Until the mid-1980s, New York City encouraged the demolition and re-development of single-room occupancy (SRO) properties because it considered them substandard housing. However, that attitude changed dramatically as homelessness became a national concern by the 1980s. Beginning in 1985, therefore, the city enacted a series of ordinances whose aim was to preserve its stock of low-rent SRO housing. The last of these measures (Local Law No. 9) imposed a five-year moratorium on the demolition, conversion, and alteration of SRO multiple dwellings. It also required that owners of SRO property rehabilitate every SRO unit in their buildings, make each of these units habitable, and lease them to bona fide tenants at controlled rents. The law did not compensate owners for these burdens.
Real estate developers with SRO properties naturally attacked Local Law No. 9 in the courts. By 1989, one of these suits had reached the state’s highest court, the New York Court of Appeals. In Seawall Associates v. City of New York,1 the Court of Appeals declared Local Law No. 9 an unconstitutional taking of private property without just compensation. The Fifth Amendment’s takings clause, which applies to the states through its incorporation within Fourteenth Amendment due process, basically says that governmental takings of private property are unconstitutional unless they are for a public use and the property owner receives just compensation. Because today the public use requirement is very easily met, the Seawall court spent most of its time on the “taking” issue. One way that a taking might occur is through the physical occupation of the owner’s property. Here, the court said, the city “occupied” the realtors’ property by making them admit third parties to it. Another