Academic journal article Albany Law Review

"Fair Rents" or "Forced Subsidies" under Rent Regulation: Finding a Regulatory Taking Where Legal Fictions Collide

Academic journal article Albany Law Review

"Fair Rents" or "Forced Subsidies" under Rent Regulation: Finding a Regulatory Taking Where Legal Fictions Collide

Article excerpt


Two legal fiction(1) have been used to describe the ultimate product of rent control laws. This Article explores the development and operation of each of these fictions. The first is a longstanding presumption that a properly structured system of rent regulation results in "fair" or "reasonable" rents.(2) The second fiction is a presumption of more recent vintage which suggests that public intervention in private markets which directly benefits one party at the expense of another produces a "forced subsidy." Both fictions have some grounding in western economic and legal traditions.(3) Nonetheless, as operative assumptions used to analyze whether landlords subjected to rent regulation are unconstitutionally deprived of their property rights, both fictions are fundamentally incompatible.

The Fifth Amendment's Takings Clause, made applicable to the states through the Fourteenth Amendment,(4) establishes a constitutional border between popular sovereignty and private economic prerogatives.(5) Legal precedent which openly examines and persuasively selects one or the other of the fictions described herein could defuse at least one of the many skirmishes which appear to be breaking out along that border.(6) Although the immediate impact of such a selection may be limited to those who are affected by rent controls, the acceptance of one or the other of these fictions may influence views on the constitutionality of more broadly structured regulations of property and markets.

The disparate legal impact of choosing between the fair rent and forced subsidy fictions is exemplified by two judicial opinions. The first, and most recent, is a majority opinion written by Judge Bellacosa of the New York Court of Appeals, in Manocherian v. Lenox Hill Hospital.(7) Judge Bellacosa's opinion squarely incorporates the subsidy fiction.(8) The second is a dissenting opinion written by Justice Scalia in Pennell v. City of San Jose.(9) Although that opinion addressed a takings claim which was declared premature by the majority of the Court, Justice Scalia's dissent clearly acknowledged the legitimacy of the traditional fair rent objective of rent regulation.(10)

To illustrate these distinct approaches, parts II and III of this Article, respectively, discuss the Manocherian and Pennell opinions. Part IV attributes the emergence of the subsidy fiction to the growing influence of economic theory in constitutional analysis, and briefly considers the potential implications of this trend. Part V discusses New York City's rent regulations, analyzing their purpose with respect to the fair rent and subsidy fictions. The Article concludes that the semi-conscious nature of this transmutation from the traditional fair-rent fiction to the subsidy fiction will, if left unexamined, seriously undermine democratic accountability.


In the 1960s Lenox Hill Hospital, a Manhattan-based not-for-profit teaching hospital,(11) leased several apartments for its medical staff in a building located near the hospital.(12) In 1976 the Manocherian family, one of the city's largest property owners,(13) purchased the building while Lenox Hill's personnel were still in occupancy.(14)

Two citywide problems arose in the early 1980s which, although not involving the apartments leased to Lenox Hill, led to the unintended temporary removal of rent protections for Lenox Hill's employee subtenants. First, some absentee tenants were subletting apartments at much higher rents than owners were permitted to charge.(15) Second, absentee tenants were subletting their units to retain valuable inside purchasers' rights in the event of a conversion to cooperative ownership.(16) In short, a law that was designed to prevent landlord profiteering had, in some instances, facilitated the rise of tenant profiteers.

In an attempt to remedy these and other abuses, the New York State Legislature amended the New York City Rent Stabilization Law(17) and the Emergency Tenant Protection Act. …

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