A rent freeze is here. So what are landlords going to do about it?
Sue, most likely.
The Rent Guidelines Board Thursday night delivered on Mayor Zohran Mamdani’s campaign promise to freeze rents in rent-stabilized buildings.
That sets the stage for a possible legal challenge. If successful, a court battle could upend how New York regulates rent levels in half of the city’s rental stock. An unsuccessful legal challenge could mean burned political capital for landlord groups and another victory for Mamdani’s progressive coalition.
Multiple sources told me they would expect a lawsuit in the event of a freeze.
“It’s going to be very likely that there will be a challenge,” said Massimo D’Angelo, co-chair of the real estate industry team at law firm Blank Rome. “It could be as quick as Monday, but generally it will take a couple weeks to assess and to file a carefully tailored pleading.”
The New York Apartment Association, which represents owners of rent-stabilized units, has already been discussing legal avenues and costs, Jay Martin, executive vice president of the group, told TRD in May.
The resignation of board member Christina Smyth, the only member of the current board to vote against the possibility of a freeze at a preliminary vote last month, also set off conversations about a lawsuit.
Smyth cast doubt on the board’s independence and adherence to its statutory obligations in a statement after her resignation. Mamdani campaigned on a rent freeze and then subsequently appointed a majority of the board that controls that decision.
“I am resigning because the process I was appointed to take part in is not administered the way the law requires,” Smyth wrote in a statement. “The Rent Guidelines Board has stopped being a fact-finding body. It has become a body that starts with an answer and vibe codes its way backward to justify it.”
D’Angelo said the two strongest arguments at landlords’ disposal rely on prohibitions on regulatory taking and on requirements for due process.
“Property owners can assert that any legislative-imposed rent freeze constitutes regulatory taking, which deprives them of a reasonable return on investment, without any just compensation,” he said.
However, courts usually defer to local jurisdictions on issues of rent regulation, he added. Landlords might successfully argue that the freeze does not properly account for rising operating costs. They would need to show that the economic impact of a freeze and its interference with investment expectations is severe, he said.
Another potentially stronger legal argument could be that rent freeze violates requirements for due process, D’Angelo said. Landlords would in that case argue that data on operating expenses weren’t properly considered. The city would then supply its documents around the board’s analysis and deliberations. A challenger would try to argue that those deliberations were arbitrary.
Smyth, who was presumably present for deliberations of the board, described the process as political “theater.”
Mamdani and his administration, perhaps sensing a court battle, have tried to deemphasize his role in the rent freeze question, highlighting the board’s independence instead.
“As the mayor has made very clear: the Rent Guidelines Board is an independent body, and he is confident that they will review all of the appropriate information and make an independent decision,” Matt Rauschenbach, a spokesperson for the mayor, said in a statement to TRD in May.
What we’re thinking about: Do you think the mayor will offer expense-side relief to landlords? Let me know: lilah.burke@therealdeal.com.
A thing we’ve learned: The Mamdani administration is rolling out a slate of new resources to help homeowners build accessory dwelling units, or ADUs, in historic districts — a move first reported last month by The Real Deal. Often known as granny flats, ADUs are separate residences added to the same lot as single-family homes or duplexes. The resources include an online map that identifies where ADUs can be built and a dedicated team to help property owners get their ADUs approved. The announcement marks the latest development in the mayor’s sweeping housing plan, which seeks to add more housing across the city “block by block.”
— Spencer Davis
Elsewhere…
— The White House asked Congress on Wednesday for an additional $1 billion to redesign Penn Station, the New York Daily News reported. Russell Vought, director of the federal Office of Management and Budget, made the request in a Wednesday letter to House Speaker Mike Johnson.
— Jersey City Mayor James Solomon postponed a vote on a temporary 20 percent property tax increase until July 1, Gothamist reported. Solomon proposed the increase last week to help the city close a $255 million budget deficit, but delayed the vote following public backlash decrying the swift vote.
— Hotel occupancy rates exceeded 90 percent in New York City last week after a string of last-minute bookings coincided with the first World Cup matches kicking off at MetLife Stadium in New Jersey, The City Reporter reported. Hotels raised their average daily rates by 38 percent compared to last year, but that didn’t stop over 20 percent of guests from booking their stays week-of.
— Spencer Davis
Closing time
Residential: The most expensive residential sale recorded Thursday was $9.8 million for a 4,647-square-foot condominium at 129 Lafayette Street in Soho. Richard Nassimi at Douglas Elliman had the listing. The unit was listed for $15 million this past January.
Commercial: In Chelsea, the most expensive commercial transaction was $38.2 million for a 97,200-square-foot commercial loft at 547 West 27th Street.
New to the Market: The highest price for a residential property hitting the market was $24 million for a 10,800-square-foot townhouse at 23 Washington Square North in Greenwich Village. Matthew Lesser, Jed Garfield and Caylyn Sullivan with Leslie Garfield have the listing.
Breaking Ground: The largest new building permit filed was for a proposed 85,283-square-foot, 26-story mixed-use project at 40-16 35th Avenue in Long Island City. Ralph Kowalczyk with Issac & Stern Architects filed the permit on behalf of Elie Pariente of EMP Capital Group.
— Matthew Elo
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