Daily Development for
Thursday, June 1, 1995

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

CONSTITUTIONAL LAW; TAKINGS; REGULATORY TAKINGS; RENT CONTROL: Rent stabilization scheme that permits tenant private hospital corporation permanent stabilization protection even though it acts as private sublandlord to its employee occupants lacks adequate nexus to public purpose and is a taking. Manocherian v. Lenox Hill Hosp., 643 N.E.2d 479 (N.Y. 1994) Rent control opponents should study this case. They don't win very many of them. But the tide may be turning.

Rent stabilization is a less onerous form of rent control, but nevertheless constitutes regulation of rents and a certain degree of public control of occupancy decisions. Here the rent stabilization ordinance was amended so that tenants could not both enjoy rent stabilization benefits and sublet their units. This gave the landlord greater control over the identities of the occupants of their properties, and in some cases might lead to some dectontrol. But the ordinance provided specially for certain units rented to a hospital if it sublet those units to its employees. Apparently in practice the beneficiary was the Lennox Hill Hospital.

Other protected tenants in the market did not enjoy rent stabilization benefits if they did not occupy the property for at least two of four years. This restriction did not apply to the hospital, which, of course, had perpetual existence, and thus remained a perpetual tenant, with basically all rights as a landlord over the terms of the occupancy leases. The court obviously felt some hostility to the protection of what it regarded as a privileged entity feasting at the expense of landlord/investors:

"The preservation of this Manhattan Upper East Side housing enclave for this privileged entity's benefit, albeit one engaged in a laudable and necessary eleemosynary health service function, cannot masquerade as ageneral welfare legslation. Purporting to promote the general public welfare by enabling not-for-profit hospitals to continue to provide subsidized housing benefits to its chosen employees cannot sustain the sweep and manner of the burden and confiscation effected against the few owners."

The court also found the ordinance to be a regulatory taking of the reversionary interest of the apartment owners because it permanently allocated occupancy rights to the hospital. The court's attempt to distinguish the recent U.S. Supreme Court decision on a similar issue in Yee v. Escondido, 112 S.C.t 1522 (1993), may not be satisfying to purists, and definitely did not satisfy the dissent, but nevertheless is significant.

In a provocative dissent, Justice Levine makes the argument that there is no taking, regardless of the lack of legal justification for the special treatment for the hospital, because the plaintiffs sufferred no economic consequence as a result of the hospital's special treatment. If the hospital were not to enjoy its special protection, the landlords would not necessarily receive a higher rent. The landlord's rents would still be regulated in most cases. The landlords' primary benefit would be to identify who was to be the beneficiary of the regulated rent. This, argues the dissent, is not an economic benefit in the context of the modern urban housing market, even though the right to control occupation might be viewed as having particular value in other contexts.

Justice Levine also argues that the public policy supporting the special provisions for the hospital was quite appropriate by any legitimate standard the court properly could apply. Then, in another provocative analysis, Justice Levine suggests that the Nollan "substantial nexus" test is properly applied, after Dolan, only to physical takings, such as required easements or similar physical exactions, and not to mere regulation, such as rent control. Therefore, Justice Levine argues, there need be no special nexus between the perceived need for hospital housing and the imposition of special regulation on these landlords.

Comment: Increasingly, "property rights activist" courts are putting the brakes to public regulatory devices that, in the view of these courts, improperly impose the burden of public policy objectives upon specific landowner groups. There is every reason to believe that the "conservative revolution" that swept the country in the past year will add to the number of like minded judges, and we are likely to see a surge of opinions like this one. Although bound up with close analysis and ringing rhetoric, the bottom line of much takings jurisprudence is "I know [a confiscatory regulation] when I see it, and my vision is colored by my view of the proper balance between private right and public interest." Note that Manocherian has already been cited with approval by Justices Thomas (Justice O'Connor, concurring) in a dissent to a recent denial of certiorari by the U.S. Supreme Court. Parking Assoc. of Georgia v. City of Atlanta, 1995 U.S. LEXIS 3621 ( 5/30/95). (letting stand a Georgia decision approving an Atlanta ordinance that requires surface parking lot owners to set aside property in their lots for trees.)

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