imposed by the rent regulations, the owner still voluntarily was acquiescing in the use of its property for rental housing. Id. at 172, 630 N.E.2d at 633, 608 N.Y.S.2d at 937; see also Dawson v. Higgins, 197 A.D.2d 127, 610 N.Y.S.2d 200, 1994 WL 111087 (1st Dep't Apr. 5, 1994) (noting that Court of Appeals has distinguished between regulation that protects current tenant -- which generally is permissible -- and regulation that subjects the property to a use never intended -- which may be a physical taking). In this case, FHLMC voluntarily purchased and agreed to run the Building. Indeed, it had the opportunity to demand the payment of all principal and interest due at the time the Building was converted to cooperative ownership, but chose not to do so. Tr. 18-19. Notwithstanding its desire to avoid application of the RSL to the Building, FHLMC indisputably has acquiesced in the use of the Building as rental housing. Accordingly, application of § 26-504 of the RSL to the Building does not effect a physical taking.
Subjecting the Building to the provisions of the RSL also does not effect a regulatory taking. Regulation of private property constitutes an unconstitutional taking if it denies an owner economically viable use of the property, or if it does not substantially advance legitimate state interests. Higgins, 83 N.Y.2d at 173, 630 N.E.2d at 633, 608 N.Y.S.2d at 937. Because a regulation effects a per se regulatory taking only where the owner must sacrifice all economically beneficial uses of the property, Lucas v. South Carolina Coastal Council, 120 L. Ed. 2d 798, U.S. , 112 S. Ct. 2886, 2895 (1992), it is clear that application of the statute here -- which merely would subject FHLMC to, inter alia, restrictions on rent and mandated lease renewal -- does not effect a taking. As to whether or not the statute substantially advances a legitimate state interest, the court is satisfied that there is a "sufficiently close nexus" between New York's interest in protecting the former proprietary lessees from potentially unconscionable rent increases and the regulation at issue. See Seawall Assocs. v. City of N.Y., 74 N.Y.2d 92, 112, 542 N.E.2d 1059, 544 N.Y.S.2d 542, 551, cert. denied, 493 U.S. 976 (1989) (evaluation of whether there is a substantial interest requires consideration of whether there is a sufficiently close nexus between burdens and end advanced as justification for them).
In sum, requiring FHLMC to provide tenants of the Building with the protections and rights afforded under the RSL and the Code runs afoul of neither the Constitution nor the Second Circuit's ruling in Diamond.
III. FHLMC's Due Process Argument
FHLMC also challenges the constitutionality of § 26-504 of the RSL on vagueness grounds. More specifically, FHLMC argues that application of the RSL to formerly exempt cooperative apartment buildings will result in a violation of the due process rights of the owners or mortgagees of the buildings because the RSL fails to give these owners or mortgagees notice that their buildings are subject to reversion to rent regulation. In addition, FHLMC maintains, the applicable provision of the Code is invalid because the Code fails to provide a formula for setting the rents of the former cooperative apartment units that it makes subject to regulation; therefore, owners of the buildings in which these units are located are unable to comply with the Code because they lack a mechanism for setting rents. According to FHLMC, these infirmities render the statute unconstitutionally vague. FHLMC further submits that these constitutional problems arise only if the court holds that the RSL applies to buildings formerly under cooperative ownership, and that the court therefore should interpret the statute to avoid the constitutional violation. See United States ex rel. Attorney Gen. v. Delaware & Hudson Co., 213 U.S. 366, 53 L. Ed. 836, 29 S. Ct. 527 (1909) (duty of court to adopt construction of statute that will save statute from constitutional infirmity).
To show that a statute is unconstitutionally vague on its face, as FHLMC alleges here, "'the complainant must prove that the enactment is vague not in the sense that it requires a person to conform his conduct to an imprecise but comprehensible normative standard, but rather in the sense that no standard of conduct is specified at all.'" United States v. Schneiderman, 968 F.2d 1564, 1567 (2d Cir. 1992) (quoting Village of Hoffman Estates v. Flipside, 455 U.S. 489, 495 n.7, 71 L. Ed. 2d 362, 102 S. Ct. 1186 (1982) (internal citations and quotations omitted)), cert. denied, U.S. , 113 S. Ct. 1283 (1993). "In other words, the statute must be impermissibly vague in all of its applications." Id. The court must consider two factors in adjudicating a challenge to a statute on vagueness grounds: first, the court must determine whether the statute is sufficiently definite that it gives a "'person of ordinary intelligence a reasonable opportunity to know what is prohibited, so that he may act accordingly'"; and second, the court must determine whether the statute provides standards that are sufficiently explicit to prevent arbitrary and discriminatory enforcement of the statute. Amato v. Suffolk County, 668 F. Supp. 151, 155 (E.D.N.Y. 1987), aff'd, 847 F.2d 834 (1988) (quoting Grayned v. City of Rockford, 408 U.S. 104, 33 L. Ed. 2d 222, 92 S. Ct. 2294 (1972)). It also bears noting that statutes governing economic regulation are subject to less stringent vagueness tests than those governing constitutionally protected rights. Textile Workers Pension Fund v. Standard Dye & Finishing Co., Inc., 725 F.2d 843, 855 (2d Cir.), cert. denied, 467 U.S. 1259 (1984).
As evidenced by the discussion in the foregoing sections, this court does not find that the statute is vague -- that is, it does not fail to provide a "person of ordinary intelligence" with notice or with sufficiently explicit standards. Rather, the language of the RSL and the Code is clear that the exemption from rent regulation applies only to buildings "not owned as a cooperative" "for so long as" the buildings maintain that status. As far as the omission from the Code of a specific mechanism for setting the initial regulated rent in a building formerly under cooperative ownership, as discussed in section I.B.3, supra, the Code provides adequate mechanisms for determining the proper amount of rent, and it is not rendered impermissibly vague by the absence of a provision expressly addressing the amount of initial regulated rent in circumstances like those in the present case.
IV. Historical Considerations
This interpretation of the RSL also is supported by the legislative history of the rent regulation laws. As discussed briefly above, see section I, supra, laws providing for rent control originally were enacted in response to the severe housing shortage created by World War II. The federal government first enacted the Emergency Price Control Act of 1942, Jan. 20, 1942, ch. 26, Title I, § 1, 56 Stat. 23, and rent controls were continued by state legislation in 1946. See Emergency Housing Rent Control Law, L. 1946, c. 274 (codified at N.Y. Unconsol. Laws §§ 8581-8597 (McKinney 1987)). New York City has enforced its own local rent regulations since 1962, pursuant to a City Council finding that "a serious public emergency continues to exist in the housing of a considerable number of persons within the city of New York. . . ." See N.Y. City Admin. Code § 26-501. The RSL was enacted in 1969 for the "dual purposes" of protecting tenants from eviction as a result of rapidly spiraling rent increases and . . . encouraging future housing construction by allowing landlords reasonable rent increases so that they could profit from the operation of their properties." Ansonia Residents Ass'n, 75 N.Y.2d at 216, 551 N.E.2d at 76, 551 N.Y.S.2d at 875. The legislature has found it necessary repeatedly to reenact the rent laws, "thereby providing continued protection to tenants," Braschi, 74 N.Y.2d at 208-09; 543 N.E.2d at 52, 544 N.Y.S.2d at 787; the legislature's finding that an emergency exists last was renewed in 1991. See N.Y. City Admin. Code § 26-502 (effective Apr. 1, 1991).
The legislature most recently revisited the rent regulation laws with the enactment of the Rent Regulation Reform Act of 1993, L. 1993, ch. 253 (the "1993 Act"). The 1993 Act provides, inter alia, that a unit may be decontrolled if the federally adjusted gross income of the occupants of the unit exceeds $ 250,000 for two consecutive calendar years and the unit rents for more than $ 2,000 per month, and also narrows the coverage of the rent regulations for apartments located in Nassau, Westchester and Rockland counties. Smith Aff. Ex. T.
Plaintiff's reliance on the legislature's enactment of the 1993 Act for the proposition that New York is attempting a wholesale abandonment of its rent regulatory laws is unwarranted. The select focus of this law on persons in a high income bracket has little bearing on the Building at issue in this case, whose occupants were in the lower to middle income tax bracket. Stewart Aff. P 5. In addition, while the 1993 Act narrowed the extent of the coverage of the rent regulatory laws for cooperatives outside of New York City, the legislature made no attempt to change the breadth of the RSL as applied in New York City. Moreover, the 1993 Act specifically made its provisions applicable for the period from July 7, 1993 until June 15, 1997, which would seem to indicate that the legislature does not anticipate the imminent lapse of the rent regulatory laws.
Smith Aff. Ex. T § 17.
This court is cognizant of the fact that rent regulatory laws were not intended to achieve a status of permanence in our economy; there is little question that there is an "over-all objective of a gradual 'transition from regulation to a normal market of free bargaining between landlord and tenant.'" Braschi, 74 N.Y.2d at 209, 543 N.E.2d at 52, 544 N.Y.S.2d at 788 (citation omitted). However, it is plain that the legislature still perceives the need to keep such laws in place. But see 1993 Housing Report of Senator Kemp Hannon (opining that housing emergency no longer exists). It is not for this court now to rule on the wisdom of maintaining the rent regulatory laws, or to decree that a housing emergency no longer exists in New York; such a determination is the province of the legislature.
Finally, both parties argue at length that consideration of the equities requires this court to adopt their respective interpretations of the RSL. The asserted interests at stake of both FHLMC and the former proprietary lessees of the Building are weighty. For example, FHLMC clearly has an interest in ensuring that the value of its investment is not reduced by the imposition of rent regulations on the Building, and the former proprietary lessees clearly have an interest in not being subjected to unconscionable rent increases on top of the loss of their equity investments. However, as the discussion in the foregoing sections illustrates, the plain language of the statute and the legislative history drive this court to conclude that the Building -- like a "phoenix arising from the ashes" -- is subject to the rent regulatory laws. Because the meaning of the statute is clear, the proper forum in which to seek its amendment -- based on the asserted equities -- is the New York legislature, and not a federal district court.
For all the reasons stated above, this court concludes that upon the demise of the cooperative, the Building reverted to rent regulatory status. Accordingly, FHLMC's motion for summary judgment is denied, and DHCR's cross-motion for summary judgment is granted.
Dated: Brooklyn, New York
June 3, 1994
I. LEO GLASSER, U.S.D.J.