First Lutheran Church v Los Angeles County, 482 US 304, 321; see, Loretto v Teleprompter Manhattan CATV
In substantive due process inverse condemnation analysis, two distinct tests have evolved; one applicable to physical takings and the other to regulatory types. "A 'taking’ may more readily be found when the interference with property can be characterized as a physical invasion by government, than when interference arises from some public program adjusting the benefits and burdens of economic life to promote the common good” (Penn Cent. Transp. Co. v New York City, 438 US 104, 124, supra [citations omitted]). Physical invasion cases are special because of the nature and quality of the governmental intrusion on a private party’s property rights. A simple bright line rule applies: "any permanent physical occupation is a taking” (Loretto v Teleprompter Manhattan CATV Corp., 458 US 419, 432, supra [emphasis added]). "[W]hen the 'character of the governmental action’ is a permanent physical occupation of property, [the Supreme Court’s] cases uniformly have found a taking to the extent of the occupation, without regard to whether the action achieves an important public benefit or has only minimal economic impact on the owner” (id., at 434-435 [emphasis added; citations omitted]; Nollan v California Coastal Commn., 483 US 825, 831, supra; Kaiser Aetna v United States, 444 US 164, 180, supra).
The moratorium law at issue does not effect a physical taking because on its face it is not permanent in its individual application or in its limited five-year duration. As the Supreme Court reminded in Pennell (485 US 1, 12, n 6, supra), "We stated in Loretto v. Teleprompter Manhattan CATV Corp., 458 U. S. 419 (1982), that we have 'consistently affirmed that States have broad power to regulate housing conditions in general and the landlord-tenant relationship in particular without paying compensation for all economic injuries that such regulation entails.’ Id., at 440 (citing, inter alia, Bowles v. Willingham, 321 U. S. 503, 517-518 (1944)). And in FCC v. Florida Power Corp.,
Equally inapplicable is the regulatory taking approach. The concept that "if regulation goes too far it will be recognized as a taking”, now universally accepted in light of modern principles of substantive due process, was accompanied, even in its embryonic stage, with guidelines particularly resonant here: "Government hardly could go on if to some extent values incident to property could not be diminished without paying for every such change in the general law. As long recognized, some values are enjoyed under an implied limitation and must yield to the police power. But obviously the implied limitation must have its limits, or the contract and due process clauses are gone. One fact for consideration in determining such limits is the extent of the diminution. When it reaches a certain magnitude, in most if not in all cases there must be an exercise of eminent domain and compensation to sustain the act. So the question depends upon the particular facts.” (Pennsylvania Coal Co. v Mahon, 260 US 393, 413 [Holmes, J.].) Three important elements from this passage have evolved to become integral parts of regulatory taking analysis: claims should be resolved on concrete facts; the property regulation should substantially advance a legitimate governmental interest; and the owner should not be denied economically viable use of the regulated property (see, Nollan v California Coastal Commn., 483 US 825, 834, supra; Agins v Tiburon, 447 US 255, 260; Penn Cent. Transp. Co. v New York City, 438 US 104, 124, 127, supra; see also, Peterson, Land Use Regulatory "Takings” Revisited: The New Supreme Court Approaches, 39 Hastings LJ 335, 339-351).
No litmus test is available to determine what constitutes a legitimate State interest or what type of nexus "between the regulation and the state interest satisfies the requirement that the former 'substantially advance’ the latter”, but it is clear that "a broad range of governmental purposes and regulations satisfies these requirements” (Nollan v California Coastal Commn., 483 US 825, 834-835, supra; see, Pennell v San Jose, 485 US 1, 108 S Ct 849, supra [affordable housing]; Ruckelshaus v Monsanto Co., 467 US 986, supra [pesticide research and registration]; Andrus v Allard, 444 US 51 [protection of endangered birds]; see also, Matter of Replan Dev. v Department of Hous. Preservation & Dev., 70 NY2d 451, supra
There is no disagreement that Local Law No. 9 is of the "greatest societal purpose” because it cannot be seriously disputed that preserving SRO housing stock and stanching the growing ranks of the City’s shelter-less population is a legitimate governmental interest of the highest, most critical order (see, Matter of Replan Dev. v Department of Hous. Preservation & Dev., 70 NY2d 451, 454-455, supra). The SRO moratorium applies a tourniquet to the loss of this part of the housing stock and substantially advances the City Council’s expressed legislative interest of preserving these sheltering units and avoiding a further spillage of homeless into the City’s street population.
When it is clear — as in this case — that a law substantially advances a self-evidently legitimate governmental interest, the test to be applied in considering a facial challenge is simplified: "[a] statute regulating the uses that can be made of property effects a taking if it 'denies an owner economically viable use of his land’ ” (Hodel v Virginia Surface Min. & Reclamation Assn., 452 US 264, 295-296, supra; see, Keystone Bituminous Coal Assn. v DeBenedictis, 480 US 470, 495, supra; Agins v Tiburon, 447 US 255, 260, supra). The SRO moratorium law effects no such deprivation. Indeed, it guarantees a fair minimum return, among a whole host of other economic balancing features. Government regulation almost always limits the maximization of the economic aggrandizement from private property ownership. Local Law No. 9 concededly places substantial restraints on the destruction or redevelopment of SRO buildings. But I would find dispositive of this takings challenge that the law leaves the owners in possession and guarantees them a whole web of economic concessions or "give-backs”, including the minimum profit of 8ti% of the assessed value of the property per year (see, Andrus v Allard, 444 US 51, 65-66, supra).
Appellant owners and some amici argue nevertheless that properties could be put to more profitable uses if their destruction or redevelopment options were unimpeded. The simple answer to that proposition is that a property owner is not
The loss of future profits argument also "provides a slender reed upon which to rest a takings claim. Prediction of profitability is essentially a matter of reasoned speculation that courts are not especially competent to perform. Further, perhaps because of its very uncertainty, the interest in anticipated gains has traditionally been viewed as less compelling than other property-related interests” (Andrus v Allard, 444 US 51, 66, supra). Insofar as the case presents a facial attack, there is absolutely no record basis against which to determine whether the moratorium law interferes with distinct "investment-backed expectations” (see, Penn Cent. Transp. Co. v New York City, 438 US 104, 124, supra).
Peripherally, the court also decides today that one particular known person may not be ousted from his habitation because that would violate a legislated antieviction policy in a rent-control situation (Braschi v Stahl Assocs. Co., 74 NY2d 201 [decided today]). To be sure, the statutes and the issues have some differences, but they have one essential feature in common: Local Law No. 9’s genesis and purpose are founded in the identical social policy as the antieviction regulation — securing shelter for people — only in the instant case the statute tries to protect the most disadvantaged members of our society who truly have no where else to go. The court, contradictorily in my view, authorizes the expulsion of 52,000 people to allow, in the main, for commercial redevelopment of their former less-than-modest dwellings while keeping one known individual in his rent-controlled apartment. The decisional compass seems to be oscillating between opposite poles.
Judges Simons, Kaye, Alexander and Titone concur with Judge Hancock, Jr.; Judge Bellacosa dissents and votes to affirm in a separate opinion in which Chief Judge Wachtler concurs.
Order reversed, with costs, Local Law No. 9 declared to be unconstitutional and defendants enjoined from implementing the local law’s provisions.
