# Appendix — City of New York v. Seawall Associates

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1989
- **Citation:** 493 U.S. 976

## Text

Ve / | Supreme Court, U.S.
89-3 48 nage
‘|| see 5 Bes
No. 88 p?
JOSmeE F. SPAWOL, JR.

l?

~eLERK
32 one
SUPREME COURT OF THE UNITE

OCTOBER TERM, 1989

THE CITY OF NEW YORK, et al.,

Petitioners,
-against-
SEAWALL ASSOCIATES, et al.,
Respondents.

APPENDIX TO PETITION FOR A WRIT OF
CERTIORARI TO THE NEW YORK STATE
COURT OF APPEALS

PETER L. ZIMROTH,
Corporation Counsel

of the City of New York,
Attorney for Petitioners,
100 Church Street,
New York, New York 10007
(212) 566-6037 or 4338

LEONARD J. KOERNER, *
ELIZABETH DVORKIN,
of Counsel.

*Counsel of Record

September 1, 1989

TABLE OF CONTENTS

Page

Decision of the New York

State Court of Appeals,

Dated July 6, 1989 ..... A-1
Decision of the Supreme

Court, Appellate Division,

First Department,

Dated December 1, 1989 ... A-107
Decision of the Supreme

Court, Dated November 23,

pe) ty eee ye a) A-165
Local Law No. 9 of 1987 .. A-253
Local Law No. 1 of 1987 .. A-315

DECISION OF THE NEW YORK STATE
COURT OF APPEALS, DATED JULY 6,
1989.

Seawall Associates, et al.,
Appellants,
Vv.
The City of New York, et al.,
Respondents,
Richard Wilkerson, et al.,
Intervenors-Respondents,

(and two other actions. )

OPINION

This opinion is uncorrected and
subject to revision before
publication in the New York
Reports.

Joseph § L. Forstadt, Nancy
Hirschman, Nathan Z. Dershowitz, NY
City, for appellant Seawall.

Philip H. Schaeffer, New York
City, for appellants 459 West 43rd
St. Be Gk.

Gary M. Rosenberg & Franklin
R. Kaiman, New York City, for
appellant Sutton East, et ano.

Marvin L. Schwartz, New York
City, for appellant Anbe Realty.

Peter L. Zimroth, N¥C

Corporation Counsel (Elizabeth
Dvorkin of counsel ) for
respondents.

Saralee E. Evans, Virginia
Shubert, Robert M. Hayes, Narman
Siegel, Wayne Hawley, Marvin

Wexler, for intervenorsrespondents.
Carol S. Keenan, Yonkers, &

Ronald A. Zumbrun, Sacramento, CA,

for Pacific, amicus curiae.

- Glen S. Goldstein, NYC, for

Rent Stabilization Comm., amicus

curiae. .

HANCOCK, JR., J.

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

A-2

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 redeveiopment 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)/ on
“August 5, 1985, the City enacted
Local Law No. 59 which imposed an
18-month moratorium on the
demolition or conversion of
structures containing SRO units.
Thereafter, Local No. 22 was
enacted to extend the moratorium
through the end of 1986. Local Law
No. 22 added the requirement that
owners of SRO properties
rehabilitate all wacant units and
offer them for rent, and it
provided for substantial monetary

penalties for noncompliance.

local Law No. 59, a predecessor of Local

Law No. 9, mandated a study of SRO housing
in New York City by Urban Systems Research
and Company. The report, written by
Anthony Blackburn, was issued in February
1986 and recommended efforts by the City
to preserve SRO units.

A-4

Le

E 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 22 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

nn

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
(§ 27-198.2); the moratorium
extends for five years and is
renewable for additional five-year
periods as the city council deems
necessary (§ 7).

Rehabilitation ws and

Anti-Warehousing. 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
(§ 27-215l[a]); an owner is
presumed to have violated these
requirements if any unit remains
vacant for a period cf 30 dine
(§ 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 $45,000 per unit (or
such other amount as the
Commissioner of the Department of
Housing Preservation and
Development determines would equal
the cost of a replacement unit) or
by providing an equal number of
replacement units approved by the
commissioner

(§ 27-198.2[d][4][a][i] and [ii].

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 8 1/2% of the assessed

value of the property as an SRO

Te

multiple duel line
(§ 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

wo

so-called "buy-out, 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 free
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

ve

just compensation’ (First

English Evangelical Lutheran Church

v. County of Los Angeles, 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 right fully
those of society at large.
In our opinion, the provisions
- of Local Law No. 9, which not only
prevent the SRO property owners
from developing their properties by
replacing the existing structures,
but also compel them to refurbish

the structures and keep them fully

A-1l

einen elie

rented, impose on the_- property
owners more than their just share
of such societal obligations.
Whether viewed as _ effecting a
physical or regulatory taking,
Local Law No. 9, we believe,
violates the "takings" clauses of
the Fifth Amendment of the Federal
Constitution“ and Article I, § 7 of
the New York State Constitution.
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

2rhe Fifth Amendment "takings" clause

applies to the States through’ the
Fourteenth Amendment (see, Chicago, B. &
Q. R. Co. v. Chicago, 166 US 266).

Corp., 458 US 419, 427). We agree.
As emphasized by Professor
Michelman in his article quoted
with approval in Loretto, “the 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 ae thing which
theretofore was understood to be
under private ownership" emphasis
in original; 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

|

anti-warehousing 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 GATV cables and fixtures (see,

Loretto v. Teleprompter Manhattan

CATV Corp., supra), the permanent

flooding from the construction of a

dam (see, e.g., United States v.

Lynah, 188 US 445; Pumpelly v.

Green Bay Co., 80 US 577), or the

invasion of air space and resulting
interference with the land-use
below by continuous low altitude
airplane flights (see, United

States _v. Causby, 328 US 256).

Defendants argue that a physical
taking must entail the kind of
palpable invasion involved in those
cases and, therefore, that’ the

deprivation of intangible property

rights alone, such as that
resulting from coerced tenancies,
is not enough. We disagree.
Where, as here, owners are forced
to accept the occupation of their
properties by persons not already
in residence, the resulting
deprivation of rights in_ those
properties is sufficient to
constitute a physical taking for
which compensation is required.
Under the traditional
4 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

A-16

|

S
J

classical view of property -- "the
rights to possess, use, and -
dispose” (458 US at 435, quoting

United States v. General Motors,

323 US 373, 378) -- to hold that
the required installation of the
CATV cables and equipment on

plaintiff's 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, supra, at 435-436,

quoting Kaiser Aetna, 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, supra, at 436
[emphasis in orig]; see also,
Michelman, 80 Harv. L. Rev supra,
at 1165, 1228, and on 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, supra, at 432,

433 n 9).
Defendants argue,
nevertheless, that a physical

taxing requires something more than

an ouster of the owner's possessory
interest by the forced intrusion of
strangers, some actual displacement
of the owner's sadiaueaans through a
fixed encroachment like the TV
equipment in Loretto or an invasion
of property like the flooding in
Pumpelly. But the decisional law

is to the contrary. As the Supreme

Court explained in Nollan_v.

California Coastal Commn, (483 US

825), a physical occupation
requiring just compensation results
where individuals are given the
"right to pass to and fro, so that
the real property may continuously
be traversed, even though no
particular individual is permitted
to station himself permanently upon
the premises" (id., at _ [slip

opn at 6]). Likewise, in Kaiser

A-19

Aetna, in concluding’ that the
government's imposition of a
navigational servitude requiring
public access to a private pond and
marina would "result in an actual
physical invasion of the privately

'

owned marina," the court emphasized

that the right to exclude, thus
taken from the owner, is "one of
the most essential sticks in the
bundle of rights that are commonly

characterized as property” (444 US

at 176, 180).°

3The Loretto court in dictum -- referring
to the navigational easement of passage
permitting public access to plaintiff's
privately owned marina in Kaiser Aetna
stated that, although the easement
constituted a physical invasion of
plaintiff's property, it was not a per se
taking but "a government intrusion of an
unusually serious character" (458 US at
433). The court in Nollan apparently
adopted a different view and it would seem

(Footnote Continued)

Although the Supreme Court has
not passed on the specific tebe 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

(Footnote Continued)

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., supra, at __
[slip opn at 6]; see, Note, Municipal
Development Exactions, the Rational Nexus
Test, and the Federal Constitution, 102
Harv L Rev 992).

os

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 Santa Barbara, 833 F2d 1270

[9th Cir], cert den 108 S Ct 1120
[an ordinance imposing mandatory
rental obligations on mobile home
operators could constitute a per se

physical taking under Loretto))."

4h should be noted that the Hall decision
preceded the Supreme Court's decisions in
Nollan, First Lutheran Church and Keystone
Bituminous Coal Assn v. DiBenedictus (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

(Footnote Continued)

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. Willingham, 321 US

503, 517-518; Laub Estates vv.

Druhe, 300 NY 176, 180; see also,

cases cited in Loretto Vv.

Teleprompter Manhattan CATV Corp.,

supra, at 440) do not undermine

plaintiffs' claims of per se
.
physical takings. Indeed, those
ite
\

(Footnote Continued)
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.

A-23

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

A-24

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 mei
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 Fstates,

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 did not require
“any person . . . to offer any
accommodation for rent" (321 US at
517). By sharp contrast to the

statutes in Loab Estates and

Bowles, Local Law No. 9 compels
owners to be residential landlords;
it requires owners to rehabilitate
and offer their properties’ for
rent, as SRO units, to persons with
whom they have no existing
landlord-tenant relationship.

_ 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.”

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

(Footnote Continued)

i i ee Sk ne

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 [siip

opn at 10]) 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]

~

(Footnote Continued)

without limit; and (2) even if 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 a4
physical taking. Under First Lutheran
Church, supra, 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.

building[s] by third part[ies]"

(Id. at 440; see also, Kaiser Aetna

Vv. 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.
"Suffice it to say that government
regulation -- by definition ~--
involves the adjustment of rights
for the public good. Often this
adjustment curtails some potential
for the use or economic
exploitation of private property"

(Andrus v. Allard, 444 US 51, 65).

But the constitutional guarantee
against uncompensated takings is
violated when the adjustment of

rights for the public good becomes

A-29

so disproportionate that it can be
said that the governmental action
is “forcing some people alone to
bear public burdens which, in all
fairness and justice, should be
borne by the public as a whole”
at 49). There is no "set formula”
for determining in all cases when
an adjustment of rights has reached
the point when "justice and
fairness” require that compensation

be paid (see, Penn Central Trans.

Co. v. New York City, 438 US 104,

124). It is basic, however, that
such a burden-shifting regulation
of the use of private property
will, without more, constitute a
taking: (1) if it denies an owner
economically viable use of his

property, or (2) if it does not

substantially advance legitimat:

state interests (see, Nollan Vv.

California Coastal Commn., supra at

[slip opn at 8]; Keystone

Bituminous . Coal Assn. Vv.

DiBenedictus, 480 US 470, 485, 495;

Agins v. Tiburon, 447 US 255, 260:
~

Penn Central Trans. Co. v. New York
6

City, supra, atr 138 n_ 36).

Either would be sufficient to

invalidate a property-use
regulation. In our opinion, Local
6

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. U.S.,
supra, at 175; Keystone Bituminous Coal
Assn. v. DiBenedictus, supra, at 493, 499;
see also, Michelman, 88 Colum L Rev,

supra, at 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.

we

Law No. 9 fails on both counts. We
turn first to whether the law
denies owners the economically

viable use of their properties.

A-32

: (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 housing. Noncompliance with
any of these provisions subjects an

owner to heavy penalties. ’

"hs outlined supra, Local Law No. 9
provides for the imposition of a $150,000
civil fine for each room. altered,

(Footnote Continued)

A-33

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, p. 11; Nichols, § 5.01,
"What Constitutes Property"), it is
evident that Local Law WNo. 9
abrogates or substantially impairs
each of the three rights. As
previously discussed, the coerced

rental provisions deprive owners

(Footnote Continued)

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, § 27-198.2[d].4[g]. 2,[5]).

A-34 :

el

iG
,

——

Se

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.

A-35

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. a.
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.

A-36

The effect of Local Law No. 9
is unlike that of the Landmark 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 .° Nor is the effect of
Local Law No. 9 comparable to that

of the Subsidence Act in Keystone,

which reduced the maximum amount of
coal that could be mined, but did
not interfere with the owners

rights to continue to mine coal

SMoreover, the court in Penn Central
pointed out that, while the landmark
commission had denied an application to
build more than 50 stories above the
terminal, there was no_ showing that
permission to build fewer would be denied.
Additionally, the court noted that Penn
Central had not been deprived of all
pre-existing air rights, since under the
law these rights were transferable (438 US
104, 136-137).

A-37

i j

profitably.” By contrast, Local
Law No. 9 totally prohibits the use
-- entirely permissible before the
enactment of the law and the sole
purpose for purchasing investment
properties -- commercial
development. As a substitute, it
decrees that the properties must be
used for SRO housing and that the
owners must be satisfied with the
diminished financial returns from

such use. A rough analogy might be

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).

A-38

ieeaeeteaiatennniate iene

—————————— ee” rm—m—n—m——rwKrrwS-.-...reeaeaae SS!

telling the mine owners in Keystone

that they could no longer mine coal
and that they must instead put
their properties to some worthy,
but less remunerative, purpose --
say, storing nuclear waste.

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, 80 Harv
L Rev supra, at 1233 [prospective
continuing use "is a discrete twig
out of [the owner's] fee simple
bundle" of rights]}). Indeed, in

French Invest. Co. v. City of NY

(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

Assoc. 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]; Foster v. Scott, 136 NY

$77).
Defendants’ argument that

plaintiffs have not been deprived
of “economically viable use”
presupposes that the effect of

Local Law. No. 9 on their

A-40

Bilal aor a

properties should be assessed by
comparing the value of the rights

affected or abrogated with the

value of the total "bundle"
comprising the owners’ property
interests. But the permanent

abrogation of one of those rights,
without regard to its comparative
value in relation to the whole, may
well be sufficient to constitute a

taking. Thus, in Hodel v. Irving

(481 US 704), the Court held that
the total abolition of the "right
to pass on valuable property to
one's heirs" could, without more,
"be a taking” (id., at 715, 717).
And in Nollan, the court concluded
that an easement allowing persons
to pass across a private beach
could constitute a taking despite

the minimal impact on the total

A-41

value of the owners' property (483
US at _ [slip opn at 6]; see
also, various comments’ on_ the
theory of "conceptual severance”
[i.e., assessing only the value of
the rights taken without regard to
its relationship to the value of
the whole property], Radin, 88
Colum L Rev, supra, at 1674-1678;
Michelman, 88 Colum L Rev, supra,
at 1627-1628; Fischel,
Introduction: Utilitarian
Balancing and Formalism in Takings,

88 Colum L Rev 1581, 1592-1593;

Peterson, Land Use Regulatory
"Takings" Revisited: The New
Supreme Court Approaches, 39
Hastings L J 335, 356-357). Of
course, if the theory of

"conceptual severance” were applied

to the effect of Local Law No. 9 on

A-42

the rights of SRO property owners,
a taking would necessarily be
found. The rights to use and to
possess have been abolished and,
without regard to the value of the
owners’ remaining interests’. in
their buildings, that would be
sufficient.

As stated by Justice Saxe at
the nisi prius court, the
moratorium and anti-warehousing
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 Associates v.

City of New York, 134 Misc 2d 187,

197). By any criterion -- whether
the property rights abolished or
impaired are considered alone, as

in Hodel and Nollan, or the values

eerie ts hee O.

eo ete Maat APY ti 5

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 does
not pass the other threshold test
for constitutional validity of
regulatory takings: that the
burdens imposed substantially
advance legitimate state interests

(see, Nollan v. California Coastal

Commn., supra; Agins v. Tiboron,

supra; Penn Central, supra).

Of course, the end sought to

be furthered by Local Law No. 9 is

A-44

een

+ ah ra

ate ie th ne £

Prva. Be

of the greatest societal importance
-- alleviating the critical

10 The

problems of homelessness.
question here, however, concerns
the means established by the local
law purportedly to achieve this
end. In other words, can it be
said that imposing the burdens of
the foreed refurbishing and rent-up

provisions on the owners of SRO

properties substantially advances

the aim of alleviating the

homelessness problem? (See, Nollan

Vv. California Coastal Commn. ,
supra, at . [slip opn, at 8,
10»

Preventing homelessness" is what the
City itself claims to be the public
purpose served by Local Law No. 9 (see,
Municipal Respondents’ Brief, pp. 31-33;
see also Local Law No. 1 of 1987, section
i). We need not, therefore, apply the
"close nexus" test to other, hypothetical
purposes possibly advanced by the law.

A-45

15]. ) Is there a_ sufficiently
close nexus between these burdens
and “the end advanced as_ the

justification for [them]"? (Id.,

at ___ ~—([[slip.opn, at 11]; see also,
for discussions of the “close
nexus” test which requires

“semi-strict or heightened judicial
scrutiny of regulatory means-ends
relationships" as articulated in
Nollan, Michelman, Colum L Rev,
supra, at 1607-1614; Peterson, 39
Hastings L Rev, supra, at 354-358;
Note, Trespass at High Tide: The
Supreme Court Gives Heightened
Scrutiny to a State Imposed
Easement Report, 54 Brooklyn L Rev
991, 1011-1020).

Defendants contend that _ by
increasing the availability of SRO

units the anti-warehousing and

A-46

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, supra,

at 5-6). While, of course, any

A-47

increase in the supply of low-cost
housing would benefit some
prospective tenants, it is by no
means clear that it would actually

benefit the hemeless . !4

I1the dissenter's claim that our ruling
“authorizes the expulsion of 52,000
people" (see, slip dissenting opn, at 16)
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 upheld such
efforts (see, supra, at pp. 10-12). 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 | aie
"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.

A-48

f ; Ba a ha fe fi eas = - = on

> ‘ ¢. . “ ; - o s ol a ee ee eee ie 23
POE et Ge ee ee ee ee ee ae ee yee ee ee eT re eee a fa ee

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 -- ,

permitting “buy-out” payments of

$45,000 per SRO unit in lieu of

=

A-49

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 Landmark Law had the
direct and immediate effect of
saving a historic landmark, Grand
Central Station, the law's very

purpose. Likewise, in Keystone,

A-50

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’ anything when it
asserts its power to enjoin the
nuisance-like activity" (480 US at
491, n 20; see, Michelman, 88 Colum
L Rev, supra, at 1601-1604). And
in Andrus, the Eagle Protection Act
protected endangered eagles by
prohibiting a direct cause of their

endangerment, the unrestricted sale

of their parts. No such connection
has been shown between the
restrictions imposed on SRO

A-51

property owners by Local Law No. 9
and the amelioration of the
homeless crisis in New York City.
The close relatedness between the
ends to be achieved and those who
are burdened, as existed im Penn

Central, Keystone and Andrus, is

just not present.

III
The question remains whether
the added features of Local Law.
No. 9 -- the buy-out, replacement
12

and hardship exemptions -- in

some way mitigate the invidious

Le see Section 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
43d Street Corp. ) or creating a
replacement unit for any unit taken off
the SRO housing rental market. A
replacement unit may be and mist be
approved by the commissioner. 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 (section 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 8 1/2% of
assessed value. As the provisions point
out, however, there are no standards or
guidelines for the exercise of the
commissioner's discretion.

A-53

ee ee See ee Se Tee ee ee ee Oe ie Pee, See m ah ek ia

effects of the law so that it
becomes constitutionally
acceptable. We agree with Justice
Saxe that they do not (Seawall

Assocs. v. New York, 134 Misc 2d

198). The reasons, we think, are
evident. |

If, as we hold, the effect of
the moratorium and anti-warehousing
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

A-54

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
uncompensated and, therefore,
unconstitutional appro-priation of
your properties or pay the price
(in cash or in replacement units)
-- amount to just the sort of
exaction which could be classified,
not as "a valid regulation of land
use but, ‘an out-and-out plan of

extortion. ' (J.E.D. Associates,

i. eee 12) 0... 581,

584, 432 A. 2d 12, 14-15 [1981])"

(Nollan Vv. California Coastal
Commn., supra, at [slip opn, p.
A-55

11]; see also, Sterk, Nollan, Henry

George, and Exactions, 88 Colum L
Rev 1731, 1746-1751).

Nor can the hardship exemption
make a difference. It can do no
more than permit the commissioner
-- in the event that an owner could

ae : seas 13
ever come within its provisions

13See Section 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 1/2% 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 8 1/2% 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 4s
low-income SRO rental housing. Thus, the

(Footnote Continued)

A-56

-- to exercise his discretion and
lower the purchase price of escape
from the law. If Local Law No. 9
creates an illegal taking
notwithstanding the buy-out '= and
replacement options -- as we hold
it does -- it ‘certainly does not
become’ legal simply because an
owner may, in some cases, buy his
way out of the law by paying a
lesser sum.

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

Landmark Law in Penn Central, the

(Footnote Continued)

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.

Subsidence Act in Keystone, and the

Eagle Protection Act in Andrus.
Unlike the regulatory actions in
those cases, which simply limited
the owner's 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 Aetna] = and

"those that are negative" [as, for

example, in Penn Central], Radin,

88 Colum L Rev, supra, at 1667,

1678-1680). Like the property

A-58

owners in Loretto, Kaiser Aetna and

Nollan, who must’ subject’ their
properties to public’ use for
purposes of fixing CATV cables or
allowing public access to Ps private
marina cr across a private beach,
owners of SRO hadkheleas have had
the use of their properties
actually appropriated for the
benefit of the public.

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;

Saxe, Takings and the Police Pewer,

A-59

he lls

74 Yale L J 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 anti-warehousing
provisions inevitably force
property owners "alone to bear

public burdens which in all

A-60

si.

fairness and justice should be
borne by the public as_ whole”

(Armstrong v. U.S., supra, at 49).

Because the owners are, by the
terms of the law, afforded no
compensation, Local Law No. 9, we

d
hold, is facially invalid!", under

l ‘contrary to assertions in the dissenting
opinion (see, slip dissenting opn at pp.
2-3, 6-9), 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,
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

(Footnote Continued)

A-61

—= |

the "takings" clauses of both the

federal and state constitutions

(Footnote Continued)

rights and a threat to continue it. Under
these circumstances. . . jurisdiction is
clear" (id. [emphasis added]). The Court
further elaborated that the property owner
was not claiming specific injury from the
actual application of the local law, but
"that the mere existence and threatened
enforcement of the ordinance, by
materially and adversely affecting values
and curtailing the opportunities of the
market, constitute[d] a present and
irreparable injury” (id., at 395 [emphasis
added] ).

More recently in Hodel v. Virginia (supra)
and in Keystone (supra), the Supreme Court
repeated the distinction between a facial
challenge and one based on application. A
"facial challenge,” the Court’ noted,
"present[s] 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,
supra, at 295). Numerous such facial
challenges have been sustained by both the
Supreme Court and our court (see e.g.,

(Footnote Continued)

A-62

(U.S. Const. Amends 5, 14; NY Const
Art 1, § 7).)°

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,

(Footnote Continued)

Nollan v. California Coastal Commn.,
euers, at _.» «.. {S8iip ope, at 6, 11};
Hodel _v. Irving, supra, at 716-717;
Loretto v. Teleprompter Manhattan CATV
Corp., supra, at 434-435; French
Investment Co. v. City of New York, supra,
at 590-591; Westwood Estates v. Vil. of S.
Nyack, 23 NY2d 424, 427; see also, Beacon
Hill Farm Assoc. v. London Cty Bd. of
Supervisors, __ F2d __, 1989 WL 54784).

1514 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 mecessary 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 1, § 6).

A-63

the Supreme Court -- -applying a

laizzez 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

A-64

aaa ii ial

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 cease doing
[that] business." . (134 Misc 2d
187, 197.) The issue is not one of
"economic due process,” but
constitutional command.

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

A-65

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.

A-66

BELLACOSA, J. (dissenting):

I vote to affirm the
declaration of facial
constitutionality of New York
City's Local Law 9 -- the Single
_ Room Occupancy (SRO) Moratorium Law
(adubnier tative 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 ‘i 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

67

>
i

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 4 infringe
fundamental principles as
they have been understood
by the traditions of our

A-68

ae ee een —— ee |

Ee ae eel

ae

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!
Eighty-five years after
Lochner, we observe property

rights, like the contract rights of
that bygone era, being exalted over
the Legislature's assessment of
social policy. Like the economic
theories underlying Lochner we, as
judges, should not inquire into the
wisdom or wholesomeness of SRO's as
shelter for potentially 52,000 new,
displaced homeless persons -- that
policy choice belongs to the
elected officials who enacted the

law (see, Lochner v. New York,

A-69.

supra, at 75; Boreali v. Axelrod,

71 We2d 1, 12).

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, 8
1/2% 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

A-70

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 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, US ; S. Ct.

1989 WL 65720, at 19).

The legislation enjoys a
presumptive threshold of
constitutionality. Research

reveals no cases in which the

Supreme Court or our Court have

A-71

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 Lenieiative 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

A-72

impacts on widely diverse and

different property owners.

The ardently protected
economic liberties of property
owners to do with their property as
they wish, as long as that use does
not interfere with the liberty of
others to do the same --_ the
shibboleth upon which the dual
"taking" analysis is erected in
this case -- can cut both ways and
is therefore not dispositive of
this case at this. stage. This
Court has in recent years.
recognized and approved significant
encroachments on the ‘libertarian
ideal of property rights against
"takings" claims. Property rights
are acknowledged justly as_ not
absolute, "for government could not

exist if a citizen had the

A-73

diy

“unfettered right to “use property"

(Rochester Gas & Electric v. Public

Serv. Commn., 71 NY2d 313, 321;

see, 41 Kew Gardens Assoc. _v.

Tyburski, 70 NY2d 325; Jackson v.

NY Urban Development Corp., 67 NY2d

400; Benson Realty Corp. v. Beame,

50 NY2d 994; Penn Cent. Transp. Co.

v. New York City, 42 NY2d 324,

aff'd 438 US 104). These
illustrative contrary precedents
sink or at least submerge the logic
and absolutist constitutional
taking analysis advanced to support
a reversal in this case.

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

A-74

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
CEey; Bt > B-7?. This Court only
recently upheld the 1982 repeal of
a tax abatement incentives against

a Fifth Amendment due process claim

by a property owner (Matter of

Replan Dev. v. Dept. of Housing

Preservation and Development of the

City of New York, 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

A-75

convert SRO's" (id., at 454-5; s

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 9,.on City Council
findings "that a serious’ public
emergency exists * * * caused by
the loss of single room occupancy
dwelling units housing lower income
persons" (Local Law 59 of 1985,
§1). In extending the moratorium
in 1986, the City Council added
"that there has been widespread
withdrawal of single room occupancy

dwelling units from the~ rental

market, which has further reduced

an already inadequate supply of
such units, [ and } that this
“practice has contributed to the
increasing homeless population”
(Local Law 22 of 1986, §1). A year
later, the Council addressed the
SRO housing crisis in terms of the
increasing homeless population,
stating "that adequate housing
resources for such occupants do not
currently exist; [and] that there
is evidence to conclude that the
ordinary operation of the real
estate market in this city will
result in further reduction of such
units and that units which have
been lost will not be replaced"
(Local Law 1 of 1987, §1, amended
and re-enacted Local Law 9 of

1987).

A-77

Local Law 9 (Administrative
Code of the City of New York,
§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 §27-215lfa]).
Owners may avoid application of the
law by showing hardship, buying out
or replacing the units
(Administrative | Code
§27-198.2fd][4]). The replacement
provision étiews demolition or
conversion if new units are created
through construction,

rehabilitation or by buying = an

A-78

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 8 1/24 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
buy out of units subject to the

moratorium. the $45,000 buy out

A-79

money must be used te provide
substitutive affordable housing.
The rebellion against’ this
careful legislative calibration,
and against the Supreme Court and
cour 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. City of

San Jose, 485 US l, 108 S Ct

849, 857; Rochester-Gas & Electric

v. Public Serv. Commn., 71 NY2d

313, 324, supra). The Court should
not sweepingly hold that the SRO
moratorium law produces both a
regulatory and a per se physical
taking, facially violative of the

United States Constitution.

A-80

wh

wd

Enactments of a local law
pursuant to New York Constitution
Article IX, §2[c],[10] and
Municipal Home Rule Law
§l10[1l}[ii]f[a][12}] enjoy a full
presumption of constitutionality.
A challenger must prove the
legislation unconstitutional beyond

a reasonable doubt (41 Kew Gardens

Assoc. 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 and_Electric v.

Public Serv. Commn., 71 NY2d 313,

320, citing, Exxon Corp. Vv.

Governor of Md., 437 US 117, 124,

reh denied sub nom. Shell Oil Co.

A-81

~v. Governor of Md., 439 US 884;

see, Lincoln Federal Labor Union v.

Northwestern Iron and Metal Co.,

335 US 525; West Coast Hotel v.

Parrish, 300 US 379; Tribe,
American Constitutional Law [2d
ed], at 581).

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 aé_e specific

piece of property requires’ the

payment of just compensation"

(Keystone Bituminous Coal Assn. v.

DeBenedictis, 480 US 470, 494).

A-82

The Supreme Court routinely rejects

preenforcement taking chailenges --

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.

City of San Jose, 485 US l, pti

108 S Ct 849, 856, supra, quoting .

Hodel v. Virginia Surface Mining & ~

Reclamation Assn, Inc., 452 US 264,

294-295; see also, Ruckelshaus_ v.

A-83

(ocerattienlineenas adits 0 selieeliatneanaaeeeneall

Mensanto, 467 US 986, 1005; Kaiser

Aetna v. United States, 444 US 164,

175, citing, Penn Cent. Transp. Co.

v. City of New York, 438 US 104,

124).

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 epentiite and
relevant facts. The conclusion
that the anti-warehousing and
rental provisions are a_e forced
occupation, effecting a per se
physical taking, contradicts’ the

way high courts have treated their

functionally and conceptually
equivalent rent control and
regulatory statutes -- by

A-84

repeatedly finding them
constitutional, at least facially

(see, Pennell v. City of San Jose,

485 US 1, 108 S Ct 849, supra;

Benson Realty Corp. v. Beame, 50

NY2d 994, supra; see also, Nollan ~

Vv. California Coastal Commn., 483

US 825; Loretto v. Teleprompter

Nes

Manhattan CATV Corp., 458 US 419).

This contrary holding negates an
as-applied analysis which could
support findings in appropriate
cases that some SRO's are currently
being operated at their highest and
best use, thus suffering no
economic disadvantage under the
law; or that, by reason of the
\ hardship provision, may never be
subject to the moratorium. There
is no way of knowing on this record

the extent to which landlords are

A-85

Bali PII rer - Hao ore ee Bie Bs RY erm e

economically affected or how
profitable the dwelling units might
be. Facial constitutional
annihilation in such circumstances
is a disproportionate remedy.

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 pre-enforcement
challenges to laws as_ regulatory
takings as applied to a particular
owner's property, but the majerity
does not identify even ome case

that has held that a statute, in

A-86

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 or desired" (slip
opn at p. ll). Simply put, the
court is without any means in this
case to know what every SRO owner
"planned or desired.”

Ancther 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
English Evangelical Lutheran Church
v. County of Los Angeles, 482 US
304, 321; see, Loretto v.

Teleprompter Manhattan CATV, 58

NY2d 143, 149, 153, on remand from
458 US 419, supra; see _ also,

Peterson, Land Use __ Regulatory

"Takings" Revisited: The New York

Supreme Court Approaches, 39

Hastings Law Journal, 335, 337).
Thus, ironicaliy, instead of a tax
and services burden being shared

somewhat equally, one class of

property owners may reap a windfall

at the expense of all others by the
most plenary threshold mechanism.
The majority's decision compensates
those from whom nothing is taken at
the expense of those who have
nothing to give.

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 ‘end burdens of economic
life to promote the common good”

(Penn Cent. Transp. Co. v. New York

City, 438 US 104, 124, supra

A-89

RET COTE 9° SESH orm CREEPER

[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

government 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,

A-90

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
aa: fF Sa oe |. oe ee

supra), "We stated in Loretto v.

Teleprompter Manhattan CATV Corp.,

458 US 419, 102 S. Ct. 3164, 73
L.Ed.2d 868 (1982), that we have
"consistently affirmed that States
have broad power’ to regulate
housing conditions in general and

the landlord-tenant relationship in

A-91

particular without paying
- compensation for all economic
injuries that such regulation

entails." Id., at 440, 102 S. Ct.,

at 3178 (citing, inter alia, Bowles

v. Willingham, 321 US 503, 517-518,
64 S. Ct. 641, 648-649, 88 L.Ed.
892 (1944)). And in FCC v. Florida

Power Corp., 480 US 107 S. Ct.

1107, 94 L.Ed.2d 282 (1987), we
stated that ‘statutes regulating
the economic relations of landlords
and : tenants are not per se
ee. cne., 2 ... 207 &. Ct.,
et Lithia

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

A-92

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 narticular facts

(Pennsylvania Coal Co. v.
Mahon, 260 US 393, 413,
415 [Holmes, J.]).

A-93

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 Law Journal 335, 339-351,

supra).

A-94

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.

|

Pennell

825, 834-835, supra; see,

v. City of San Jose, 485 US 1, 108

S Ct 849 [affordable housing],

supra; Ruckelshaus v. Monsanto, 467

US 986, supra [pesticide research

and registration]; Andrus Vv.

Allard, 444 US 51 [vrotection of

endangered birds]; see also, Matter

Dept. of Housing

A-95

Preservation and Development, 70

NY2d 451, supra [preservation SRO

housing stock]; Benson Realty Corp.

v. Beame, 50 NY2d 994, supra

[stable stock of affordable
housing]).— As long as the law has
an identifiable public character,
the ‘means by which it is attained
is for the legislative body to
determine, not the Courts

(Ruckelshaus v. Monsanto, 467 US

986, 1014, supra).

There is no disagreement that
Local Law 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

A-96

(see, Matter of Replan Dev. v.

Dept. of Housing Preservation and

Development of the City of New

York, 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: "Tal. statute

regulating the uses that can be

A-97

er ere a wre _-
~ en 19

made of property effects a taking
if it denies an owner economically

viable use of his land" (Hodel v.

Virginia Surface Mining, 452 US

264, 295-296, supra; see, Keystone

Bituminous Coal Assn. v.°

DeBenedictis, 480 US 470, 495,

supra; Agins v. Tiburon, 447 US
253, 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 9
concededly places substantial
restraints on the destruction or

redevelopment of SRO buildings.

A-98

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

’

"sive-backs,' including the minimum
profit of 8 1/2 percent 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

constitutionally guaranteed the

most profitable use (Andrus_ vy.

Allard, supra; Penn Cent. Transp.

A-99 ‘

Co. v. New York City, 438 US 104,

125, supra). In determining
whether regulations over property
deprive the owner of the
economically viable use of the
land, we have required proof "by
‘dollars and cents' evidence that
under*® no use permitted by the
regulation under attack would the
properties be capable of producing
a reasonable return; the economic
value, or all but a bare residue of
economic value, of the parcels must

have been destroyed" (de St. Aubin

v. Flacke, 68 NY2d 66, 77; see,

Penn Cent. Transp. Co. v. City of

New York, 42 NY2d 324, 329-331,

aff'd 438 US 104, supra; French

Investing Co. v. City of New York,

39 NY2d 587, 596, appeal dismissed

429 US 990). That standard can be

A- 100

properly ventilated and applied
only in administrative and judicial
forums on an as-applied case record
development -- not in an aerie
perch on a facial review.

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

A-101

which tto 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 anti-eviction

policy in a rent control situation

(Braschi _v. Stahl Associates,

NY2d pa’ [slip opn, decided
today]). To be sure, the statutes
and the issues have some
differences, but they have one
essential feature im common: Local
Law 9's genesis and purpose are
founded in the identical social

policy as the anti-eviction

A-102

EE A Mg awe CN te

a

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 nowhere else
to go. The Court, contradictorily
in my view, authorizes =
expulsion of 52,000 people to
allow, in the main, for commercial
redeve lopment 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.

In sum, the Constitution, the
authorities and the policies do not
support the conclusion that the

legislated emergency moratorium

against the elimination of SRO

dwelling units, societally critical

A-103

to the temporary preservation of
some housing for low income
persons, is a facially
impermissible governmental taking,
i.e., an inverse condemnation of
property. The precedents of the
Supreme Court and of our Court,
properly applied and understood, do
not warrant the grave judicial
usurpation effected today in the
declaration of facial
unconstitutionality of an enactment
by a duly elected democratic body
-- a declaration which gives en
intonation to Judge Cardozo's
disquieting observation that:
"Judges march at times to pitiless
conclusion under the prod of a
remorseless logic which is supposed
to leave them no alternative. They

deplore the sacrificial rite. They

A-104

perform st. nonetheless, with

averted gaze, convinced as_ they
plunge the knife that they obey the
bidding of their office. The
victim is offered up to the gods of
jurisprudence on the alter of

regularity" (Cardozo, Growth of the

Law, at 66).

ee ff & & & €& eke et 2 2 = 2 2 EE FT 2

Order reversed, with costs, Local

Law No. 9 declared to be
unconstitutional and defendants
enjoined from implementing the

Local Law's provisions. Opinion by
Judge Hancock in which Judges
Simons, Kaye, Alexander and Titone
concur. Judge Bellacosa dissents
and votes to affirm in an opinion
in which Chief Judge Wachtler

concurs.

A-105

Decided July 6, 1989

A- 106

DECISION OF THE APPELLATE DIVESION,
FIRST DEPARTMENT, DATED DECEMBER 1,
1988

SEAWALL ASSOCIATES et Sl.
Respondents, and 459 WEST 43RD

STREET CORP. et |
Respondents-Appellants, v. CITY OF
NEW YORK et oo
Appellants-Respondents, and RICHARD
WILKERSON et rs.

Intervenors-Appellants. (Action No.
1)

EASTERN PORK PRODUCTS COMPANY et
Gi.s Respondents-Appellants, Vv.
CITY OF NEW YORK et Ghia.
Appellants-Respondents. (Action No.
y

TESTAMENTUM, Respondent, v CITY OF
NEW YORK et ek. ,
Defendants-Appellants. (Action No.
399 =

First Department, December 1, 1988
SUMMARY

CROSS APPEALS from three
orders and judgments (three papers)
of the Supreme Court (David B.
Saxe, J.), entered March 16, 1988
in New York County, which, in
actions Nos. 1 and 3, declared
invalid various provisions of Local
Laws, 1987, No. 9 of the City of
New York, and enjoined the city
from implementing or enforcing said
provisions, and, in action No. 2,
granted the cross-motion of the

A-107

municipal defendants to dismiss the
complaint.

Seawall Assocs. v. City of New
York; 138 Misc 2d 96, reversed.

Eastern Pork Prods. Co. v. City of
New York, 138 Misc 2d 96, affirmed.

Testamentum v. City of New York,
138 Misc 2d 96, reversed.

APPEARANCES OF COUNSEL

Nathan Dershowitz of counsel
(Sheldon D. Camhy and George G.
Nelson with him on _ the 0brief;
Dershowitz & Eiger, P.C., and Shea
& Gould, attorneys), for Seawall
Associates, respondent.

Marvin LL. Schwartz of counsel
(Shapiro & Schwartz, attorneys) for
Anbe Realty Co., respondent.

Philip H. Schaeffer of counsel
(Jane __iOD.z. Connolly and Steven
Mairella with him on the brief;
White & Case, attorneys), for 459
West 43rd Street Corp. and another,
respondents-appellants in actions
Nos. 1 and 2.

Gary M. Rosenberg of counsel
(Franklin R. Kaiman and Theresa J.
Hecker with him on the brief;

Rosenberg & Estis, weno
attorneys), for Sutton East
Associates -86 and another,

respondents-appellants.

A-108

Elizabeth Dvorkin (Leonard Koerner
with her on the brief; Peter L.
Zimroth, Corporation Counsel,
attorney), for City of New York,
appellants-respondents in actions

Nos. l and 2 and
defendants-appellants in action No.
.

Saralee E. Evans of counsel (Norman
Siegel, Wayne G. Hawley and Anne R.
Teicher with her on the brief), for
Richard Wilkerson and others,
intervenors-appellants.

Virginia Shubert of counsel (Robert

M. Hayes and Mitchell S. Bernard
with her on the brief), for
Coalition for the Homeless,

intervenor-appellant.

Edmund J. Burns of counsel (Maria
Scorcia with him on the brief;
Burns, Kennedy, Schilling & O'Shea,
attorneys), for Testamentum,
respondent.

Carol S. Keenan of counsel (Ruben
Klein, P.C., and Ronald A. Zumbrun,
Edward J. Connor, Jr., and Timothy
A. Bittle, attorneys), for Pacific
Legal Foundation, amicus curiae.

OPINION OF THE COURT

The issue in these
consolidated actions is whether

Local Laws, 1987, No. 9 of the City

A-109

of New York, which was approved
March 5, 1987 and which, inter
alia, provides for a five-year
moratorium on the demolition or
conversion. of single room occupancy
housing, is constitutional.

For more than 10 years, the
governmental officials of the City
of ave York have been wrestling
with the problems related to single
room occupancy (SRO) housing.

An SRO has been defined as a
living unit which shares a kitchen
and/or bathroom with one or more
other units (see, Blackburn, Single
Room Occupancy in New York City
[1986 report prepared for the City
of New York Department of Housing,
Preservation and Development ]).
SRO units are found in hotels,

apartment buildings, and even

A-110

private homes. We "judicially

notice” (Prink v. Rockefeller

Center, 48 NY2d 309, 316-317
[1979]), as a matter of common
knowledge, that for generations,
SRO units have served as a
relatively inexpensive form of.
shelter for persons of low and
moderate income.

Over the past decade, two
major factors have caused a
significant decline in the number
of SRO units available to the poor.
First’, upon the basis of adopting
the widespread opinion that SRO
units were "substandard" housing,
the City adopted a policy of
encouraging the démolition, - and
then redevelopment of the buildings
containing such units. Second, due

to the rapid rise in real estate

A-111

eat TS bo coms

values in New York City,

particularly in Manhattan, where

75% of the SRO units are located,

many SRO owners found it more
profitable to convert their
buildings to commercial and other
residential uses, rather than to
continue to operate them as SROs.
Mr. Paul A. Crotty,
Commissioner of the New York City
Department of Housing Preservation
and Development (HPD), in an
affidavit, dated April 13, 1987,
which was submitted in support of
the city's position in the instant
litigation, stated, in pertinent
part: "Significant hardships and
social costs have attended the
decline in the number of SRO units.

SRO residents have frequently been

pressured to vacate units through

A-112

the use of threats, violence,
reductions in essential services
and other forms of harassment. The
elderly, physically and mentally
disabled and non-English speaking
residents of SROs have been
especially vulnerable -to such
tactics. Because of a severe
shortage of lower cost housing in
New York City, displaced SRO
residents often find it difficult
or impossible to find new housing.
mete Moreover, there is
substantial evidence that the
displacement of SRO residents and
the loss of these units has
contributed to the City's growing
homeless population. Providing
shelter for the homeless has placed
a significant strain on the City’s

resources. The City provides

A-113

shelter for a far greater number of
homeless people than any other City
in the county. Indeed, New York
City currently houses as_~= many
homeless individuals in its
shelters as it did at the height of
the Geant Banvecsion.”

As soon as the City government
realized that SRO units were
disappearing at an alarming rate
from the city's housing stock, with
the result that the number of
affordable rental housing units for

the poor was shrinking, the city

abandoned its policy, mentioned
supra, of encouraging the

destruction and redevelopment of
SRO units, and took steps to stop
the decline in this form of

housing.

A-114

In 1982, the city signalled
its change in policy, by amending
Administrative Code of the City of
New York (Administrative Code)
J51-2.5(i)(6) (now §11-243[i][6]),
so as to eliminate the J51 property
tax abatements for the conversion
of SRO dwellings to other uses;
and, the Court of Appeals in Matter

of Replan Dev. v. Department of

Hous. Preservation & Dev. (70 NY2d

451 [1987], appeal dismissed ___ US
___, 108 S Ct 1207 [1988]), held
that legislation constitutional.
Subsequently, in an effort to
discourage the harassment of SRO
residents by owners, who were
seeking to empty their buildings in
order to make more profitable use

of them, the City Council in 1982,

enacted the Unlawful Eviction Law

A-115

hr Ror init ater a:

(see, Local Laws, 1982, No. 56, of
City of New York), and, funded the
Special Housing Unit in the New
York County District Attorney's
Office, which specialized in the
investigation and prosecution of
corrupt landlords, who used
unlawful means to drive SRO tenants
out.

Thereafter, in 1983, for the
purpose of slowing up efforts at
alteration or demolition of SRO
properties, the Council enacted
Local Laws, 1983, No. 19, of the
City of New York, which provided
that the City Department of
Buildings could not issue a permit
for the alteration or demolition of
an SRO building, unless the
Commissioner of HPD certified that

there had been no harassment of the

A-116

residents of such a building during
the previous 36 months.
Furthermore, this law states, if
HPD certification is denied, then
the Department of Buildings is
prohibited (see, Administrative
Code § 27-198) from issuing this
type of permit for a period of 36
months from the date of the denial
of the certification. This
regulatory scheme was’ sustained,
after a Federal constitutional

challenge, in Sadowsky v. City of

New York (732 YF2d 312 {2d Cir

1984]).

When the enactment of _ the
laws, discussed supra, did not*stem
the decline in the sieilbvaie of SRO
units, the Council enacted Local
Laws, 1985, No. 59, of the City of

New York. In enacting this law the

A-117

Council declared that it had found
"a serious public emergency exists
* * * created by the loss of single
room occupancy units housing lower
income persons" (see, Local Law No.
59, § 1). The purpose of this law
was to maintain the status quo,
while the city reformulated its
policy of dealing with the SRO
problem. Our examination of Local
Law No. 59 indicates that it, in
substance, placed an 18-month
moratorium, retroactive to January
9, 1985, on the demolition or
conversion of most categories of
SRO properties, and mandated a
study of SRO housing.

Mr. Anthony J. Blackburn, as
project director, conducted’ the
mandated study. In 1986, he issued

to the HPD a report, which was

A-118

Se ee ae ee

prepared by Urban System Research &
Engineering, ie. and entitled:
SINGLE ROOM OCCUPANCY IN NEW YORK
CITY.

Review of the Blackburn study
by us indicates it found that the
number of SROs was diminishing,
SROs house a_ predominantly poor
population, and for SRO tenants,
there are no housing alternatives.
Furthermore, in substance, the
study recommended a major effort by
the city to preserve SROs, owners
of SROs should be allowed _ to
demolish them, as long as_ they
replace the units in some _ other
location, and the needs of SRO
tenants would be better teva if
the landlords of SROs were

not-for-profit corporations.

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Before city officials had
finished evaluating the Blackburn
study, und formulating a new SRO
housing plan, the moratorium,
established by Local Law No. 59,
expired on July 9, 1986.
tisditere. the Council enacted
Local Laws, 1986, No. 22 of the
City of New York, which extended
the moratorium on demolition or
conversion of SROs to December 31,
1986. Local Law No. 22 also banned
“warehousing,” by requiring SRO
owners to maintain the units in
habitable condition and, to make a
good-faith effort to rent them.
Additionally, if an SRO unit was
not occupied by a bona fide tenant
for a period of 30 days or longer,
this law created a_-— rebuttable

presumption that the SRO landlord

A-120

2 mtr CE Nt teil th aril

was in violation and, for each such
unit, the landlord was subjected to
a statutory penalty of $500, plus a
daily fine of $250. Moreover, this
law exempted largely © vacant
buildings from the moratorium and
“ant iwarehousing” ' provisions,
either as of right, or by payment
to a housing fund.

The constitutionality of Local
Law No. 22 was challenged by
Seawall Associates (Seawall), 459

West 43rd Street Corporation (459

West), Eastern Pork Products
Company (Eastern), Sutton East
Associates-86 (Sutton East),

Channel Club and Anbe Realty Co.
(Anbe Realty).

Seawall is a partnership,
which is engaged in the business of

acquiring and holding real property

A-121

ee ot ee

i ee ee oe

in midtown Manhattan for

development and sale. In October
1984, Seawall purchased several
contiguous lots, in the block

bounded by 33rd and 34th Streets
and Eighth and Ninth Avenues.
Included in this plot were old
structures in poor condition, which
had been operated by prior owners
as SRO residential hotels. One of
these buildings was half empty, a
second was nearly vacant, and a
third contained no tenants at all.
The intention of Seawall is to
demolish all of the buildings, and
erect a commercial office building.

459 West is in the business of
acquiring real estate for, inter
alia, development and sale. On or

about April 4, 1970, an affiliate

of 459 West acquired "The

A~taz

Diplomat," which was operated as a
residential hotel, containing 216
SRO units. The Diplomat is located
at 108 West 43rd Street, in New
York County. By 1986, according to
owner 459 West, 110 of the
Diplomat's SRO units were vacant
and uninhabitable. Unequivocally,
459 West states that it has_ no
intention of offering any vacant
SRO unit for occupancy, or _ to
continue the tenancy of any tenants
dwelling in the occupied SRO units,
except as required by law.

Eastern is a partnership and,
like 459 West, it is engaged in the
business of acquiring real estate
for the purposes of development and
sale. Pursuant to a contract, made
on or about May 1, 1986, Eastern

purchased an SRO building located

A-123

AE RE RI RR Ae

at 611 Ninth Avenue, New York

County. This multiple dwelling
contained 18 SRO units, of which 8
were occupied by tenants, 10 were
vacant and uninhabitable.
Unequivocally, Eastern, like 459
West, asserts that it has_ no
intention of offering any vacant
SRO unit for occupancy, or_ to
continue the tenancy of any tenants
dwelling in the occupied SRO units,
except as required by law.

Sutton East, in January 1985,
purchased the Gracie Square Hotel,
located at 451 East 86th Street, in
Manhattan. This hotel contained 31
SRO units, many of which had been
vacant for some time.
Approximately three months after it
purchased that hotel, Sutton East

purchased several parcels of

A-124

property, which were adjacent to

the hotel, and located at 455 East
86th Street. Thereafter, Sutton
East demolished the structures
existing on the aforementioned
parcels, and constructed a
residential condominium building
which is known as, and owned by,
Channel Club. Sutton East
complains that the SRO regulatory
legislation has compelled it to
maintain a dilapidated SRO hotel
adjacent to the new luxury
high-rise Channel Club,
notwithstanding the fact that
Sutton East allegedly has
negotiated, without harassment,
force or interruption of services,
with the tenants for the good-faith
surrender of possession of the SRO

units. Furthermore, Sutton East

A-~i25

claims its perchene,. for
substantial consideration, of the
hotel was part of an over-all plan
to redevelop the hotel, consistent
with the’ construction of the
Channel Club.

Anbe Realty is a partnership.
Since on or about 1969, Anbe Realty
has been the registered owner and
operator of a five-story building,
which contains 29 SRO units, and
which is located at 305 West 29th
Street, in New York County.
Subsequently, by the spring of
1985, before the enactment of Local
Laws, 1986, No. 22, but during the
Council’s consideration of Local
Laws, 1985, No. 59, which was the
18-month moratorium legislation,
discussed supra, Anbe Realty = had

succeeded in emptying that building

A-126

of its SRO tenants, asa result of

two years of legitimate
negotiations with the tenants,
attrition, and lawful dispossess
proceedings. As evidence of its
good-faith efforts, Anbe offered a
certificate of no harassment issued
by the HPD, which is dated mane
22, 1985. Following the receipt of
this certificate, Anbe Realty, at
substantial expense, engaged
architects, engineers and _ other
professionals. to prersare and file
building plans to convert the now
empty building into a class A
multiple dwelling with 11
self-contained units, and on July
19, 1985, the City Department of
Buildings issued a building permit
to Anbe_ Realty. Due to’ the

enactment of Local Laws, 1985, No.

A-127

4 ae hee

59, which, as mentioned supra, made

the moratorium legislation
retroactive to January 9, 1985,
Anbe's conversion plans were

halted, and its building permit was
revoked.

Plaintiffs Seawall, Eastern,
459 West, Sutton East and Anbe
Realty, in 1986, separately
commenced actions, which were
consolidated under index number
20891 of 1986, against the city.
The complaints of these five
plaintiffs, in substance, sought to
permanently enjoin the city from
enforcing Local Laws, 1986, No. 22
against them, upon the grounds that
the law was uncorstitutional, since
it allegedly violated the "Taking"
Clauses of the US and NY

Constitutions, which prohibit the

A-128

taking of property without due
process and just compensation, the
Council exceeded its
constitutionally granted
legislative authority by enacting a
law, which conflicted with New York
State law, and the law did not
comply with the State Environmental
Quality Review Act (SEQRA),~ the

City Environmental Quality Review

(CEQR), and the Environmental
Conservation Law (ECL).
Thereafter, by order, Supreme

Court, New York County, filed
February 20, 1987, the IAS court,
in substance, declared invalid the
antiwarehousing part of Lecal Law
No. 22, which imposed the
affirmative obligations on
plaintiffs to rehabilitate all

their vacant SRC units and to rent

A-129

them to bona fide tenants, and
enjoined the city from enforcing
those provisions.

The City did not perfect an
appeal from the February 20, 1987
order of the IAS court, since Local
Laws, 1987, No. 1, which altered
the provisions of Local Laws, 1986,
No. 22 had already been enacted
into law, and, as a result, in the
city’s opinion that appeal _ had
become moot.

While Local Laws, 1986, No. 22
was in effect, the HPD finished its
review of the Blackburn study,
discussed supra, and the result was
the first comprehensive city SRO
legislation, which was Local Laws,
1987, No. 1, and that law was

subsequently amended, and reenacted

A-130

by the Council, on March 5, 1987,
as Local Law No. 9.

This law establishes a
five-year moratorium on conversion,
alteration and, demolition of SRO
units (see, Administrative Code
§ 27-198.2), and requires SRO
owners to maintain their units in a
habitable condition and make a
good-faith effort to rent them
(see, Administrative Code
§§27-2150--27-2152). If an _ SRO
‘owner violates the provisions,
mentioned supra, he or_ she _ is
subject to civil penalties (see,
Administrative Code §27-198.2[g];
§27-2152[e]).

Our examination of the _ law
indicates its intent is to preserve

and make available existing SRO

housing. Therefore, the law

A-131

exempts buildings, which do not

actually offer such housing, and an
example is a building that has been
vacant for some time (see,
Administrative Code § 27-198.2
[d]J[1][b]), and also exempted are
buildings which are not subject to
the market forces that encourage
the demolition and conversion of
SROs, such as government - owned
buildings, and buildings which are
part of an approved project for the
rehabilitation and preservation of
SRO dwellings (see, Administrative
Code § 27-198.2[b][1L][d],[g]).
Furthermore, the law allows
SRO owners the option of
withdrawing protected SRO units
from the housing’ market, upon
providing for the replacement of

those units (see, Administrative

A-132

Code § 27-198.2 [d][4][a]). A unit
may be exempted from the law
following payment te an SRO Housing
Development Fund Company (Fund) of
an amount equal to the cost, which
has been currently set at $45,000,
of creating a replacement unit.
The funds contributed are to be
used to preserve, acquire, and
develop housing affordable by low-
and moderate-income persons.
Alternatively, actual replacement
units may be provided by acquiring
an existing multiple dwelling,
constructing a new multiple
dwelling, or rehabilitating an
existing dwelling unit.
Replacement units are to be sold or
leased to a not-for-profit
organization for operation. Since

Fund contributions may not result

A-133

OR Oe erm oe

SN LI

De ee

in immediately availabie
alternative units, where 50% or
more of the SRO units in a building
are occupied, an owner may obtain
an exemption fer the occupied units
only by obtaining or developing
actual replacement units (see,
Administrative Code
§ 27-198.2[d][4][a]), and, where an
SRO building is less than 50%
occupied, an owner desiring to take
advantage of the replacement or
buy-out options will be responsible
for relocating the remaining
tenants in comparable housing, at
comparable rent, in the same
borough of the City (see,
Administrative Code § 27-198.3[a]).

Finally, the law permits an
SRO owner to seek an exemption from

the Commissioner of HPD, upon

A-134

hardship grounds (see,

§ 27-198.2[d][4][b]), if he or she
can show no possibility of earning
a reasonable rate of return, which
has been defined as 8 1/2% of the
building's assessed value, if he or
she is compelled to maintain the
property as an SRO, and that
utilization of the replacement
exemption would substantially
impair the feasibility of
redeveloping -the property for any
other use. When such hardship is
demonstrated, HPD may reduce in
whole or part the amount to be
contributed to the Fund or the
number of replacement units to be
provided by an owner, in order to
withdraw SRO units from the housing
market. However, the law does not

allow an owner to make use of this

A-135

Rn Ee we >

exemption, where his or her
inability to earn aé_e reasonable
return is the consequence of
intentional acts of mismanagement,
which are designed to destroy the
property's value as an SRO dwelling
(see, Administrative Code
§ 27-198.2[d][4][b]).

After Local Law No. 9 took
effect, the plaintiffs, in action
No. 1 © index number 20891/1986,
Seawall, 459 West, Eastern, Sutton
East, Channel Club and Anbe Realty .
amended their complaints, mentioned
supra, and contended, in substance,
Local Law No. 9 does not comply
with the environmental laws, such
as SEQRA, CEQR and ECL, it is an
unlawful tax, is arbitrary and

confiscatory, and in violation of

A-136

Te aroma tre -

the Due Process and Taking Clauses
of the US and NY Constitutions.

In addition to action No. l,
plaintiffs Eastern, 459 West, Durst
Partners, Jambod Enterprises, Inc.
(Jambod), Mygatt/Perry, Felix Ziade
and Rocco Imperial commenced action
No. 2, index number 04016 of 1987
against the City, and contended, in
their complaint, that Local Law No.
9 is invalid, since it allegedly
violates SEQRA, CEQR and ECL, which
is legislation intended to protect
the environment. Plaintiffs
Eastern and 459 West in this action
No. 2 are also plaintiffs in action
No. l. The other plaintiffs in
action No. 2 are the Durst
Partners, who own an SRO building,
at 147-51 West 43rd Street, New

York County, and that property

A-137

contains 30 SRO units, of which
allegedly only one is occupied, and
the remainder are vacant and
uninhabitable; Jambod operates a
nightclub, known as "Shout," at 124
West 43rd Street, New York County;
Mygatt/Perry, an architectural firm
at 102 West 43rd Street, New York
County; and Messrs. Ziade and
Imperial, who for more than _ 15
years, have resided in The
Diplomat.

Testamentum commenced action
No. 3, index number 7247 of 1987
against the city, on the ground
Local Law No. 9 is in violation of
the Due Process and Taking Clauses
of the US and NY Constitutions.
This plaintiff is a subsidiary of
Covenant House, which is a

not-for-profit corporation, with

A-138

aaa aia aa

offices located in Florida, New
York, Texas, Canada and Central
America. In October 1984,
Testamentum, also a not-for-profit
corporation, purchased the Times
Square Hotel at 43rd Street and
Eighth Avenue, New York County, to
upgrade ee and then apparently
sell the property at a profit, for
the purpose of obtaining funds to
support the charitable work. of
Covenant House. There are 735
rooms in phe hotel. At the time of
acquisition, Testamentum states
this building was operated mainly
as a hotel for transients, but it
also contained some units subject
to rent stabilization. Moreover,
in its complaint, Testamentum
contends that the income it derives

"from transient guests and other

A-139

a i ‘a vey F — — ae ae eh a ee ea ee A ee
- ae 7
x

plaintiffs to rehabilitate ali of
their vacant SRO units, and
compelled them to rent them to bona
fide tenants, on the grounds that
the provisions violated plaintiffs’
due process rights (138 Misc 2d
96).

We recognize that every law is
presumed constitutional, and only
when unconstitutionality is shown
to exist beyond a reasonable doubt,

is the presumption overcome

(Defiance Milk Prods. Co. v. Due

Mead, 309 WE S37, SM1 (1956);

Montgomery v. Daniels, 38 NY2d 41,

54 [1975]). This presumption of
constitutionality is not limited to
State statutes, since it “applies *
* * to ordinances of municipalities

as well" (Lighthouse Shores v. Town

of Islip, 41 NY2d 7, 11 [1976}).

A-142

When the Court of Appeals, in

Replan Dev. v. Department of Hous.

Preservation & Dev. (70 NY2d 451,-

supra) found constitutional the
city legislation, which eliminated
J51 tax abatement for the
conversion of SRO housing to other
uses, it stated in that_ case
(supra, at 457), forestalling "the
loss of SRO housing and to
discourage the precipitous eviction
of tenants -- are valid public
purposes." The United States
Supreme Court recently indicated
that a rent-control ordinance of
the City of San Jose, California,
was constitutional on its face, and
“during a housing shortage, the
social costs of the dislocation of
low-income tenants can be severe"

(Pennell v. City of San Jose, 485

A-143

I i i ol a i i i i ei i i i i i Bie
Te ee ee eee ° .* = - - na

:

US ; 108 S Ct 849, 859, n 8

[1988]).

The plaintiffs in this
litigation do not contest’ the
city's position (see, Local Laws,
1987, No. 1, § Ll, which is the
predecessor statute to Local Law
No. 9) that, if the city had not
acted to stop the extinction of SRO
units, the ranks of the homeless
would have increased, since the SRO
owners, if left to their own
devices, would have converted those
units to more profitable uses. In
fact, an affidavit, submitted in
support of the city's position,
stated that in 1987, before Local
Law No. 9 became effective, there
were only "approximately 52,000 SRO

units * * * [left] throughout New

York City”.

A-144

cen

wee ee eee

a ee

Two amendments to the United

States Constitution safeguard
property rights from governmental
interference. Those amendments are
the Due Process Clauses of the
Fifth and Fourteenth, andthe
"Taking" or Just Compensation
Clause of the Fifth. The Federal
constitutional requirement of due
process of law has been made
applicable to the States through
the Fourteenth Amendment. Further,
the United States Supreme Court in

Chicago, Burlington & Quincy R.R.

Co. v. Chicago (166 US 226 [1897])
made the "Taking" or Just
Compensation Clause of the Fifth
Amendment applicable to the States.

New York's Constitution
declares no person shall be

deprived of his property without

A-145

due process of law (see, NY Const,
Art I, § 6), and that. private
property may not be taken without
just compensation (NY Const, Art I,
§ 7[a]).

It cannot be seriously
contended by anyone that some
provisions of Local Law No. 9, such
as those that impose a five-year
moratorium on the conversion,
alteration, and demolition of SRO
units, and which prohibits’ the
warehousing of such units, will not
cause $RO owners to lose economic
benefits. However, on many
occasions, the United States
Supreme Court, as well as_ this
State's Court of Appeals, have held
Local Laws valid, which restricted
owners from making the most

profitable use of their property.

A-146

Cer See Sy a

— oa aor a
ed

For example, the United States

Supreme Court, in Penn Cent.

Transp. Co. v. New York City (438

US 104 [1978]), upheld the
constitutionality of New York
City's Landmarks Preservation Law,
which was enacted to protect
historic landmarks and
neighborhoods, and which requires
the owners to keep them in good
repair, and to seek government
approval before making any exterior
alteration; the Court of Appeals,

in Spring Realty Co. v. New York

City Loft Bd. (69 NY2d 657 [1986],

appeal dismissed - US | i *

Ct 3179 [1987]), held New York City
validly exercised its police power,
when it enacted the Loft Law, in
order to deal with a _ housing

crisis; and, the Court of Appeals,

A- 147

in Maldini v. Ambro (36 NY2d 481

[1975], appeal dismissed and cert

denied 423 US 993 [1975]), upheld
an amendment to a zoning ordinance
of the Town of Huntington, whose
purpose was to provide adequate
housing for the elderly.

In Matter of Golden ve.

Planning Bd. (30 NY2d 359, 377-378

[1972]), the Court of Appeals
significantly states: "It is the
nature of all land use - and
development regulations to
circumscribe the course of growth
within a particular town or
district and to that extent such
restrictions invariably impede the

forces of natural growth (Euclid v.

Ambler Co., 272 U.S. 265 * * *

National Land & Inv. Co. v.

Easttown Twp. Bd. of Adj., 419 Pa.

A-148

am ii ei

—,. 2. = +>). Where those
restrictions upon the beneficial
use and enjoyment of land are
necessary to promote the ultimate
good of the community and are
within the bounds of reason, they
have been sustained.”

The United States Supreme
Court has ruled that for a statute
not to constitute an
unconstitutional taking, it must

"substantially advance legitimate

’ w

state interests," and not deny "an
owner [an] economically viable use
of his [or her property]" (Agins v.
Tiburon, 447 US 255, 260 [1980]).
In other words, there must be a
relationship between the purpose of
the legislation and the methods

employed. Therefore, once a

genuinely valid purpose is

A-149

3 .
pS ee ee ee

established, a law can restrict the
use of property, "unless the denial
would interfere so drastically with
the * * * use of * * * property as

to constitute a taking" (Nollan v.

California Coastal Commn., 483 US

uidee li peta Mee ee | BERR. + BRS
[1987]).

Although one owner or class of
owners may bear a heavier economic
burden than another, that fact
alone does not automatically mean
that a property owner is being

singled out for an unconstitutional

taking (Keystone Bituminous Coal

Assn. v. DeBenedictis, 480 US 470,

491-492 [1987]). The United States
Supreme Court states, in pertinent

part, in Keystone Bituminous Coal

Assn. v. DeBenedictis (supra, at

491-492): "Under our system of

A-150

government, one of the State's
primary ways of preserving’ the
public weal is restricting the uses
individuals can make of their
property. * * * These restrictions
are ‘properly treated as part of
the burden of common citizenship.’

Kimball Laundry Co. _v. United

States, 338 U.S. 1, 5 (1949). Long
ago it was recognized that ‘all
property in this country is held
under the implied obligation that
the owner's use of it shall not be
injurious to the community,’ Mugler

v. Kansas, 123 U.S. at 665." In

Penn Cent. Transp. Co. v. New York

City (supra), the United States

Supreme Court ruled the city may
forbid, in the public interest, the
destruction or alteration of

buildings.

A-151

After reviewing the record

before us, we find that Local Law
No. 9, following years of study and
public hearings, was enacted by the
Council to cope with a = serious
public emergency, Since it is
undisputed that, unless SRO owners
were prohibited from converting,
altering, demolishing, and
warehousing their units, the City’s
homeless population would have
risen, by the influx of former SRO
tenants, who are frequently elderly
and mentally or physically
handicapped persons, with limited
incomes.

While Local Law No. 9 may
temporarily diminish the value of
an SRO property for the period of
the moratorium, it does not reduce

the value of that property to the

A-152

level where it would be an

unconstitutional taking. The Court

of AppeatTs in de St. Aubin v.

Flacke (68 NY2d 66, 77 [1986])
states that "a property owner does
not prove ae taking solely by
evidence that the value has been
reduced by the regulation, even if
it has been substantially reduced. *
* % To be successful [such owner]
must establish that the regulation
attacked so restricts his property
that he is precluded from using it
for any purpose for which it is

reasonably adapted (Levitt oF

Incorporated Vil. of Sands Point, 6

NY2d 269, 273; Arverne Bay Constr.

Co. v. Thatcher, 278 NY 222, 226)."

Measured by the standard of de St.

Aubin v. Flacke (supra) we find

that Local Law No. 9 does not

A-153

unconstitutionally deprive an SRO

owner of economic benefit from his
or her property, since it permits
them to earn a return of 8 1/2% of
the assessed value of the property,
and this figure of 8 1/2% of the
assessed value was derived from the
hardship provisions under the rent
control laws (see, Administrative
Code § 26-408[b][5][a]), and rent

control laws have been held

constitutional in this. State

(Benson Realty Corp. v. Beame, 50.

NY2d 994 [1980], appeal dismissed

449 US 1119 [1981]).

The city concedes, at page 32
of its main brief, that "the
anti-warehousing component of the
legislation is new to New York

Al

law.

A-154

Almost 40 years ago, the Court
of Appeals held that a "local law
cannot be held to operate as a
"taking' of * * * property without
due process of law", if it is
"designed to meet an immediate and
pressing exigency," even if a
property owner is required to
remain in the housing business,
when he or she would prefer to
erect a commercial structure (Loab

Estates v. Druhe, 300 NY 176, 180

[1949]). Incidentally,
antiwarehousing legislation has
been sustained against a "taking”
challenge by a Federal District
Court, located in a sister State

(Help Hoboken Hous. v. City of

Hoboken, 650 F Supp 793, 798 [DNJ
1986]).

A-155 :

We disagree with the
plaintiff's contention that’ the
replacement and buy-out options of
Local Law No. 9 are exorbitant, or
that they are, in reality, a tax,
which merely goes into the city
coffers. :

Our examination of the record
indicates the city set the buy-out
figure at $45,000 since that was
the estimated cost of the
acquisition and rehabilitation of
an SRO unit, and the plaintiffs
offer no persuasive evidence which
indicates that said sum is
arbitrary or capricious.

Based upon our examination of
the record, we find that’ these
moneys, when received, rather than
being used for general government
purposes, will go directly into a

\
\

A-156

special fund, which is managed by
the SRO Housing Development Fund
Company , to pay for the
acquisition, deve lopment and
preservation of substitute low- and
moderate-income housing. The
requirement that property owners
contribute to such a special fund
has been held not to constitute an

unconstitutional “taking.” For

example, the Court of Appeals in

Jenad, Inc v. Village of Scarsdale,
(18 NY2d 78, 84 [1966]) upheld a
local law that required a cash
payment from a landowner to be used
for public recreation as the only
way in which said owner could avoid
allotting part of his or her land
for such purpose, and the court, in
that case, noted that the required

payment was "not a tax at all but a

A-157

reasonable form of [community]
planning for the general * * *
good."

Based upon our analysis of the
law and the facts supra, we find
that Local Law No. 9 is
constitutional in all_ respects,
since it does not either constitute
an unconstitutional taking of
property or violate due process, in
view of the fact that the
provisions of that law are intended
to accomplish the legitimate
governmental goal of preventing
homelessness, and do not deny the
plaintiffs the opportunity to earn

a reasonable rate of return 0on

their property (see, Agains v.

Tiburon, supra). -

We further find that this law

is constitutional, in that there

A-158

can be no unconstitutional taking

of property where the law provides
for, not necessarily the highest
economic use, but does provides for
an economically viable use.
Further, as set forth supra, Local
Law No. 9 contains ae hardship
provision (see, Administrative Code
§ 27-198.2[d][4]), which permits an
SRO owner to seek exemption from
this law, upon application to the
Commissioner of HPD, who is given
the power to grant such relief.

In fact, it would seem that at
least some of the plaintiffs appear
to have a meritorious argument for
such relief and we urge they
consider applying for such
exemption. | f

Some of the plaintiffs in

these consolidated actions contend

A-159

| italian ara oe eee ee A

that Local Law No. 9 allegedly
violates the State and city
environmental laws, such as SEQRA,
CEQR and ECL. This contention is
meritless, since we find that Local
Law No. 9 merely seeks the
maintenance and/or repair of
existing structures and facilities,
without substantially altering
them, and these plaintiffs have
presented no persuasive evidence to
the contrary. Therefore, since
SEQRA, CEQR and ECL only require an
environmental review when an action
is undertaken which involves
substantial changes’ in existing
structures or facilities, we find
that the action to be undertaken by
the city, pursuant to Local Law No.

9, is exempt from such review (See,

ECL 8-0105[5][iii]; CEOR § 4[f]).

A-160

We have reviewed the other

contentions of the parties in these
three consolidated actions, and
find them to be without merit.
Accordingly, order and
judgment (one paper), Supreme
Court, New York County (David B.
Saxe, J.), entered March 16, 1988,
which, inter alia, declared invalid
various provisions of Local Laws,
1987, No. 9 of the City of New
York, and enjoined the city from
implementing or enforcing them, is
unanimously reversed, on the law

and on the facts, the injunction is

vacated, and Local Law No. 9 in its

entirety is declared
constitutional, without costs
(action No. l, Index No.
20891/1986).

A-161

Order and judgment (one paper)

of the same court and Justice,
entered March 16, 1988, which
granted the cross motion of the
deféndants, City of New York et
> for summary judgment, to
dismiss the complaint, is affirmed,
without baie or disbursements
(action No. Zs Index No.
04016/1987).

Order and judgment (one paper)
of the same court and Justice,
entered March 16, 1988, which,
inter alia, declared various
provisions of Local Laws, 1987, No.
9 of the City of New York invalid,
and enjoined the city from
implementing or enforcing them, is
unanimously reversed, on the law
and on the facts, the injunction is

vacated, and Local Law No. 9 in its

A-162

entirety is declared

constitutional, without costs
(action No. iF Index No.
7247/1987).

CARRO, ASCH and ELLERIN, JJ.,
concur.

Orders and judgments (two
papers), Supreme Court, New York
County, both entered on March 16,
1988 (actions Nos. l1 and 3),
unanimously reversed, on the _ law
and on the facts, the injunction is
vacated, and Local Law No. 9 in its
entirety is declared

constitutional, without costs and

without disbursements.

Order and judgment (one
paper), Supreme Court, New York
County, entered on March 16, 1988

(action No. Zz), unanimously

A-163

affirmed, without costs and without

disbursements.

A-164

DECISION OF THe NEW YORK STATE
SUPREME COURT, DATED NOVEMBER 23,
1987

SEAWALL ASSOCIATES et *
Plaintiffs v. CITY OF NEW YORK et
al., Defendants. RICHARD WILKERSON
et al., Intervenors. (Action No.
APs :

EASTERN PORK PRODUCTS COMPANY et
al., Plaintiffs, v. CITY OF NEW
YORK et al., Defendants. (Action
No. 2).

TESTAMENTUM, Plaintiff v. CITY OF
NEW YORK et ) Defendants.
(Action No. 3.)

Supreme Court, New York County,
November 23, 1987

APPEARANCES OF COUNSEL

Shea & Gould (Sheldon D. Camhy,
Kevin B. McGrath, Claudia A. Wagner
and George G. Nelson of counsel),
Dershowitz & Eiger, P.C. (Nathan Z.
Dershowitz of counsel), Rosenberg &
Estis, P.C. (Franklin R. Kaiman of
counsel), Shapiro, Mortman,
Schwartz & Greene (Marvin L.
Schwartz of counsel), Paskus Gordon
& Mandel (Philip H. Schaeffer, Alan
M. Goldston and Jane D. Connolly of
counsel), and White & Case (Philip
H. Schaeffer and Jane D. Connolly
of counsel), for plaintiffs in

actions Nos. l1 and 2. Burns,
Kennedy, Schilling & O'Shea (Edmund
J. Burns and Maria Scorcia of

counsel), for plaintiff in action

A-165

No. : Peter ee Zimroth,
Corporation Counsel (Gabriel
Taussig and Albert Frederick of
counsel), for defendants. Mitchell
S. Bernard, Norman Siegel, Robert
M. Hayes, Saralee Evans and Wayne
Hawley for intervenors and amicus
curiae.
OPINION OF THE COURT

DAVID B. SAXE, J.

Once again, owners of
buildings containing single-room
occupancy (SRO) units, * challenge
legislation which attempts to
lessen the growth of the homeless

population in the City of New York

by prohibiting the conversion,

Man SRO is defined as a living unit which
shares a kitchen and/or bathroom with one
or more other units. (Blackburn, Single
Room Occupancy in New York City, 1986
Report - prepared for the City of New York
Department of Housing, Preservation and
Development. )

A- 166

en

alteration or demolition of
privately owned SRO buildings.

The issue that I must decide
is whether the buy-out, replacement
and hardship exemptions contained

in this new legislation (Local

Laws, 1987, No. 9 of City of New

~challenges of this sort have occurred
before (see, for example, Local Laws,
1985, No. 59 of City of New York,
Declaration of legislative findings and
intent ["The council hereby finds and
declares that a serious public emergency
exists in the housing of a considerable
number of persons which emergency has been
created by the loss of single room
occupancy units housing lower income
persons: that the loss of such housing
units has caused serious hardship for
occupants who have been forced to relocate
* * * that a considerable number of such
persons have become part of a growing
homeless population; that the intervention
of the city government is necessary to
protect such housing stock by imposing a
moratorium on conversions, alterations and
demolitions of single rovm occupancy
multiple dwellings"]).

A-167

York)? cure the constitutional

infirmities of its predecessor
(Local Laws, 1986, No. 22) which I

invalidated in Seawall Assocs. v.

City of New York (134 Misc2d 187)

(Seawall I).

A brief recounting of the
legislative history is necessary.
Since 1985 the New York City
Council has enacted several local
laws designed to halt the decline
of SRO housing. In July 1986, the
City Council by enacting Local
Laws, 1986, No. 22 of the City of
New York" extended the moratorium

initiated by Local Laws, 1985, No.

3 administrative Code of City of New York
§ 27-198.2.

“administrative Code of City of New York
§C26-118.10.

A-168

-
4
é

59 of the City of New York which
prevented the demolition or
slbecation of most SRO buildings.”
However, Local Law No. 22 in
addition to providing for a
moratorium on the alteration,
conversion or demolition of SRO
buildings also imposed an
affirmative obligation upon SRO
owners to rent these units® and to
maintain them in habitable
condition. In addition, if the

units were in disrepair, owners

would be required to renovate

administrative Code of City of New York
§ C26-118.10, as added by Local Law No. 59
of 1985.

erhis obligation is commonly referred to
as the "antiwarehousing" provision. (See,
Administrative Code of City of New York
§D26-58.02.)

A-169

_ aS aa er ee ne ne a

ee ee ee ee een ee ee a. ee ee ee en ee en ee

them. ’ Local Law No. 22 applied

only to privately owned buildings.

Those buildings owned in rem by the
City of New York were exempt from
the requirements of this law.®

When Local Law No. 22 was
enacted, certain SRO building
owners sought a preliminary
injunction staying the enforcement
of the law. The plaintiffs argued
that Local Law No. 22 violated
their constitutional right to due

process of law and sought to enjoin

its enforcement. In Seawall I

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385020_0267%3A2. Public record. Not legal advice.