Court strikes down rent stabilization provision.

In a stunning reversal, the State's highest Court on October 20 struck down a portion of New York City's Rent Stabilization Law which had carved out special subletting privileges for Manhattan's Lenox Hill Hospital. The Court of Appeals, by a 5 to 2 majority, held that the challenged provision exacted a "taking" of the landlord's property in violation of the United States Constitution.

The decision, in the case of Manocherian v. Lenox Hill Hospital, marked the first time in the 51-year history of New York City rent regulation that a tenant protection provision had been struck down as unconstitutional by the State's highest Court.

"This case sends a strong message to legislatures across the country," said Gary M. Rosenberg of Rosenberg & Estis, P.C., the attorney for the property owner, "that even with the best of intentions, the government cannot trespass on the rights of property owners."

The genesis of the case was a 1983 amendment to the Rent Stabilization Law which imposed sharp restrictions on the subletting rights of rent stabilized tenants. The law provided that tenants could only sublet two out of every four years, and could lose stabilization protection outright if they could not prove that they were the "primary resident" of the apartment.

The 1983 law was bad news for Lenox Hill Hospital, which leased 18 apartments at 420 East 79th Street in Manhattan from the Manocherian family, and then sublet the apartments to nurses within its employ. Lenox Hill, as a corporate entity, could not pass the "primary residence" test, and needed to sublet continuously, not just two out of every four years.

Lenox Hill quickly petitioned the New York State Legislature for a special law that would exempt it from the 1983 subletting restrictions. The law that was eventually passed, Chapter 940 of 1984, was the one struck down by the Court of Appeals. The Manocherian family had challenged the law as violating the Constitution in that it effectively confiscated the owner's property without due process of law.

The Court of Appeals, reversing an intermediate Appellate Court, held that the statute did not "substantially advance a legitimate state interest." Judge Joseph W. Bellacosa, writing for the five-judge majority, observed that the contested law protected Lenox Hill's subletting rights only if the nurse-subtenant was "affiliated" with the hospital; once that affiliation ended (if a nurse retired or took a job with another hospital, for instance), Lenox Hill would be compelled to evict the nurse under the law. The Court of Appeals held that the State had no legitimate interest in encouraging the eviction of residential tenants, stating:

"The primary and real beneficiary of this legislation, however, is Lenox Hill Hospital, not actual dwellers. The latter are only incidentally benefitted and may be evicted under the exclusive control or at the whim of their employer, Lenox Hill Hospital, to which the Legislature transferred significant, distinctive, apartment ownership prerogatives without its having to endure the burdens and costs of ownership."

The Court also ruled: "The preservation of this Manhattan Upper East Side housing enclave for this privileged entity's benefit... cannot masquerade as general welfare legislation. Purporting to promote the general public welfare by enabling not-for-profit hospitals to continue to provide subsidized housing benefits to its chosen employees cannot sustain the sweep and manner of the burden and confiscation effected against the few owners."

"The Court conceded that the State has a legitimate interest in protecting tenants," said Jeffrey Turkel, an attorney with Rosenberg & Estis who also represented the Manocherian family in this case. "But the majority drew the line at special interest legislation that gave Lenox Hill a significant financial benefit at the expense of the property owner, and at the expense of the people who really live in the apartments, Lenox Hill's nurses."

"For ten years, the Legislature in effect made Lenox Hill the landlord of the building: the hospital decided who would live in the apartments, and decided when and if they should be evicted. That reign came to an end today."

The landlord was represented by the Manhattan real estate law firm of Rosenberg & Estis, P.C. Lenox Hill Hospital was represented by Edward Kornreich of Proskauer Rose Goetz & Mendelsohn, and by Edmund F. Wolk. The Attorney General of the State of New York was represented by June Duffy.