SBJSA Legal FAQ

Commercial rent regulation is legal in New York State. Regardless, opponents of the SBJSA keep raising the potential of “legal problems” with the law as the reason not to enact it.

This is a phony argument. All of the legal issues with the law have been thoroughly vetted *. To further prove the point, the FAQ below discuss every legal issue that has ever been raised about the SBJSA and explains why they all lead to the same conclusion – The SBJSA is Legal (and clearly so)!

Everyone who says there are “legal problems” with the law never tells you what’s actually wrong with it. That’s because either: 1) they’re lying and won’t give a reason they know can be easily disproved; or 2) they’re just repeating real estate industry talking points. Don’t be fooled. The real estate industry may try to challenge the law because they don’t like it. They’ll lose.

Question: Does the New York State Home Rule law allow the City of New York to legislate in the area of commercial rent?

Answer: Yes. The State of New York has never prohibited New York City or any other locality from creating regulations that govern the relationship between commercial landlords and commercial tenants. Certainly, there has never been any prohibition by New York State from localities enacting a commercial rent arbitration bill. Thus, there is no pre-emption issue that would bar commercial rent arbitration legislation in New York City and the City Council has every right to enact commercial rent regulation. The SBJSA is a very straightforward example of what the City Council has the right to do.

Question: If it's legal, what has been the basis for the questions that are brought up about the legality of commercial rent arbitration and the Small Business Jobs Survival Act?

Answer: In the more than 30 years that legislation on commercial rent arbitration has been discussed in the City Council, there was one staff report about an early version of the bill that suggested that it “might be vulnerable to legal challenges.” However, that suggestion was: 1) solely based on the misreading of one, 30-year-old case from California (Ross v. Berkeley from 1987), and 2) refuted by every previous and subsequent assessment that reviewed the law of New York State in greater detail. Every complete legal analysis ever done on commercial rent arbitration in New York or the SBJSA came to the same conclusion: commercial rent arbitration and the SBJSA are legal.

Question: Does the 1987 case from California, Ross v. Berkeley, actually raise any “concerns” about the legality of the SBJSA?

Answer: No. The 1987 court decision in the Ross v. Berkeley, 655 F.Supp. 820 (N.D. Calif. 1987), invalidating a Berkeley California City Ordinance is often cited as a basis for “concern” with regard to the SBJSA. The Berkeley ordinance which established commercial rent regulations for only one shopping area is put forward by some as being similar legislation to the SBJSA and, therefore, that decision would cause the SBJSA to be vulnerable to legal challenges. A careful legal evaluation of the Ross v. Berkeley decision and a comparison of the differences of the two laws (the Berkeley ordinance and the SBJSA), shows that the Ross v. Berkeley decision is simply not relevant in any assessment of the SBJSA. In fact, the California judge’s decision to overturn the Berkeley ordinance made clear that, if the Berkeley law would have contained certain provisions, that law would have been valid. The current SBJSA contains all of the provisions the Berkeley judge wanted to see. Valid on it's own terms by the legal standards of New York State, the SBJSA would have been valid even by the terms of the California case that overturned the Berkeley law.

Question: Does the right to renew a lease contained in the SBJSA violate the Contracts Clause of the U.S. Constitution?

Answer: No. For example, in the Ross v. Berkeley case discussed above, the court upheld a Contracts Clause challenge to Berkeley's commercial rent ordinance, largely because the tenant's right to renew was perpetual and the ordinance gave the owner of the property no right to recover possession of the premises for his own use. The provisions of the SBJSA are totally different. The SBJSA limits the renewal to 10 years, and acknowledges that the parties might negotiate a shorter renewal term. Also, it expressly gives the owner the right to recover possession for his own use and to recover the property under many other circumstances. Second, courts invoking the Contracts Clause generally will not invalidate a law in it's entirety unless the law under attack is unconstitutional in virtually all of its potential applications. Specific decisions of an arbitrator might be able to be challenged on a case by case basis, but not the law in its entirety. For example, if an arbitrator in a particular case sets a renewal rent at a low amount, the landlord might challenge that particular decision regarding his rent, but that will not result in a court invalidating the entire law.

Question: Does the SBJSA violate the Takings Clause of the U.S. Constitution?

Answer: No. Here again, no attack on the overall legality of the law would be successful if it were challenged using the Takings Clause. Takings challenges are not “ripe” until the rent is set on a given commercial space. Therefore, with regard to the SBJSA, only after an arbitrator sets the renewal rent on a specific commercial space could the owner of that given property launch a takings challenge to that particular ruling. Again, that wouldn't impact the legality of the law itself.