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July 20, 1998

THE GREYSTONE HOTEL CO., Plaintiff, against THE CITY OF NEW YORK, EDWARD HOCHMAN, as Chairman of the Rent Guidelines Board, EARL ANDREWS, PAUL ATANASIO, ELISSA FITZIG, AUGUSIN RIVERA, JOSEPH L. FORSTADT, HAROLD A. LUBELL, LESLIE HOLMES, and KENNETH ROSENFIELD, all as Members of the Rent Guidelines Board, JOSEPH HOLLAND, as Commissioner of the New York State Division of Housing and Community Renewal, and the NEW YORK STATE DIVISION OF HOUSING AND COMMUNITY RENEWAL, Defendants.

The opinion of the court was delivered by: STANTON


 The Greystone Hotel ("Greystone") claims that it is meant to be a transient hotel, housing guests at its own rate of $ 90 per night, but the law forces it to give leases to permanent tenants at a much lower rate set by the state. *fn1"

 Greystone is a Class B hotel *fn2" located in Manhattan and subject to the Rent Stabilization Law ("RSL") *fn3" and Rent Stabilization Code ("RSC") *fn4" , under which rooms in Greystone that are occupied by permanent tenants have a maximum legal rent. A permanent tenant is a person who has continually resided in the hotel for at least six months or has a lease of six months or more. RSC § 2520.6(j). Any occupant of the hotel may request a lease, and the hotel must grant a lease, with a term of at least six months for a rent not exceeding the legal regulated rent. RSC § 2522.5(a)(2) ("Mandatory Lease Provision").

 To maintain classification as a hotel, Greystone must provide weekly maid and linen service, furniture and furnishings, and a continually staffed lobby. RSC § 2521.3 ("Mandatory Service Provision").

 The Rent Guidelines Board (the "Board") determines annual rent increases pursuant to RSL § 26-510, and promulgates the increases through hotel orders. While the Board has allowed rent increases to Class B hotels in 21 of the last 27 years, it has not allowed one in any of the last three years. *fn5" See Affidavit of Doug Hillstrom, sworn to July 9, 1997, Ex. M; Reply Affidavit of Ira Drukier, sworn to September 8, 1997, at P 17.

 Greystone states that all of its rooms are now occupied by permanent tenants, which does not allow it to operate as a transient hotel, and that the large difference between what it could charge transient customers and what it must charge permanent tenants deprives it of economically viable use of its property. It claims that the mandatory lease and service provisions and the hotel orders constitute uncompensated physical and regulatory taking, and deprive it of property in violation of its rights to due process and equal protection of the laws. It further claims that the hotel orders are beyond the authority of the Board because the Board is creating social policy without legislative authorization by considering what tenants can afford to pay instead of only market data and the hotels' costs.

 Both sides move for summary judgment.


 A. Physical Taking

 Physical occupation of property by the government is always a taking, Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 102 S. Ct. 3164, 73 L. Ed. 2d 868 (1982), whether the government is itself the occupier or enacts a law that allows third-party occupation. In a physical taking, the landowner "has no power to exclude the occupier from possession and use of the space." Loretto, 458 U.S. at 435, 102 S. Ct. 3176. This is particularly egregious because "The power to exclude has traditionally been considered one of the most treasured strands in an owner's bundle of property rights." Id.

 In Seawall Assocs. v. City of New York, 74 N.Y.2d 92, 105, 544 N.Y.S.2d 542, 548, 542 N.E.2d 1059 (N.Y. 1989), the New York Court of Appeals stated that rent-control laws and other valid housing regulations "merely involved restrictions imposed on existing tenancies where the landlords had voluntarily put their properties to use for residential housing." While those laws do not constitute a physical taking, laws which "force the owners, in the first instance, to subject their properties to a use which they neither planned nor desired" by requiring owners to rent their property "to persons with whom they have no existing landlord-tenant relationship" do constitute a physical taking. Seawall, 74 N.Y.2d at 105-06, 544 N.Y.S.2d at 548.

 Plaintiff argues that it was intended to be a purely transient hotel, and the challenged provisions force it into a landlord-tenant relationship with its occupants, a situation it neither planned nor desires.

 However, the forced conversion from renting to transients, on the one hand, and leasing to permanent tenants, on the other, is not a physical taking. Whether a room holds a different resident each day or a permanent tenant with a lease, the room is still occupied. Furthermore, since § 2522.5 requires that one be an occupant of a hotel before the hotel is required to give him a lease, Greystone is not required to enter into a landlord-tenant relationship with a stranger: rather, it is required to expand its relationship with someone to whom it has already rented a room. That is a regulatory effect, not a physical taking.

 "The government effects a physical taking only where it requires the landowner to submit to the physical occupation of his land." Yee v. City of Escondido, California, 503 U.S. 519, 527, 112 S. Ct. 1522, 1528, 118 L. Ed. 2d 153 (1992) (emphasis in original). In Yee, a law severely limited the reasons for which park owners could evict their mobile home tenants, prohibited the owners from refusing to lease to their tenants' transferees if they could pay, and limited rents charged on mobile home plots, with the result that the tenant (or successor) became effectively a permanent occupant of the park and the increased value of his mobile home (because of the below-market rent) was in effect taken from the park owner's property. Nevertheless, the Court held that since the park owners had voluntarily rented their land to mobile home owners, even the inability to choose tenants' successors or exclude certain occupants did not amount to a physical taking: "It does not convert regulation into the unwanted physical occupation of land. Because they voluntarily open their property to occupation by others, ...

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