2nd Cir. Court of Appeals Rejects Claim the Plaintiff Lacked a Constitutionally Protected Interest in Hardship Relief from Landmark Designation

Plaintiff Stahl York Avenue Co., LLC, owner of a complex of landmarked buildings on the Upper East Side of Manhattan, appealed from a judgment dismissing its substantive due process claim under 42 U.S.C. § 1983 against defendants City of New York and New York City Landmarks Preservation Commission. Stahl argued that the district court erred in concluding that it lacked a constitutionally protected interest in hardship relief from landmark designation, which relief the Commission denied on May 20, 2014. Specifically, Stahl argued that it had a protected property interest in its hardship application because, if the Commission had adhered to New York City’s Landmarks Preservation Law and controlling Commission precedent, it would necessarily have granted Stahl hardship relief.

The court first noted that although the Landmarks Law states that the Commission “shall” grant hardship relief if a landmarked property is not capable of earning a reasonable return, the Law affords the Commission considerable discretion to determine whether an applicant has made the requisite showing of return. Here, the Commission had to consider hypothetical post-renovation rates of return, and had the authority to decide the appropriate input values for future rental rates, vacancy rate and collection loss, and operating expenses, in order to determine whether the property was capable of earning a reasonable return. In doing so, the Commission replaced Stahl’s proposed rental rates of $35 and $20 per square foot with rates of $40 and $28, lowered Stahl’s forecasted vacancy rate and collection loss from 10% to 5%, and downgraded Stahl’s estimated operating costs from $14.20 or $15.70 per gross square foot to $11.46 per gross square foot.

The court found that the Commission neither contradicted its own precedent nor acted arbitrarily and capriciously in concluding that the income approach was the more appropriate method to measure assessed value in Stahl’s rental scenarios. Moreover, these alleged “errors” did not materially affect the property’s projected profit margin, thus Stahl failed to show a strong likelihood that its application would have been granted but for arbitrary and capricious decision-making. Accordingly, the court affirmed the district court’s dismissal of this claim.

Stahl York Avenue Co., LLC v City of New York, 2016 WL 860431 (2nd Cir. CA 3/7/2016)