Opportunities to Challenge California’s Rent Control Ordinances Under the Fifth Amendment’s Takings Clause under the U.S. Constitution

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Opportunities to Challenge California’s Rent Control Ordinances Under the Fifth Amendment’s Takings Clause under the U.S. Constitution

By Frank A. Weiser, Esq.

On October 8, 2019, Governor Gavin Newsom signed Assembly Bill 1482 enacting rent control as a statewide measure in California.  Once the law goes into effect on January 1, 2020, the state will begin to regulate how much tenants’ rent can increase every year, limiting it to 5 percent, plus the regional rate of inflation. The rules, however, will vary for municipalities and local governments that already have rent control laws. Governor Newsom has stated that with Assembly Bill 1482, California will have the “nation’s strongest statewide renter protections.”

At the same time, property owners throughout the state are pushing back with new legal challenges to recently enacted rent control laws, including the state’s Assembly Bill 1482, on the basis of multiple constitutional challenges in federal district courts and in the United States Court of Appeals for the Ninth Circuit (“Ninth Circuit”). The challenges include claims that the government rent control regulations either unreasonably interfere with the economic value of a property in violation of the Just Compensation Clause of the Fifth Amendment Takings Clause of the United States Constitution or constitute, under some tenant relocation fee payment laws, “private takings” of property in violation of the Public Use Clause of the Fifth Amendment Takings Clause of the United States Constitution.

To be sure, the present legal landscape in Fifth Amendment Takings law is a vast and complex subject that cannot adequately be discussed in this article. But property owners need to be aware of the general landscape of some of the recent opportunities and remaining legal procedural and substantive challenges in making a takings claim to rent control ordinances.

The Fifth Amendment forbids the government from taking private property for public use, without just compensation. The Supreme Court has generally recognized three categories of governmental regulatory action in its takings jurisprudence. The first type of taking occurs when the government requires an owner to suffer a permanent physical invasion of his or her property – however minor. The second type of taking concerns regulations that completely deprive an owner of all economically beneficial use of his or her property.  These categories are referred to as “per se” takings.  The third category concerns government regulation that interferes with but does not completely destroy the economic value of property.

Traditionally, the Federal courts, and here in California the Ninth Circuit, have stated that they are generally reluctant to intrude upon “sensitive are of social policy” such as local land use regulations. See, San Remo Hotel v City & County of San Francisco, 145 F.3d 1095, 1104 (9th Cir. 1998).  This, coupled with previous U.S. Supreme Court precedent that held that an owner whose property has been taken by local government has not suffered a violation of his Fifth Amendment rights – and thus cannot bring a federal takings claim in federal court (Williamson County Regional Planning Comm’n v Hamilton Bank of Johnston City, 473 U.S. 172 (1985)), until a state court has denied his claim for just compensation under state law, have made challenges to rent control ordinances unusually difficult, even for the seasoned practitioner in this area of law.

The intersection of Federal and State court jurisdiction in takings jurisprudence created an inordinately complex area of law that essentially foreclosed Fifth Amendment takings claims in federal court after the state inverse condemnation counterpart under the California Constitution was litigated. I think it’s fair to state that most practitioners in this area found that in regulatory takings challenges, California law places an additional barrier not found under federal law that requires a property owner to in effect overturn the regulation in question before he or she could seek damages for inverse condemnation. Traditional rules concerning California mandamus challenges to local regulations set a very high legal and factual bar for an owner to overcome.

However, last term, the U.S. Supreme Court in Knick v Township of Scott, Pennsylvania announced a new rule, overturning its previous precedent in the Williamson County case, that a property owner may seek compensation directly in a federal court under the Fifth Amendment without first seeking such compensation under state inverse condemnation laws in state court.  The Knick decision has remedied a long-standing procedural barrier and injustice in opening the federal courts to Fifth Amendment claims that should have never been closed in the first place. But, although Knick changed the landscape for federal takings challenges, some traditional procedural and substantive hurdles remain that property owners need to be cognizant of in making legal challenges to rent control ordinances.

First, the Supreme Court in Knick itself stated that even if plaintiffs are successful in their takings claim, compensation, not equitable relief, such as invalidating the ordinance, is the correct remedy. This  means that many takings challenges may be limited in only seeking compensation but will not necessarily be able to overturn the regulation in question. I do not believe that all takings challenges are so limited, as there certainly may be challenges which claim that the taking is unconstitutional per se and no amount of compensation can remedy the violation. In such challenges, a property owner, or an association of owners, may argue that only by invalidating the regulation itself can the unconstitutional violation be remedied.

This is the basis for some of the more creative challenges recently filed in California, after Knick, which argue that rent control ordinances that require property owners to pay relocation fees to tenants who move out of their units, with or without cause, are wholly unconstitutional as “private takings” of property in violation of the Public Use Clause of the Fifth Amendment and can be remedied only by invalidating the ordinance itself. But on the whole, I believe that more traditional rent control challenges that claim that a rent control ordinance unreasonably deprives an owner  of his investment backed expectation in his property will be limited to compensation damages without invalidating the regulation in toto.

Another procedural hurdle that remains after Knick, is that the Supreme Court in Knick only overruled Williamson County’s state compensation exhaustion requirement, but the “finality requirement,” which is concerned with whether the initial governmental decision-maker has arrived at a definitive position on the issue that inflicts an actual, concrete injury on a property owner remains untouched. See Knick, 139 S.Ct. at 2169.  The “finality requirement” provides that a claim is not ripe until the government entity charged with implementing the regulations has reached a final decision regarding the application of  the regulations to the property at issue.

Local governments, after Knick, are already arguing, and most certainly will argue in rent control challenges in the future, that certain Fifth Amendment takings claims are not “ripe” for adjudication, as the property owner has not yet sought a final administrative determination as to how the ordinance applies to his particular property.  I do not think that such “ripeness” challenges are insurmountable in all takings challenges. The Ninth Circuit long ago ruled that the ripeness doctrine does not apply to takings challenges that claim that the adoption of the ordinance, irrespective of its application to a particular property owner, constitutes a per se taking. In such challenges, as discussed earlier, a property owner or association may seek to invalidate the regulation itself rather than requesting compensation to particular owners.

Further, I believe that creative practitioners may challenge the “ripeness” doctrine itself in certain cases where it can be plausibly argued that even interim governmental decisions constitute a “temporary” taking of property compensable under the Fifth Amendment and under existing Supreme Court precedent.

Finally, property owners in making rent control takings challenges need to be aware of the fact that a fairly recent Ninth Circuit published decision has held that city regulation of rent increases does not constitute a regulatory taking under the Fifth Amendment finding  that the purpose  of rent control programs counsels against finding a Fifth Amendment taking because it is a public program that adjusts the benefits and burdens of economic life to promote the common good. See, Colony Cove Properties, LLC v City of Carson, 888 F.3d 445 (9th Cir. 2018).  However, I do not think that Colony Cove, and precedents holding like it, are necessarily the final word in rent control challenges.

Presently, landlord groups in the City and State of New York have filed a federal constitutional challenge to New York’s rent regulations, alleging that state and city governments had, in effect, taken over nearly a million regulated apartments with its new law. The suit seeks to overturn New York’s system of rent regulation that dates back to federal price controls during World War II. The new rent law makes it more difficult for apartment owners to increase rents and eliminates rules that in the past allowed owners to free up thousands of apartments from rent regulations.  Apartment owners and associations throughout the United States are hopeful that the present makeup of the Supreme Court, that is clearly more amenable to takings challenges, will eventually review the New York lawsuit, and suits like it. Lawsuits here in California will most likely  make similar arguments in challenging AB 1482.

I believe that the final word in rent control takings challenges remains to be written.

Frank A. Weiser, Esq. serves as outside litigation counsel for the Apartment Association of Greater Los Angeles.  He has been practicing law since 1979 and is admitted to practice by the State Bar of California, and by the 3rd, 6th, 7th, 8th, 9th, and 10th circuit courts. Recently, Mr. Weiser won a major U.S. Supreme Court case against the City of Los Angeles in Patel vs. City of Los Angeles (135 S. Ct. 2443 (2015)) pursuant to which the held that the City’s practice of compelling motel and hotel operators to make available for inspection their registry of guests is unconstitutional under the Fourth Amendment. He received his Bachelor from the University of California at Los Angeles, and his J.D. from Southwestern University School of Law. 

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