Introduction by Carol LaGrasse: I'd like to introduce two men together, because they have come together. Martin S. Kaufman is Senior Vice President and General Counsel of Atlantic Legal Foundation and during his tenure at the foundation he has litigated both as a "first chair" counsel representing real parties in interest and as counsel for amici, cases involving First Amendment rights of speech and association, Fifth Amendment protections against takings of property without compensation, and Fifth and Fourteenth Amendment guarantees of due process and equal protection, violations of civil rights of individuals under federal civil rights law, and similar claims arising under state law. Now, he has been a great help to many property owners. His resumé takes two full pages of fine print, all of great importance. But I can't read it all to you. For that I apologize.
James D. Harmon, Jr., is a graduate of the United States Military Academy of West Point and has a law degree from Dickinson School of Law of Penn State and a Master of Law degree in trade regulation from New York University School of Law. He's a decorated veteran of the U.S. Army and he's held many significant and prestigious law enforcement positions, including Executive Director and Chief Counsel of the President's Commission on Organized Crime. For ten years he has been engaged in private practice. He is located in Manhattan, where the Atlantic Legal Foundation was located before moving to Larchmont. He is chief executive of the Harmon Firm and he's been involved in a rent regulation case under New York law involving his own home. So, I'd like to welcome James Harmon and Martin Kaufman to the podium to speak about the subject of rent control.
Martin Kaufman: Jim and I have known each other for almost twenty-five years but we had lost contact until his case, which he will describe, where we filed a "friend of the court" brief in the U.S. Supreme Court, hoping to get the Court to take his case, but they didn't. Atlantic Legal Foundation is a public interest law firm, which means we don't charge any legal fees and we are worth every nickel of that. We've sort of divided this presentation into several parts. We're talking about rent control or rent regulation and its effect on property rights and whether it constitutes a form of taking of property. You've heard from Mr. LoScalzo about Willets Point, which is a physical taking of property. There is also the concept of a regulatory taking of property. But, in my view, the Supreme Court and lower federal courts have totally mucked up the law of property rights. And we'll describe that shortly. But we'll give you a little bit of the history of rent control and where it has an effect, because it is essentially local rather than national. We'll describe how rent control works and Jim will describe how it affects an actual, real life owner of property. We'll talk about the law of rent control and how it plays into property rights and the Fifth Amendment guarantee against taking of property. And then we'll talk about possible approaches going forward.
So, first let me start with a short history of rent control. Rent control really started in the aftermath of World War I and it was occasioned by the fact that during the war resources of all sorts were diverted from the private market. Whether it was manufacture of vehicles or manufacture of clothes or growing of food, resources were diverted to the war effort and that included the shortage of construction materials and the shortage of capital with which to build housing. So, there was a shortage of housing after the war. That led New York City especially to adopt rent control to protect tenants from huge increases in rent because of the shortage of available housing and the supply/demand effect in any economic system. That is, where there is a shortage of supply and an increase in demand, which there was when soldiers came back from the war, the price tends to increase. In the wake of that, however, the U.S. Supreme Court made probably its most rational decision in the rent control area and it laid down some guidelines of conditions under which rent control would be approved and among those was that it had to respond to an actual emergency, it had to be limited in time, and it had to be addressed to the problem.
Rent control sort of went into hibernation and it was revived after World War II for the same reason. That is, housing wasn't built for a five-year period, we had lots of veterans returning, starting families, you had the baby boom, and so there was a shortage of housing and New York City again adopted rent control. Now, rent control is really both a state and local function. That is, in New York and most other states, you have home rule laws, which means that by the grace of the state legislature certain powers are delegated to localities, whether it's counties, cities, towns, or villages. And so in New York State the legislature has delegated the right to control rents to localities and New York City and a couple of other municipalities in New York have adopted rent control. So, New York City adopted rent control, I think it was in 1948 and then later in the 1960's adopted something called rent stabilization which is very similar to rent control. I won't distinguish between the two although Jim might want to describe how they differ.
Rent control works like this: A building is deemed to be subject to rent control by virtue of certain characteristics. That is, the number of units, the time when it was built, and how it is being leased out. When a building, or, particularly units within a building, come under rent control, the landlord is subject to a number of limitations. First and foremost, there's a limitation of how much he can charge for rent and particularly how much he can increase rent at the end of each lease term. Secondly, and most strangely in my view, the landlord must continue to rent the apartment to the tenant who was in possession when rent control started. So, the landlord is deprived of the right to choose to whom he wants to rent the apartment. And third, at least in New York City, there is a right of inheritance. That is, if I have a rent-controlled apartment and my children or grandchildren live with me during the period I'm alive, and then I pass on, if they have been in the apartment for two or three continuous years before I die, they have a legal right to continue to reside in that apartment under rent control. And that is perpetual. So then if they then have children who live in that apartment and they pass on, their children inherit the right to rent control. So, rent control becomes virtually permanent. That's how rent control works and it works similarly in other places there.
Now, rent control is by no means pervasive. There are a number of localities in New York that have rent control; New York City is the largest and most infamous. There are some other cities; Yonkers has rent control, for example. There are some municipalities in New Jersey that have rent control. There are some municipalities in California that have rent control. But, generally speaking, rent control is not universal, by any means.
So, that's how rent control works and it creates a strange relationship between the landlord and the tenant, and, in fact, interferes, in my view, with the normal right of contract because the landlord cannot [decide to] terminate the lease. But there are reasons he can terminate the lease: if there's illegal activity or if the tenant fails to pay rent or if the tenant creates a nuisance. But the landlord can't decide, "I don't want to rent it to Mr. Smith anymore, I want to rent it to Mrs. Williams instead." And the landlord can't choose based on what is best for him economically. Mrs. Williams might be willing to pay more rent than Mr. Smith. But the landlord can't say, "I want that tenant because she willing to pay more money," which is not the way the free market normally operates. Now there have been numerous challenges to rent control under various theories. And so, let me back up and describe the somewhat complicated and, in my view, perverted, law of takings. You have physical takings which are pretty clear cut. Willets Point is an example of a physical taking. That is a governmental authority decides, "We want to own your property and so we will condemn it." And there are some pretty clear rules about how that works, they're not altogether fair but the taking has to be for a "public" purpose (and we'll come back to that) and the government unit taking the property has to pay adequate compensation and there's a lot of dispute as to what adequate compensation is. There's dispute as to whether a taking is for a public purpose but at least those rules are fairly well known.
Regulatory Takings and Rent Control
There's a whole other category of takings called regulatory takings. And that is much murkier because there is a tension between the right of government to regulate various kinds of activities, and that right has grown immensely over time under what is called the police power. And by this we don't mean law enforcement, we mean the power of government to regulate activities to protect the health, safety or general welfare of the public. No one disputes that the government can prohibit a landowner from using his property in a way that is going to harm his neighbors; so, if I want to use my house as a crack den, they can stop me from doing that. If I want to use my house to produce products in a residential neighborhood, they can prevent me from doing that. But the question is whether it is truly a legitimate exercise of police power for a municipality to regulate rent. Now, this is why in almost all cases the municipality declares that there's some sort of an emergency. And the emergency is a shortage of housing. That falls under this general welfare part of the government's police power to regulate. In New York City, and New York State generally, the emergency is the claim that, if there is a vacancy rate of less than five percent, it is presumed that there's a shortage of housing that the government has to somehow ameliorate. And Jim and I will discuss a little bit later why rent control really doesn't solve that problem. But that's the emergency that rent control is supposed to deal with. So, the government uses that to justify the exercise of police power to regulate rents.
Under the concept of regulatory taking it is not considered a compensable taking of property unless the owner is deprived of all economic use of his property. So, even if the landlord could have charged $2,000 a month and under rent regulation can only charge $1,000 a month, so long as the City can show that at $1,000 a month the landlord is not going broke, the City can get away with it. So the landlord cannot maximize his economic opportunity and the City can justify that by saying, "But you still can pay your real estate taxes, you can still pay your mortgage, you can still pay for heating and lighting and make a small profit" and the City calculates what the legitimate profit is.
As happens with almost every government program, it becomes incredibly complex. In order to avoid the accusation that they're taking all economic value the City allows various increases. They allow increases for capital improvements. They allow increases for the rise in cost of fuel. They allow increases for the rise in cost of labor for the maintenance staff of the building. Landlords have to go through this incredibly complex process of applying for increases and demonstrating to the satisfaction of some bureaucrat that their costs have, in fact, gone up and they can charge more rent. This, in turn, creates additional costs to society because you've got to have this whole bureaucracy to monitor the requests and pass upon requests for rent increases. You have landlords who have to employ specialists: lawyers, accountants, and lobbyists to help persuade the City that they're entitled to a rent increase. And you've displaced the operation of the market with the operation of a bureaucracy, with all of the inefficiencies that that entails.
I'll just tell you a little anecdote. One of the property rights cases we handled more than a decade ago was on behalf of small landlords who were part of what's called in New York City the Senior Citizen Rent Increase Exemption Program. The City, out of its benevolence, adopted a law which said that senior citizens could not be forced to pay the full amount of the legal rent increase determined by the City. So, if in a given apartment the rent was $1,000 and because of the various allowed increases the rent was going to go up to $1,500, but the tenant was a senior citizen on fixed income, the senior citizen could apply for this SCRIE program. And the landlord could not charge the $1,500 even though that was the approved rent, and instead had to get the difference from the City. Which was fine, I mean in theory, but the paperwork and delays that were imposed on the landlord as a practical matter meant that the landlord was out-of-pocket hundreds of dollars a month, per apartment, for months at a time until the City finally acted on his second application for SCRIE payments from the City. So, we sued the City and said that that was depriving the landlords of due process because they had made the program unnecessarily complicated and that even if rent control was legitimate this add-on SCRIE requirement was not. And we actually settled with the City and the City redesigned the program so that landlords were getting paid pretty promptly.
Challenges to Rent Control
Now, let me get to the guts of this, which is going to bore the hell out of you because it's lawyer talk. Rent control has been challenged on various theories. The first and most obvious is that rent control is a regulatory taking because it deprives the landlord of his right to charge the market rate for his property, for his units, and imposed other limitations. That argument has almost always lost those challenges, because, the courts hold, it doesn't deprive the landlord of all economic value, just some economic value. Now, I don't understand, frankly, the rationale why a partial diminution of property rights is not at all compensable. And one would think and a number of very learned and brilliant legal scholars have said, "Well, why not just pay the landlord compensation proportionate to what he's lost through rent regulation." But the courts haven't agreed with that.
The second challenge has been due process. That is that rent regulation isn't rational. In other words, one of the criteria under due process is that a decision of the government has to be rationally related to the problem it's trying to solve and has to be limited, to the extent that it can be, in order to solve just that problem and not to be too broad. Well, arguments have been made that rent regulation is not rationally related to the problem because it doesn't increase the amount of housing. If the problem is shortage of housing the obvious answer is build more housing or encourage property owners to build more housing. Rent regulation doesn't do that. In fact, it has the opposite effect because it deprives property owners of money which they might otherwise use to build new housing. But those challenges again have generally been rejected.
One theory that has not really been used and maybe it hasn't been used because minds better than mine realize that it's pretty stupid but I still think there is some possibility is equal protection. That is, the general theory of equal protection is that everyone ought to be treated equally or that if there are differences in treatment they ought to be rationally related to the different situations in which people find themselves.
In this case of rent control, landlords alone are being asked to bear the burden of correcting a problem that is society's at large. And that the simple way to solve the problem if housing is too expensive for the average guy or the person on limited income to afford, the obvious answer, I'm not sure it's an answer that I would support, but the obvious answer is give money. Have the public in general give money to the tenant to make up the difference or have the City give money directly to the landlord to make up the difference. And that, in fact, is done under certain federal programs where people who are below a certain income level can receive vouchers to make up the difference between the rent they can afford and the rent that's being charged. But that would be unpopular because every taxpayer and every voter would see money going out of his pocket. It is politically more popular to inflict the pain on a relatively small segment of the population, those rich landlords. So, I think that's where we are in terms of political situation.
Now, I'll turn it over to Jim because Jim brought the most recent challenge to rent control and he can describe his situation, his case, the theories he pursued, and what happened. Then we'll talk after that about possible action going forward.
James Harmon: Well Marty and I do go back a long way. We did team up on another case that went to the Supreme Court, which we won five to four. It was another case of government overreaching, in that case called the City of Yonkers case. And in that role Ken Starr was the Solicitor General, who was our opponent on the other side. A very controversial case. My role or rather Marty's role was as the brains of the operation. My role was to be the mouthpiece. So, Marty told me what to say and I got up and said it, and we won. And we were hoping to replicate that here. I always believed, representing myself in this case with the support of the Atlantic Legal Foundation and others, to quote Johnnie Cochran, who I knew but who never really said it, that "if we get in, we will win." And I still believe that, that if we could get in you need four votes to get into the Supreme Court we would win this case and the bottom line would be that rent control is unconstitutional. So, here's the way it started and, you know, in my own mind. It started this way.
Having taken an oath to preserve and defend the Constitution as a cadet at West Point and as a Lieutenant and at other times since, I never thought that that was going to have anything to do with me. And I never thought when my grandfather told me, "Jimmy you take care of your building and your building will take care of you." He told me this in French as an immigrant. As a kid, I used to help him shovel the coal from the bin to the furnace and then he'd throw it in, he'd put it into the furnace. So what he was saying was "Look, you take care of your building and your building will take care of you." Well, this law prevents me from doing that. It prevents me from taking care of my family, and that's what this was all about in the end. And I figured the Constitution's going to be there to allow me to take care of my family. It is, but there have been many obstacles placed in the way.
So look, this is a five-story building that was built in 1891. We live on the first floor; my wife and I live on one floor. We rent out six apartments above us. Three of them are market rate and three of them are rent stabilized by tenants who have lived there on the average of thirty years. Now, why would they live there for thirty years? They considerate it their home. One told me the other day, "Jim, your problem is that my home is in your home." Well, that wasn't exactly by invitation that his home was within my home.This is the best deal in the world! Property owners lose $2.9 billion a year by rent reductions itself. The market is split in half. There are about a million rent stabilized apartments; there are a million free market apartments. It's all a matter of luck. OK? If you're in, you're never going to get out. If you have one of these apartments you're going to keep it for life. Well, what about the other million people that can't get one of these apartments? Well, they're paying $1.7 billion a year in rent that's in excess of the market simply because the laws created a bifurcated market. Who would those people be? Who do you think they are? I mean they're immigrants, they're people coming to New York, they're young people, they're people who want to make a start in New York, and they're forced to pay more rent than they should have to pay.
Also by way of framework, the City loses because of reduced property values. This process substantially reduces the value of our property because, as you've already been told, we cannot, we are not permitted, to withdraw the apartments from the market. We are forced to continue leasing these apartments at reduced rates and when we sell the building, if we would ever do that, which we never will unless we're forced to do it, the tenants go with the building. So that when somebody buys the building, when somebody buys our home, they buy the tenants, too. This is only in America. This is in somebody's home. I mean, it's a small building built in 1891, five generations of my family have lived there. Yeah, this is in America. So, that's the framework.
Let me give you some philosophical framework to it. That's a little more on the dollars and cents. The rents citywide are nineteen percent below market. In Manhattan the rents are thirty-six percent below market. In the Harmon's building for reasons that are really not important except for their longevity, the rents the tenants are paying are fifty-nine percent below market. So, there's your kind of dogma, there's your kind of economic impact. Well, yes, somebody lives in my home, I mean, that's the real issue. So, you know, believing that the Constitution had some role to play in our life now, whether we liked it or not, and I thought well, I have a representative, so I'm going to go to my assemblyperson and talk to her and try to get some relief. Saying, "Look, I'm on Social Security, my Social Security check is going to these tenants. One of the tenants owns a $750,000 house in Southampton," OK, which is not unusual, OK. It doesn't matter. It doesn't matter! So, I said to her, I tried to get some relief. And you know what she said to me? "Jim, the only way I can represent my constituents, is because I have a rent-stabilized apartment." So, I'm asking for some relief from a state legislator who, herself, has a rent-stabilized apartment. The president of the City Council, who's running for mayor now, has a rent-stabilized apartment. Now you tell me whether that's not a direct financial conflict of interest. I'm waiting for the first person to tell me that.
So, how could we possibly get any relief from the political process, which is why I felt the only shot you've got here is to go to the Supreme Court. That's going to be your only shot. On the philosophical level and I was talking to Greg Glenn about The Fountainhead, the book by Ayn Rand, the end of the story about a property owner who blows up his property because the government wouldn't let him design it and build it and use it the way that he wanted. Well, the interesting thing was as we went to federal court, the court said, and I couldn't believe my ears, I mean in the sense I thought it was the best thing it showed the true colors of this law to say, look, if the Harmons don't like this, they can either sell their building or demolish it. This is a court of the United States. Maybe telling you about your business in the watershed, telling you about your farm in the Adirondacks, and if you don't like it, you can blow it up. OK. That's what the Constitution's going to do for you, Harmon. And then let me again give the philosophical and listen to this. Listen to this juxtaposition here. Here's what somebody said and the question is who said this during the Russian Revolution? "Go and take the land for yourselves, immediately and without compensation." That was Lenin that said that. That's what's happening to us, thank you.
Contrast that with James Madison, who was really the driving force behind the Fifth Amendment, saying that government cannot take property except for a public use and with just compensation. I mean, Madison warned about the "mischief of factions," that is tenants in this case, splitting themselves up against landowners and dividing us along those kinds of grounds and warning about the taking of one person's property for the benefit of another, which, of course, violates, period, the Fifth Amendment of the Constitution. And somebody's got to tell me why that didn't happen here, why they didn't take my property and end up taking it every day and giving it to three other people.
Let me tell you what this if like and I'll give you the rest of the conversation with my assemblyperson. After she told me that, I tried not to lose it and I tried to keep my sense of humor. What are you going to do? Who else is going to help you? Where's it going to come from? How can I make this happen? So I said, "Linda, let me tell you something. I just wanted to know, I mean my obligation to tenants goes pretty far at this point in time but I've always wondered how far they really go." OK? So, the tenant above our bedroom, his bedroom's right above our bedroom. And so, you know, you can, the ceilings are very high but, you know, you can hear. I said, "What about this?" I said, "Suppose I hear a thump in the middle of the night and I don't hear anything and I go up there and he's dead on the floor. I mean, Linda, do I have to take his body out? Is it my responsibility to take his body out?" Of course, I was, you know, talking tongue-in-cheek and she didn't quite get it. And she talked about, well he must have relatives. I said, "I don't know that. All I know is that we're forced to "
So that's how it works. You might have thought it's rent control. It's not only that. Some people have called it rent control and property control. OK. So, it's one thing to have a system where there's a voluntary system where you can rent your property but this is very different. The truth is, under this law, and it's not just relatives, it could be a significant other that moves in with the tenant, over which I have no say. The tenant's permitted to bring anybody in without my consent. OK. It can be anybody else that's lived there for three years in that case. And this process can go on and on and on. So, the fact is they really do own part of our home. It's all a matter of luck. There's no needs testing. It can be anybody that lives in a rent stabilized apartment including the president of the City Council, whom I mentioned, who owns a home on the Jersey shore. So, everybody knows this. This is not as if I'm telling a story that people don't know. So, what was our point of attack? What were our simple points? It's really very simple in the end. The exercise of the government's emergency powers requires an actual real emergency, as Marty said. Otherwise, the exercise of the police power. The police power cannot be exercised in this way unless there's an emergency. And you can't tell me that there's an emergency that lasted forty years. Since 1921 New York City has had this based upon an emergency, has had rent control in one form or another since 1921 except for a seventeen-year period leading up to World War II.
The second point was that they've taken our property under the Fifth Amendment by forcing us to continue leasing it, to allow people to live with us in our home permanently. That was number two. The third point was due process. Then it's arbitrary. It's irrational to think that this kind of law would ameliorate any lack of housing by permitting new construction because, of course, that never would happen. And second of all, the City's own figures, it didn't happen. It has not happened. So, those were the really simple points of attack on the rent stabilization law. But I want to finish, really, and then turn it back to Marty here. Look, there have been five Nobel Prize winners in economics, from Milton Friedman, to Paul Krugman, who have said that rent control is horrific and other than short of bombing New York City, there's no better way to destroy it. OK. It's as simple as that.
I want to tell you a story related to my granddaughter Megan. I want to tell you how we tried to get one apartment back. We do have a right to take an apartment back for use as our own primary residence or that of one of the members of our family. In order to do that the process is you must have a trial. You must go to court and you must have a trial. You must have discovery. They're entitled to documents from us. Like what? What kind of documents could they be? How about six years of personal tax returns, six years of bank statements, six years of any kind of financials. That is, the owner has to turn this over to the tenant. OK. And ultimately there's a trial. Well, the reason we're doing this is because this granddaughter has certain personality problems, there's an addiction aspect to it. She had an eating disorder and other things. We wanted to take the apartment back so we could move her into it as sort of a progressively more independent kind of environment but we're there. She's on another floor and it didn't work out. This process took so long it took two years that it got to the point where she was too unstable. She couldn't give a deposition. She couldn't do anything. So I told the judge. Look, we're not going to do it. We want to have our grandson move in. The judge said, "You can't change your mind, you're out of court." So, this cost, the legal fees here, I mean on the Constitutional case, I did the work, it was about one million dollars worth of legal work there but this thing with my granddaughter cost us $50,000. We didn't get the apartment back and this is what it's like living, the best way I can describe it, it's like living without the Constitution. As if there is no Constitution. As if there is no such thing as property rights. We're actually living in it.
I hope the message got across that I'm taking it personally because you can't get any more personal than this. They're going to ask my granddaughter about all our problems and stuff, a public kind of forum and a public kind of record. We've got nowhere to go on this. We had abundant amicus support when we went to the Supreme Court. The Atlantic Legal Foundation, the Pacific Legal Foundation, the Cato Institute, the Rent Stabilization Association in New York City, the Center for Constitutional Jurisprudence from California, CHIP [Community Housing Improvement Program], which is a New York City property owners group. I think I'm missing one or two here. All of them filed briefs on our behalf. The only other places in the country that have rent control, usually have this form and it's usually based upon emergency and it usually has other limitations, as Marty says.
And the right of a property owner to possess, use and occupy their own property. That's what you can do when you own a piece of property, you can possess it, you can use it, and then you can occupy it. I got news for the Harmons, that's not true. It doesn't work at 32 West 76th Street. The only other places you'll find it are in California, New Jersey, Maryland, Washington, D.C., and New York. That's it. It is not a nationwide phenomenon. The flag flies high in other places but it doesn't fly high in those states when it comes to this. And it's places Los Angeles, Santa Monica, Berkeley, San Francisco where the government has sort of been captured
Not Giving Up
So that's the Harmons' story. I never spoke outside a legal context about this before. I'm getting angrier, I'm tired of this. I'm not taking it anymore. So, I'm going to open up the window and shout it out. Maybe that's what I'm doing here today. But we're not going to give up. OK. We're exploring, I'm sorry I can't go into any further details and I really would appreciate your support if it happens. If it happens. We're trying to mobilize groups on the national basis to then launch another attack. We've been under attack. We have literally been attacked by our own government for years. The Harmon case went out, we did what I call a reconnaissance in force, we went out, we saw where they were. They fired back at us. We saw what they had. They didn't have much. They didn't touch us on the law. Now we're ready for a decisive move. So, think about us. I'm going to think about you. I see us all in the same position. Whether you own a farm, whether you've got a business, whether my friends at Willets Point. At least the City there went after them for eminent domain and they had a chance to deal with it up front. They didn't do that with us. They just took it and then left it to us to figure what to do next. Thanks for the opportunity to be here. Marty may have a couple more things to say.
Martin Kaufman: I just want to add a few words to show how crazy this system has become. Jim mentioned that one of the courts said to him, in effect, if you don't like it you can tear the building down. In fact, he can't tear the building down because under New York City rent control if you want to tear the building down, you've got to find other rent regulated apartments at equivalent rents for all your rent controlled tenants. Now, that's truly a Catch-22 because if, in fact, there is a shortage of affordable housing, why should Jim be able to find affordable housing for his tenants when nobody else can? So, the court wasn't even being up front and square with Jim when they said that or maybe they were just ignorant of how the system works.
Secondly, as Jim sort of pointed out but didn't really say so explicitly, rent control does not confer benefits based on income; that is, you could have an income of a million dollars but if your grandparents rented the apartment back in 1948 as a rent-controlled apartment and your parents then lived in it, and now you're living in it, if you're a Wall Street trader with a million dollars a year income, you have the benefits of rent control. Which is truly insane. You may have read the story about how Charlie Rangel had four rent-stabilized apartments. Obviously, he couldn't live in all four. So, well, he was using one of them as a campaign headquarters and he was doing other stuff. But clearly that wasn't solving a housing crisis for people of limited income.
Finally, and I say this with almost despair, Jim says, "Well, if we can get into the Supreme Court we'll win it." I'm not so confident because the Supreme Court has well and truly mucked up this whole area of regulatory takings. And so, two of the cases that really overhang this whole area are fairly recent; that is in the last forty years. Supreme Court cases. There's the Lucas case [Lucas v. South Carolina Coastal Council], which came up with this rule that it's not a taking unless you lose all economic value and then there's the Yee case [Yee v. City of Escondido] which is a rent control case from California where the landlord owned a trailer park and he rented out the spots and then the tenants would tow their trailer to that spot and the court said, well, you're property is not really being taken for two reasons. First of all, you freely decided to rent them, so that the government didn't force you to rent them to anybody. So that's not a taking and the tenant is actually contributing a lot to the value of the property because his trailer is worth at least as much as the raw land. And so he is actually improving the property, of course, ignoring the fact that if he wanted to he could move the trailer ten miles down the road and take away all of that improvement from you. So, the whole area has become quite seriously messed up. And then there's one further doctrine which creates barriers, which is that if you buy the property while it's under rent control the court will say, well, you knew when you bought the property it was under rent control so your investment expectations aren't being denied. Well, Jim Harmon didn't buy the property, he inherited it. In a sense he bought it because he bought out his brother at some point; but he inherited this property, so he didn't buy it with an investment expectation. And for the courts to apply that principle, particularly in cases like Jim's, is just reprehensible.
James Harmon: I've nothing more to say except to point to the source of my optimism, the Obamacare case. The court said in the Obamacare case, that it was the commerce power. Yes, it was not the police power but the essential idea was if you cannot force people to engage in a private relationship for the purpose of regulating them. You cannot do that. And that was the decision in Obamacare and I'm saying the same thing. You cannot force me to rent so that you can regulate me. So, this is part of the reason. Thank you very much.
Carol LaGrasse: I cannot make any comments on this except
a personal memory. When I was about twelve years old my parents
inherited our two-family home from my grandparents and they were
concerned whether the rent control applied. It doesn't apply today
to the two-family houses but they were concerned the rent control
would now go to the upstairs apartment which they intended to
rent out. I've never forgotten their conversation and the subdued
distress in their voices from back in 1954. So, this is really
a deeply-felt issue. Adrian Tiemann, you may remember, spoke at
our conference about her travails with rent control of apartments
in her house in Manhattan. She couldn't be here, however, she's
with us in spirit today. This is the most outrageous taking of
property. You can't put a cable TV box on the roof of an apartment
without permission under the Loretto v. Teleprompter but
the government can force you to, in perpetuity violating
as far as I'm concerned the law of perpetuities to allow
someone to stay in your house. Well, thank you, Jim and Marty.
That was beautiful.