• Local Law 79/New York City Tenant Empowerment Act -- Update
  • May 3, 2007 | Authors: Arlo Monell Chase; John L. Kelly
  • Law Firm: Nixon Peabody LLP - New York Office
  • The purpose of this update is to inform you of two court decisions recently issued that conclude that New York City Local Law 79 (the legislation) is preempted under state and federal law, and therefore invalid.

    On July 7, 2005, Nixon Peabody issued an Alert regarding the New York City Tenant Empowerment Act, which subsequently became Local Law 79. The legislation was first passed by the New York City Council (the Council) on June 23, 2005, and then enacted, overriding Mayor Bloomberg’s veto, on August 14, 2005. According to its terms, the legislation became effective on November 15, 2005. The legislation has been in limbo since that time as the City’s Department of Housing Preservation and Development (HPD) failed to issue implementing regulations as instructed by the legislation. The Real Estate Board of New York (REBNY) brought a lawsuit seeking to enjoin the enforcement of the legislation.

    As a review, the legislation sought to address the “increasing scarcity in affordable housing” by imposing additional restrictions on owners of certain multi-family residential developments, including those developed under the following programs: (i) Mitchell-Lama and occupied on or after January 1, 1974; (ii) Project-based Section 8; and (iii) HUD Sections 202, 207, 221, 232, and 236. The legislation required such owners to give 12 months’ notice to tenants before they took any action that would terminate a project’s participation in the applicable housing program. During the 12-month notice period, a “tenant-approved entity” must have been afforded the first opportunity to purchase the building and/or a right of first refusal in response to a bona fide offer from another prospective purchaser. The legislation further provided that, even if the tenants elected not to purchase the building, when a conversion occurs, the owner was required to allow the current tenants to remain in their respective dwelling units for the longer of (i) six months from the effective date of the conversion or (ii) until the tenant’s lease expires, and at the same terms and conditions as before such conversion.

    In two distinct but related decisions handed down on April 11, 2007, Judge Marilyn Schafer of the Supreme Court of the State of New York (New York County) held that the legislation is void and enjoined the City of New York, the Council, and HPD from enforcing the legislation. In the decisions, Real Estate Board v. City of New York (Index # 114459/2005) and Mother Zion Tenant Association v. Donovan (Index # 402239/06) (unfiled judgment), the court reviewed the state Mitchell-Lama and Urstadt laws and the relevant HUD statutes, and concluded that the legislation was preempted by all three. With respect to the Mitchell Lama statute, the court held that, since the law explicitly allows Mitchell Lama projects to exit the program after 20 years, the legislation impermissibly “imposes additional restrictions on rights granted by State law.” In addition, the court found the legislation preempted by the state’s Urstadt Law, which prohibits localities from subjecting previously unregulated or decontrolled properties to rent restrictions unless such is first approved by the State Division of Housing and Community Renewal.

    Furthermore, in both decisions, the court held that the legislation, to the extent it affects federally assisted projects, was preempted by federal law. Relying heavily on the decision of the 8th Circuit Court of Appeals in Forest Park II v. Hadley, 336 F.3rd (2003), the court held that, because the legislation “constitutes a[n] …. obstacle to withdrawing from federal programs,” it was preempted by the federal Section 8 laws, which allow owners to exit those programs.

    While the legislation is dead for now, the final story may not have been written. The court was clearly moved by the plight of low-income tenants and characterized both its decisions as “reluctant.” The court pointedly characterized as a “failure” the state’s refusal to enact similar legislation or allow the city to do so, and urged the New York State Legislature to take “immediate action” to protect low- and moderate-income residents. This may spur new initiatives by the state and/or city.

    The Affordable Housing Group of Nixon Peabody will continue to monitor developments in this area and will keep you apprised. If you have any questions about this Alert, please contact John Kelly or Joseph Lynch at 212-940-3000.