Appellate Division Revives Challenge to New York City’s Moratorium on Hotel Conversions
October 09, 2018
In Real Estate Bd. of New York, Inc. v. City of New York, Petitioner-Plaintiff Real Estate Board of New York, Inc. (“REBNY”) commenced a hybrid article 78 proceeding and plenary action against the City of New York (“City”) challenging the City’s adoption of Local Law No. 50 of 2015 (“Local Law”), which placed a moratorium on the conversion of hotel rooms to residential units.
REBNY’s article 78 claims sought to annul the Local Law and permanently enjoin the City from enacting similar legislation unless it complied with the City Charter’s Uniform Land Use Review Process (“ULURP”) and the State Environmental Quality Review Act (“SEQRA”). REBNY’s plenary claims sought compensation for taking and for due process and equal protection violations under the State and Federal constitutions.
The City moved to dismiss REBNY’s claims based on standing, among other things. The Supreme Court, New York County (“Motion Court“), granted the City’s motion and dismissed all of REBNY’s claims for lack of standing. On appeal, the Appellate Division, First Department (“Appeals Court“) effectively reversed the Motion Court’s decision. The Appeals Court held that REBNY had standing to bring its article 78 claims, except under SEQRA. The Appeals Court also held that REBNY had standing to assert its plenary causes of action, but held that REBNY abandoned its claims under 42 U.S.C. 1983 because REBNY did not address them on appeal.
The City enacted the Local Law in June 2015 to allow for the study of the effect of the conversion of hotel rooms from transient guest spaces to full-time residential units on the City’s economy. Its legislative findings asserted that large hotels are essential to vacation and business travelers, important generators of well-paying jobs and anchors for surrounding economic activity. The findings also expressed concern that the conversions are occurring quickly and may be irreversible. In addition, the legislative intent noted the current market conditions, the profitability of conversions and the City’s developers’ rush to convert.
The Local Law placed a two-year moratorium (extended to four years, i.e. June 2019) on the conversion of Manhattan hotel rooms to residential units. More specifically, the Local Law applied to hotels with at least 150 units and prohibited the conversion of more than 20% of hotel rooms. The Local Law provided an exemption for conversions begun in the two years preceding its effective date and allowed owners to seek a waiver from the City’s Board of Standards and Appeals (“BSA”), which waiver was not as-of-right.
REBNY, a non-profit corporation comprised of 17,000 members (property owners, developers, lenders, managers, architects, designers, appraisers, attorneys and brokers), asserted that 175 hotels, including 29 REBNY members, were affected by the Local Law. REBNY argued that by restricting the rights of affected hotels, the Local Law reduced the value of the properties, among other things.
The City moved to dismiss on the basis that REBNY lacked organizational standing. To have organizational standing to challenge the enactment of the Local Law, REBNY must satisfy three elements : (i) one or more of its members must have standing; (ii) the interest it asserts must be germane to its purpose; and, (iii) neither the claim asserted nor the relief sought requires the individual members’ participation (ensuring the organization is the proper petitioner/plaintiff). Standing requires injury-in-fact which falls within the zone of interests and which is different in kind or degree from the public at-large.
The Appeals Court ultimately held that REBNY sufficed the injury requirement. Owners of property subject to new zoning restrictions are presumptively affected by the change. REBNY member hotels were negatively affected by the Local Law, including but not limited to, the diminution of property value and the costs associated with applying for a waiver. These negative effects satisfied the injury-in-fact requirement.
One of the bases cited for this finding was the Local Law’s own legislative intent, which noted that the Local Law would not be necessary if conversions were not so profitable. Thus, with respect to first part of the three-prong test for organizational standing, the Appeals Court held one or more member’s sustained sufficient injury-in-fact within the zone of interests and different in kind from the public at-large.
However, REBNY satisfied the second and third prongs for organizational standing on only some its claims. Pertinently, with respect to the article 78 claims, the Appeals Court held REBNY had standing for all claims, except under SEQRA. REBNY focuses on the economic and political health of the real estate industry. The Court rejected REBNY’s argument that it sought to protect its member’s environmental interests in air quality and traffic. REBNY’s only “environmental” focus is on the economic environment. Economic interests – alone – are insufficient to confer SEQRA’s zone of interests. While economic interests are germane to REBNY’s purpose to the extent it is a real estate industry advocacy group, environmental interests are not. Therefore, REBNY is only a proper petitioner for the non-SEQRA claims.
Notably, the sole dissenting Judge opined, among other things, that REBNY did not have standing for any claim. The dissent argued that REBNY’s allegations of potential future economic harm were amorphous and did not suffice an injury-in-fact. REBNY’s members have neither attempted to convert nor sought exemption by waiver form the BSA. REBNY did not provide competent proof, e.g. appraisals, evaluations, etc. Additionally, the waiver application fee is de minimis and does not constitute an injury.