Relating to Real Estate

In Willowbrook Apartment Assocs., LLC v. Mayor & City Council of Baltimore, No. 20-CV-01818-SAG, 2021 WL 4441192 (D. Md. Sept. 27, 2021), a group of residential landlords (Plaintiffs) filed a complaint in the U.S. District Court for the District of Maryland challenging the constitutionality of laws passed by the City of Baltimore, Howard County, and the City of Salisbury (Defendants) in response to the COVID-19 pandemic.

In late May and early June 2020, the Defendants each enacted temporary legislation (collectively, the Acts) restricting landlords from increasing rent or assessing late fees to tenants as follows:

• Precluded any housing provider from increasing a renewing tenant’s rent or charging late fees during Governor Larry Hogan’s declared state of emergency related to COVID-19, which began on March 5, 2020;
• Prohibited housing providers from notifying tenants of a forthcoming rent increase during the state of emergency or within three months after the state of emergency ends; and
• Where tenants had previously agreed to a rent increase before March 5, 2020, that would have become effective on or after March 5, 2020, required housing providers to notify the tenants in writing to disregard the fee increases to which they had previously agreed — whether or not the tenants’ new lease terms had already begun.

The parties filed motions and cross-motions for summary judgment on each of the 11 counts of the Plaintiffs’ complaint. The Plaintiffs prevailed on only one of its motions.

The Plaintiffs moved for summary judgment on a count claiming impairment of vested property rights, and the court ruled in favor of the Plaintiffs on that count. The District Court considered whether the Acts had a retrospective right and had the effect of abrogating vested rights under the Maryland Declaration of Rights and Constitutions. The District Court noted that Maryland law imposes greater protections than does the U.S. Constitution in this context, and that the Maryland Constitution prohibits legislation that retroactively abrogates vested rights without regard to the legislative interests or motivations. The District Court found that the Acts would undo agreed upon rent increases that would take effect after March 5, 2020, and so they had a retroactive effect. The District Court further found that there is a vested right to receive future rental income under a lease. The District Court held that the Acts abrogated the Plaintiffs’ vested rights to receive a portion of the rent under leases that became effective at an increased rent or for new leases at an increased rent that had been agreed upon before the Acts were enacted. Therefore, the District Court granted the Plaintiffs’ motion for summary judgment on its count related to vested property rights.

The Plaintiffs were unsuccessful on their other counts. The District Court ruled that the Acts did not violate the Takings Clause of the Fifth Amendment to the U.S. Constitution because they did not effect either a per se regulatory taking akin to physical appropriation of property or a regulatory taking under the balancing test established by the U.S. Supreme Court in Penn Cent. Transp. Co. v. City of New York, 438 U.S. 104, 98 S. Ct. 2646, 57 L. Ed. 2d 631 (1978). The Plaintiffs would have had to have proven complete economic destruction of their property interests to establish a regulatory taking, and this they did not do. The Plaintiffs did show that they should not have reasonably expected to have restrictions on their abilities to raise rent or to collect late fees. Although this was a point in their favor, it was not sufficient to prevent the court from granting summary judgment to the Defendants on the takings count of the complaint.

The District Court similarly ruled against the Plaintiffs on their due process and equal protection counts.

The Plaintiffs also claimed that the Acts violated the Contracts Clause of Article I, Section 10 of the U.S. Constitution. The District Court found that the Acts undermined the contractual bargain of the parties and interfered with the parties’ reasonable expectations, and so the Acts substantially impaired the Plaintiffs’ contracts with tenants who had already agreed to rent increases before the enactment of the Acts. However, the District Court found that Acts were passed for a significant and legitimate public purpose, and the District Court held for the Defendants on the Contracts Clause Count.

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For more information, contact Edward J. Levin.

Ed Levin
410-576-1900 • elevin@gfrlaw.com