2nd Circuit Rejects Claim That Plaintiff Had A Constitutionally Protected Interest in Hardship Relief from Landmark Designation

Plaintiff Stahl York Avenue Co., LLC, (“Stahl”) which owns landmarked buildings on Manhattan’s Upper East Side, appealed from the dismissal of its § 1983 substantive due process claim against the City of New York and New York City Landmarks Preservation Commission. Stahl argued the lower court erred in concluding it lacked a constitutionally protected interest in hardship relief from landmark designation 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 noted that although the Landmarks Law states the Commission “shall” grant hardship relief if a landmarked property is incapable of earning a reasonable return, it also affords the Commission wide discretion to determine whether an applicant has made the requisite showing. Here, where Commission considered hypothetical post-renovation rates of return, it had the authority to decide the appropriate input values for factors such as future rental rates, vacancy rate, operating expenses, etc. 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 cut Stahl's estimated operating costs from $14.20 or $15.70 per gross square foot to $11.46 per gross square foot.

Based on this analysis, the Court found that the Commission neither contradicted its own precedent nor acted arbitrarily and capriciously in concluding that the income approach was the appropriate method to measure assessed value in Stahl's rental scenarios. Moreover, these alleged “errors” had no material effect on 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.

The case was Stahl York Avenue Co., LLC v City of New York, 2016 WL 860431 (2d Cir. March 7, 2016).

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