author: Hancock, Jr., J. Bellacosa, J.

text:
    Seawall Associates et al., Appellants, v City of New York et al., Respondents and Richard Wilkerson et al., Intervenors-Respondents. (And Two Other Actions.)
    Argued May 3, 1989;
    decided July 6, 1989

      POINTS OF COUNSEL

      Joseph L. Forstadt, Nancy Hirschmann and Nathan Z. Dershowitz for Seawall Associates, appellant.
    I. Local Law No. 9 violates both the United States Constitution and the New York State Constitution as a taking of property without just compensation and without due process of law and it also violates the Equal Protection Clause. (Armstrong v United States, 364 US 40; First Lutheran Church v Los Angeles County, 482 US 304; Agins v Tiburon, 447 US 255; Penn Cent. Transp. Co. v New York City, 438 US 104; Hall v City of Santa Barbara, 833 F2d 1270; Nollan v California Coastal Commn., 483 US 825; Loretto v Teleprompter Manhattan CATV Corp., 458 US 419; French Investing Co. v City of New York, 39 NY2d 587, 429 US 990; Northern Westchester Professional Park Assocs. v Town of Bedford, 60 NY2d 492; Kaiser Aetna v United States, 444 US 164.) II. The City lacked legislative power to enact the local law. (Matter of United States Steel

      Corp. v Gerosa, 7 NY2d 454; Mobil Oil Corp. v Town of Huntington, 85 Misc 2d 800; Matter of Town of Moreau v County of Saratoga, 134 Misc 2d 380, 142 AD2d 380; Society of Plastics Indus. v City of New York, 68 Misc 2d 366; People v Board of Managers, 123 Misc 2d 188; County Sec. v Seacord, 278 NY 34; Stuart v Palmer, 74 NY 183; Matter of Long Is. R. R. Co. v Hylan, 240 NY 199; Jenad, Inc. v Village of Scarsdale, 18 NY2d 78; People ex rel. Moskowitz v Jenkins, 202 NY 53.)

      Philip H. Schaeffer, Jane D. Connolly and S. Alexander Gisser for 459 West 43rd Street Corp. and others, appellants.
    I. Local Law No. 9 is a taking of private property without payment of just compensation; it therefore violates the Fifth and Fourteenth Amendments to the United States Constitution and article I, §7 of the New York State Constitution. (Pennsylvania Coal Co. v Mahon, 260 US 393; Penn Cent. Transp. Co. v New York City, 438 US 104; Agins v Tiburon, 447 US 255; Hawaii Hous. Auth. v Midkiff, 467 US 229; Loretto v Teleprompter Manhattan CATV Corp., 458 US 419; Hodel v Irving, 481 US 704; Nollan v California Coastal Commn., 483 US 825; Armstrong v United States, 364 US 40; First Lutheran Church v Los Angeles County, 482 US 304; Hudson Water Co. v McCarter, 209 US 349.) II. The courts below erred as a matter of law in holding SEQRA and CEQR inapplicable to the City’s enactment of Local Law 9. (H.O.M.E.S. v New York State Urban Dev. Corp., 69 AD2d 222; Chinese Staff & Workers Assn. v City of New York, 68 NY2d 359; Inland Vale Farm Co. v Stergianopoulos, 65 NY2d 718; Matter of Tri-County Taxpayers Assn. v Town Bd. of Town of Queensbury, 55 NY2d 41; Jackson v New York State Urban Dev. Corp., 67 NY2d 400; Matter of Board of Visitors — Marcy Psychiatric Center v Coughlin, 60 NY2d 14; Matter of Green-point Renaissance Enter. Corp. v City of New York, 137 AD2d 597, 72 NY2d 810; McCaffrey v Board of Estimate, 130 AD2d 465; Spring-Gar Community Civic Assn. v Homes for Homeless, 135 Misc 2d 689; Matter of Holmes v Brookhaven Town Planning Bd., 137 AD2d 601, 72 NY2d 807.)

      Gary M. Rosenberg, Franklin R. Kaiman and Theresa Hecker for Sutton East Associates-86 and another, appellants.
    I. The City of New York does not have the power to enact Local Law No. 9 of 1987. (Consolidated Edison Co. v Town of Red Hook, 60 NY2d 99; Robin v Incorporated Vil. of Hempstead, 30 NY2d 347; La Guardia v Cavanaugh, 53 NY2d 67;
      Matter of 89 Christopher v Joy, 35 NY2d 213; Matter of Tartaglia v McLaughlin, 190 Misc 266, 273 App Div 821; Teeval Co. v Stern, 301 NY 346, 340 US 876; F. T. B. Realty Corp. v Goodman, 300 NY 140; Mayer v City Rent Agency, 46 NY2d 139; Matter of New York Univ. v Temporary State Hous. Rent Commn., 304 NY 124; Matter of 241 E. 22nd St. Corp. v City Rent Agency, 33 NY2d 134.) II. The SRO "fix up/rent up” law is a "taking” without just compensation in violation of the Constitution. (Chicago, Burlington & Quincy R. R. Co. v Chicago, 166 US 226; Loretto v Teleprompter Manhattan CATV Corp., 458 US 419; Nollan v California Coastal Commn., 483 US 825; Kaiser Aetna v United States, 444 US 164; Penn Cent. Transp. Co. v New York City, 438 US 104; Loab Estates v Druhe, 300 NY 176; Help Hoboken Hous. v City of Hoboken, 650 F Supp 793; Bowles v Willingham, 321 US 503; United States v 50 Acres of Land, 469 US 24; United States v 564.54 Acres of Land, 441 US 506.)

      Marvin L. Schwartz for Anbe Realty Co., appellant.
    Local Law No. 9 of 1987 and Local Law No. 22 of 1986 violate the Fifth Amendment rights of Anbe. Neither statute is constitutional. (First Lutheran Church v Los Angeles County, 482 US 304; San Diego Gas & Elec. Co. v San Diego, 450 US 621; Armstrong v United States, 364 US 40; Nollan v California Coastal Commn., 483 US 825; Loretto v Teleprompter Manhattan CATV Corp., 458 US 419; de St. Aubin v Flacke, 68 NY2d 66; Spears v Berle, 48 NY2d 254; French Investing Co. v City of New York, 39 NY2d 587, 429 US 890.)

      Peter L. Zimroth, Corporation Counsel (Elizabeth Dvorkin, Leonard Koerner and Gabriel Taussig of counsel), for respondents.
    I. Local Law No. 9 is constitutional on its face. The ban on destroying, converting or warehousing SROs is directly related to the City’s goal of preventing homelessness by preserving the housing stock and does not deny plaintiffs the opportunity to earn a reasonable rate of return on their property. Therefore, it does not take plaintiffs’ property. (Matter of Replan Dev. v Department of Hous. Preservation & Dev., 70 NY2d 451; Pennell v San Jose, 485 US 1, 108 S Ct 849; McCain v Koch, 70 NY2d 109; Midtown S. Preservation & Dev. Comm. v City of New York, 130 AD2d 385; Loretto v Teleprompter Manhattan CATV Corp., 458 US 419; Penn Cent. Transp. Co. v New York City, 438 US 104; Benson Realty Corp. v Beame, 50 NY2d 994, 449 US 1119; Nollan v California Coastal Commn., 483 US 825; Keystone Bituminous Coal Assn.

      v DeBenedictis, 480 US 470; Lutheran Church v City of New York, 35 NY2d 121.) II. Local Law No. 9 is proper in all other respects. (Matter of Legum v Goldin, 55 NY2d 104; Jenad, Inc. v Village of Scarsdale, 18 NY2d 78; Nollan v California Coastal Commn., 483 US 825; Chinese Staff & Workers Assn. v City of New York, 68 NY2d 359; Board of Visitors — Marcy Psychiatric Center v Coughlin, 60 NY2d 14; Matter of Green-point Renaissance Enter. Corp. v City of New York, 137 AD2d 597; Midtown S. Preservation & Dev. Comm. v City of New York, 130 AD2d 385; Council for Owner Occupied Hous. v Koch, 119 Misc 2d 241, 61 NY2d 942; City of New York v Park S. Assocs., 139 Misc 2d 997; People v New York Trap Rock Corp., 57 NY2d 371.)

      Saralee E. Evans, Robert M. Hayes, Virginia G. Shubert, Marvin Wexler, Norman Siegel, Arthur Eisenberg, Wayne G. Hawley, Anne R. Teicher and Jacqueline C. Burger for intervenors-respondents.
    I. The court below properly held that Local Law No. 9 is a valid regulatory enactment which does not impermissibly burden appellants’ properties. (Marcus Assocs. v Town of Huntington, 45 NY2d 501; Lighthouse Shores v Town of Islip, 41 NY2d 7; Golden v Planning Bd. of Town of Ramapo, 30 NY2d 359, 409 US 1003; de St. Aubin v Flacke, 68 NY2d 66; Penn Cent. Transp. Co. v New York City, 438 US 104; Nollan v California Coastal Commn., 483 US 825; Hodel v Irving, 481 US 704; Loretto v Teleprompter Manhattan CATV Corp., 458 US 419; Kaiser Aetna v United States, 444 US 164; Andrus v Allard, 444 US 51.) II. Local Law No. 9 is consistent with applicable rent regulations. (Consolidated Edison Co. v Town of Red Hook, 60 NY2d 99; New York State Club Assn. v City of New York, 69 NY2d 211; Council for Owner Occupied Hous. v Koch, 119 Misc 2d 241, 61 NY2d 942; People v Judiz, 38 NY2d 529; Robin v Incorporated Vil. of Hempstead, 30 NY2d 347; Matter of Kress & Co. v Department of Health, 283 NY 55; Bryant Westchester Realty Corp. v Board of Health, 91 Misc 2d 56; Rose Towers Realty v Aviv, 121 Misc 2d 1016.) III. The environmental laws cited by appellants have no bearing on this court’s consideration of the validity of Local Law No. 9. (Chinese Staff & Workers Assn. v City of New York, 68 NY2d 359; Matter of Greenpoint Renaissance Enter. Corp. v City of New York, 137 AD2d 597, 72 NY2d 810; McCaffrey v Board of Estimate, 130 AD2d 465; H.O.M.E.S. v New York State Urban Dev. Corp., 69 AD2d 322.)

      Glenn S. Goldstein for Rent Stabilization Association of New York City, Inc., and others, amici curiae.

    I. Local Law No. 9 constitutes a taking because it mandates the nonconsensual physical occupation of appellants’ property. (Loretto v Teleprompter Manhattan CATV Corp., 458 US 419; Nollan v California Coastal Commn., 483 US 825; First Lutheran Church v Los Angeles County, 482 US 304; Armstrong v United States, 364 US 40.) II. Local Law No. 9 so interferes with appellants’ property rights as to constitute a taking. (Pennsylvania Coal Co. v Mahon, 260 US 393; Penn Cent. Transp. Co. v New York City, 438 US 104; Kaiser Aetna v United States, 444 US 164.)

      Herbert Teitelbaum and Robert Hermann for Council for Owner Occupied Housing, amicus curiae.

    Local Law No. 9 constitutes a taking of private property without payment of just compensation. (Loretto v Teleprompter Manhattan CATV Corp., 458 US 419; Hodel v Irving, 481 US 704; Nollan v California Coastal Commn., 483 US 825; Armstrong v United States, 364 US 40; Penn Cent. Transp. Co. v New York City, 438 US 104; Kaiser Aetna v United States, 444 US 164; Benson Realty Corp. v Beame, 50 NY2d 994, 449 US 1119.)

      Carol S. Keenan, Ruben Klein, Ronald A. Zumbrun, Edward J. Connor, Jr., and R. S. Radford for Pacific Legal Foundation, amicus curiae.

    I. The court below erred in its application of the United States Supreme Court’s threshold test for regulatory takings. (Chicago, Burlington & Quincy R. R. Co. v Chicago, 166 US 226; Agins v Tiburon, 447 US 255; Nebbia v New York, 291 US 502; Pennsylvania Coal Co. v Mahon, 260 US 393; Penn Cent. Transp. Co. v New York City, 438 US 104; Andrus v Allard, 444 US 51.) II. Local Law No. 9 violates the Takings Clause even if it survives the threshold test. (Penn Cent. Transp. Co. v New York City, 438 US 104; First Lutheran Church v Los Angeles County, 482 US 304; Nollan v California Coastal Commn., 483 US 825; Armstrong v United States, 364 US 40.)

      Ira Karasick for Community Action for Legal Services and others, amici curiae.

    I. Local Law No. 9 is not a per se taking. (Loretto v Teleprompter Manhattan CATV Corp., 458 US 419; United States v Causby, 328 US 256; United States v Pewee Coal Co., 341 US 114; United States v Central Eureka Min. Co., 357 US 155; FCC v Florida Power Corp., 480 US 245; Pennell v San Jose, 485 US 1, 108 S Ct 849; Troy Ltd. v Renna, 727 F2d 287; Fresh Pond Shopping Center v Callahan,
      464 US 875; Hall v City of Santa Barbara, 833 F2d 1270; Help Hoboken Hous. v City of Hoboken, 650 F Supp 793.) II. Local Law No. 9 does not effect a regulatory taking of appellants’ SRO properties. (Pennsylvania Coal Co. v Mahon, 260 US 393; Keystone Bituminous Coal Assn. v DeBenedictis, 480 US 470; Usery v Turner Elkhorn Min. Co., 428 US 1; Penn Cent. Transp. Co. v New York City, 438 US 104; Armstrong v United States, 360 US 40; Matter of Replan Dev. v Department of Hous. Preservation & Dev., 70 NY2d 451; Kaiser Aetna v United States, 444 US 164.) III. Local Law No. 9 does not warrant heightened scrutiny. (Nollan v California Coastal Commn., 483 US 825; Agins v Tiburon, 447 US 255.)
   OPINION OF THE COURT

Hancock, Jr., J.

Local Law No. 9 prohibits the demolition, alteration, or conversion of single-room occupancy (SRO) properties and obligates the owners to restore all units to habitable condition and lease them at controlled rents for an indefinite period. Plaintiffs, real estate developers who own SRO properties, challenge the law as an unconstitutional taking of private property without just compensation. Defendants, the City of New York and various officials, contend that the law is a valid effort to help prevent homelessness by preserving the stock of low-rent SRO housing. In our view, Local Law No. 9 is facially invalid as both a physical and regulatory taking in violation of the Federal and State Constitutions and we, therefore, declare it null and void.

I

After years of encouraging the demolition and redevelopment of SRO properties — which the City of New York considered substandard housing — the City abandoned its policy when it found that the stock of low-cost rental housing was shrinking at an alarming rate (see, Blackburn, Single Room Occupancy in New York City, at 1-4 to 1-7). On August 5, 1985, the City enacted Local Law No. 59 which imposed an 18-month moratorium on the demolition or conversion of structures containing SRO units. Thereafter, Local Law No. 22 was enacted to extend the moratorium through the end of 1986. Local Law No. 22 added the requirement that owners of SRO properties rehabilitate all vacant units and offer them for rent, and it provided for substantial monetary penalties for noncompliance.

Plaintiffs commenced separate actions challenging Local Law No. 22 as violative of the "Takings” Clauses of the Federal and State Constitutions. Supreme Court consolidated the actions and declared the law invalid to the extent that it imposed affirmative obligations on property owners to rehabilitate and then rent vacant units (134 Misc 2d 187). The City did not perfect an appeal; it did, however, alter the provisions of Local Law No. 22 by enacting Local Law No. 1 on February 2, 1987, which, in turn, was amended and reenacted as Local Law No. 9 on March 5, 1987. Local Law No. 9 extended the prior moratorium for an initial five-year period with the possibility of unlimited renewals. The law retains most of the features which were contained in Local Law No. 22 but also provides for certain "exemptions” for otherwise obligated property owners.

The main provisions of Local Law No. 9 are as follows:

Moratorium. The conversion, alteration and demolition of SRO multiple dwellings are prohibited (Administrative Code of City of New York § 27-198.2); the moratorium extends for five years and is renewable for additional five-year periods as the City Council deems necessary (Local Laws, 1987, No. 9 of City of New York §7).

Rehabilitation and Antiwarehousing. SRO property owners must rehabilitate and make habitable every SRO unit in their buildings, and lease every unit to a "bona fide” tenant ("rent-up” obligation) at controlled rents (Administrative Code § 27-2151 [a]); an owner is presumed to have violated these requirements if any unit remains vacant for a period of 30 days (§ 27-2152 [d]).

Penalties. Noncompliance is punishable by fines including $150,000 for each dwelling unlawfully altered, converted or demolished, with an additional $45,000 per unit for reducing the total number of units (§ 27-198.2 [g] [2] [5]); a $500 per unit penalty is provided for each unit unrented to a bona fide tenant (§ 27-2152 [e]).

Buy-Out and Replacement Exemptions. An owner may purchase an exemption from the moratorium by payment of $45,000 per unit (or such other amount as the Commissioner of the Department of Housing Preservation and Development determines would equal the cost of a replacement unit) or by providing an equal number of replacement units approved by the Commissioner (§ 27-198.2 [d] [4] [a] [i], [ii]).

Hardship Exemption. The amount of payment or the number of replacement units required for an exemption may be reduced at the discretion of the Commissioner, in whole or in part, if "there is no reasonable possibility that such owner can make a reasonable rate of return”, defined as a net annual return of 8Vi% of the assessed value of the property as an SRO multiple dwelling (§ 27-198.2 [d] [4] [b]).

Plaintiffs instituted the present action challenging Local Law No. 9 on the same grounds that they had earlier challenged Local Law No. 22. Supreme Court, in another thorough opinion by Justice David B. Saxe, held that the so-called "buyout”, "replacement”, and "hardship” exemptions failed to save Local Law No. 9 from the infirmities of its predecessor, and concluded that the law was invalid as a taking without just compensation in violation of both the Federal and State Constitutions. The Appellate Division disagreed, declaring the law constitutional in all respects. For the following reasons, we now reverse.

II

"The Fifth Amendment’s guarantee that private property shall not be taken for a public use without just compensation was designed to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole” (Armstrong v United States, 364 US 40, 49). The corollary to this oft-quoted proposition is that "government action that works a taking of property rights necessarily implicates the 'constitutional obligation to pay just compensation’ ” (First Lutheran Church v Los Angeles County, 482 US 304, 315, quoting Armstrong v United States, supra, at 49). The question here, as in any case where government action is challenged as violative of the right to just compensation, is whether the uncompensated obligations and restrictions imposed by the. governmental action force individual property owners to bear more than a just share of obligations which are rightfully those of society at large.

In our opinion, the provisions of Local Law No. 9, which not only prevent the SRO property owners from developing their properties by replacing the existing structures, but also compel them to refurbish the structures and keep them fully rented, impose on the property owners more than their just share of such societal obligations. Whether viewed as effecting a physical or regulatory taking, Local Law No. 9, we believe, violates the "Takings” Clauses of the Fifth Amendment of the Federal Constitution and article I, § 7 of the New York State Constitution.

A

Plaintiffs contend that Local Law No. 9 has resulted in a physical occupation of their properties and is, therefore, a per se compensable taking (see, Loretto v Teleprompter Manhattan CATV Corp., 458 US 419, 427). We agree. As emphasized by Professor Michelman in his article quoted with approval in Loretto, "[t]he one incontestable case for compensation (short of formal expropriation) seems to occur when the government deliberately brings it about that its agents, or the public at large, 'regularly’ use, or 'permanently’ occupy, space or a thing which theretofore was understood to be under private ownership” (footnotes omitted) (Michelman, Property, Utility, and Fairness: Comments on the Ethical Foundations of "Just Compensation” Law, 80 Harv L Rev 1165, 1184 [1967]).

Whether the mandatory "rent-up” obligations of the antiwarehousing provision effect a physical taking depends upon the nature and extent of their interference with certain essential property rights. Here, the claimed physical taking is the City’s forced control over the owners’ possessory interests in their properties, including the denial of the owners’ rights to exclude others. Local Law No. 9 requires the owners to rent their rooms or be subject to severe penalties; it compels them to admit persons as tenants with all of the possessory and other rights that that status entails; it compels them to surrender the most basic attributes of private property, the rights of possession and exclusion. This, plaintiffs contend, constitutes a physical occupation of private property for public use, similar to encroachments on structures or land such as the mandated installation of CATV cables and fixtures (see, Loretto v Teleprompter Manhattan CATV Corp., supra), the permanent flooding from the construction of a dam (see, e.g., United States v Lynah, 188 US 445; Pumpelly v Green Bay Co., 13 Wall [80 US] 166), or the invasion of air space and resulting interference with the land use below by continuous low altitude airplane flights (see, United States v Causby, 328 US 256). Defendants argue that a physical taking must entail the kind of palpable invasion involved in those cases and, therefore, that the deprivation of intangible property rights alone, such as that resulting from coerced tenancies, is not enough. We disagree. Where, as here, owners are forced to accept the occupation of their properties by persons not already in residence, the resulting deprivation of rights in those properties is sufficient to constitute a physical taking for which compensation is required.

Under the traditional conception of property, the most important of the various rights of an owner is the right of possession which includes the right to exclude others from occupying or using the space (see, Loretto v Teleprompter Manhattan CATV Corp., supra, at 435). Thus, in Loretto, the Supreme Court relied upon this classical view of property— "the rights 'to possess, use and dispose’ ” (458 US, at 435, quoting United States v General Motors Corp., 323 US 373, 378) — to hold that the required installation of the CATV cables and equipment on plaintiffs building was a per se physical taking. This right to exclude "has traditionally been considered one of the most treasured strands in an owner’s bundle of property rights.” (Loretto v Teleprompter Manhattan CATV Corp., supra, at 435, citing Kaiser Aetna v United States, 444 US 164, 179-180; see also, Restatement of Property § 7 [1936]; Radin, The Liberal Conception of Property: Cross Currents in the Jurisdiction of Takings, 88 Colum L Rev 1667, 1671-1672.) As the court noted in Loretto, "an owner suffers a special kind of injury when a stranger directly invades and occupies the owner’s property”, and "property law has long protected an owner’s expectation that he will be relatively undisturbed at least in the possession of his property” (see, Loretto Teleprompter Manhattan CATV Corp., supra, at 436 [emphasis in original]; see also, Michelman, op. cit., 80 Harv L Rev, at 1165, 1228, and n 110). Moreover, to constitute a physical taking, the occupation need not be by the government itself, but may be by third parties under its authority (Loretto v Teleprompter Manhattan CATV Corp., supra, at 432, 433, n 9).

Defendants argue, nevertheless, that a physical taking requires something more than an ouster of the owner’s possessory interest by the forced intrusion of strangers; that there must be some actual displacement of the owner’s possession through a fixed encroachment like the TV equipment in Loretto or an invasion of property like the flooding in Pumpelly. But the decisional law is to the contrary. As the Supreme Court explained in Nollan v California Coastal Commn. (483 US 825), a physical occupation requiring just compensation results where individuals are given the "right to pass to and fro, so that the real property may continuously be traversed, even though no particular individual is permitted to station himself permanently upon the premises” (id., at 832). Likewise, in Kaiser Aetna, in concluding that the government’s imposition of a navigational servitude requiring public access to a private pond and marina would "result in an actual physical invasion of the privately owned marina”, the court emphasized that the right to exclude, thus taken from the owner, is "one of the most essential sticks in the bundle of rights that are commonly characterized as property” (444 US, at 176,180).

Although the Supreme Court has not passed on the specific issue of whether the loss of possessory interests, including the right to exclude, resulting from tenancies coerced by the government would constitute a per se physical taking, we believe that it would. Indeed, it is difficult to see how such forced occupancy of one’s property could not do so. By any ordinary standard, such interference with an owner’s rights to possession and exclusion is far more offensive and invasive than the easements in Kaiser Aetna or Nollan or the installation of the CATV equipment in Loretto (see, Michelman, Takings, 1987, 88 Colum L Rev 1600, 1609, n 46; see also, Hall v City of Santa Barbara, 833 F2d 1270 [9th Cir], cert denied 485 US 940 [an ordinance imposing mandatory rental obligations on mobile home operators could constitute a per se physical taking under Loretto]).

Contrary to defendants’ contentions, the decisions of the Supreme Court and this court upholding rent control and similar regulations of housing conditions and other aspects of the landlord-tenant relationship (see, e.g., Bowles v Willing-ham, 321 US 503, 517-518; Loab Estates v Druhe, 300 NY 176, 180; see also, cases cited in Loretto v Teleprompter Manhattan CATV Corp., supra, at 440) do not undermine plaintiffs’ claims of per se physical takings. Indeed, those decisions have no bearing on the question here — whether forcing plaintiffs to rent their properties to strangers constitutes a physical taking. It is the nature of the intrusion which is determinative— i.e., that it deprives the owners of their rights to possession and exclusion — not the beneficial purpose of the regulation or the extent of the police power which authorizes it. Thus, the Loretto court, in referring to Bowles v Willingham and similar cases, dispelled the notion that its physical-taking holding would affect "the government’s power to adjust landlord-tenant relationships”; the court was quick to distinguish landlord-tenant cases from those in which "the government authorize[d] the permanent occupation of the landlord’s property by a third party” (458 US, at 440).

The rent-control and other landlord-tenant regulations that have been upheld by the Supreme Court and this court merely involved restrictions imposed on existing tenancies where the landlords had voluntarily put their properties to use for residential housing. Unlike Local Law No. 9, however, those regulations did not force the owners, in the first instance, to subject their properties to a use which they neither planned nor desired. The local law at issue in Loab Estates, for example, barred the eviction of residential tenants unless provisions had been made for their relocation (300 NY, at 179). And the Federal rent-control statute in Bowles explicitly did not require "any person * * * to offer any accommodations for rent” (321 US, at 517). By sharp contrast to the statutes in Loab Estates and Bowles, Local Law No. 9 compels owners to be residential landlords; it requires owners to rehabilitate and offer their properties for rent, as SRO units, to persons with whom they have no existing landlord-tenant relationship.

The City, however, argues that, although the owners are compelled to rent their units, there can be no physical taking here because they have not been divested of all control over the selection of tenants and the rental terms. But this minimal authority retained by the owners over their own properties does not distinguish the City’s action here from other physical takings. It is the forced occupation by strangers under the rent-up provisions of the law, not the identities of the new tenants or the terms of the leases, which deprives the owners of their possessory interests and results in physical takings.

We conclude that Local Law No. 9 has effected a per se physical taking because it "interfere[s] so drastically” (Nollan v California Coastal Commn., supra, at 836) with the SRO property owners’ fundamental rights to possess and to exclude (see, Loretto v Teleprompter Manhattan CATV Corp., supra, at 435-436). The law requires nothing less of the owners than "to suffer the physical occupation of [their] building[s] by third part[ies]” (id., at 440; see also, Kaiser Aetna v United States, supra, at 179-180).

B

Even if Local Law No. 9 were not held to effect a physical taking, it would still be facially invalid as a regulatory taking. "Suffice it to say that government regulation — by definition— involves the adjustment of rights for the public good. Often this adjustment curtails some potential for the use or economic exploitation of private property” (Andrus v Allard, 444 US 51, 65). But the constitutional guarantee against uncompensated takings is violated when the adjustment of rights for the public good becomes so disproportionate that it can be said that the governmental action is "forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole” (Armstrong v United States, supra, at 49). There is no "set formula” for determining in all cases when an adjustment of rights has reached the point when "justice and fairness” require that compensation be paid (see, Penn Cent. Transp. Co. v New York City, 438 US 104, 124). It is basic, however, that such a burden-shifting regulation of the use of private property will, without more, constitute a taking: (1) if it denies an owner economically viable use of his property, or (2) if it does not substantially advance legitimate State interests (see, Nollan v California Coastal Commn., supra, at 834; Keystone Bituminous Coal Assn. v DeBenedictis, 480 US 470, 485, 495; Agins v Tiburon, 447 US 255, 260; Penn Cent. Transp. Co. v New York City, supra, at 138, n 36). Either would be sufficient to invalidate a property-use regulation. In our opinion, Local Law No. 9 fails on both counts. We turn first to whether the law denies owners the economically viable use of their properties.

(1)

Putting aside for the moment a discussion of the buy-out, replacement, and related hardship exemptions, the significant effects of Local Law No. 9 on the SRO property owners are: (1) to prohibit them from altering or demolishing their buildings or converting them to any other use; (2) to compel them to restore any uninhabitable unit to "habitable condition”; and (3) to require them to keep all their units occupied as SRO housing. Noncompliance with any of these provisions subjects an owner to heavy penalties.

If analyzed with respect to its effect on property owners’ basic rights " 'to possess, use and dispose’ ” of their buildings (Loretto v Teleprompter Manhattan CATV Corp., supra, at 435, quoting United States v General Motors Corp., supra, at 378; see also, Restatement of Property § 5, comment e, at 11; 2 Nichols, Eminent Domain § 5.01 ["What Constitutes Property”]), it is evident that Local Law No. 9 abrogates or substantially impairs each of the three rights. As previously discussed, the coerced rental provisions deprive owners the fundamental right to possess their properties (see, part II A, supra). Moreover, these mandatory rental provisions — together with the prohibition against demolition, alteration and conversion of the properties to other uses, and the requirement that uninhabitable units be refurbished — deny owners of SRO buildings any right to use their properties as they see fit. Unquestionably, the effect of the law is to strip owners of SRO buildings — who may have purchased their properties solely to turn them into profitable investments by tearing down and replacing the existing structures with new ones (as plaintiffs claim they have) — of the very right to use their properties for any such purpose. Owners are forced to devote their properties to another use which, albeit one which might serve the City’s interests, bears no relation to any economic purpose which could be reasonably contemplated by a private investor.

Finally, Local Law No. 9, particularly in those provisions prohibiting redevelopment and mandating rental, inevitably impairs the ability of owners to sell their properties for any sums approaching their investments. Thus, the local law must also negatively affect the owners’ right to dispose of their properties. By any test, we think these restrictions deny the owners "economically viable use” of their properties.

The effect of Local Law No. 9 is unlike that of the Landmarks Law in Penn Central, which denied the owner of Grand Central neither the continued full use of its property nor a reasonable return on its investment. Nor is the effect of Local Law No. 9 comparable to that of the Subsidence Act in Keystone, which reduced the maximum amount of coal that could be mined, but did not interfere with the owners’ rights to continue to mine coal profitably. By contrast, Local Law No. 9 totally prohibits the sole use — entirely permissible before the enactment of the law — for which investment properties are purchased: commercial development. As a substitute, it decrees that the properties must be used for SRO housing and that the owners must be satisfied with the diminished financial returns from such use. A rough analogy might be telling the mine owners in Keystone that they could no longer mine coal and that they must instead put their properties to some worthy, but less remunerative, purpose— say, storing nuclear waste.

There can be no question that the development rights which have been totally abrogated by the local law are, standing alone, valuable components of the "bundle of rights” making up their fee interests (see, Michelman, op. cit., 80 Harv L Rev, at 1233 [prospective continuing use "is a discrete twig out of (the owner’s) fee simple bundle” of rights]). Indeed, in French Investing Co. v City of New York (39 NY2d 587), we recognized that development rights "are an essential component of the value of the underlying property” and that "they are a potentially valuable and even a transferable commodity and may not be disregarded in determining whether the ordinance has destroyed the economic value of the underlying property” (id., at 597; see also, Matter of Keystone Assocs. v Moerdler, 19 NY2d 78 [invalidating the imposition of an uncompensated 180-day delay on the right of the purchasers of the old Metropolitan Opera House to demolish and redevelop the property]; Forster v Scott, 136 NY 577).

Defendants’ argument that plaintiffs have not been deprived of "economically viable use” presupposes that the effect of Local Law No. 9 on their properties should be assessed by comparing the value of the rights affected or abrogated with the value of the total "bundle” comprising the owners’ property interests. But the permanent abrogation of one of those rights, without regard to its comparative value in relation to the whole, may well be sufficient to constitute a taking. Thus, in Hodel v Irving (481 US 704), the court held that the total abolition of the "right to pass on valuable property to one’s heirs” could, without more, "be a taking” (id., at 715, 717). And in Nollan, the court concluded that an easement allowing persons to pass across a private beach could constitute a taking despite the minimal impact on the total value of the owners’ property (483 US, at 831-832; see also, various comments on the theory of "conceptual severance” [i.e., assessing only the value of the rights taken without regard to its relationship to the value of the whole property]; Radin, op. cit., 88 Colum L Rev, at 1674-1678; Michelman, op. cit., 88 Colum L Rev, at 1627-1628; Fischel, Introduction: Utilitarian Balancing and Formalism in Takings, 88 Colum L Rev 1581, 1592-1593; Peterson, Land Use Regulatory "Takings” Revisited: The New Supreme Court Approaches, 39 Hastings LJ 335, 356-357). Of course, if the theory of "conceptual severance” were applied to the effect of Local Law No. 9 on the rights of SRO property owners, a taking would necessarily be found. The rights to use and to possess have been abolished and, without regard to the value of the owners’ remaining interests in their buildings, that would be sufficient.

As stated by Justice Saxe at the nisi prius court, the moratorium and antiwarehousing provisions "place[ ] petitioners in a business, force[ ] them to remain in that business and refuse[ ] to allow them to ever cease doing [that] business.” (Seawall Assocs. v City of New York, 134 Misc 2d 187, 197, supra.) By any criterion — whether the property rights abolished or impaired are considered alone, as in Hodel and Nollan, or the values of these rights are compared with the values of the properties as a whole, as in Penn Central and Keystone — the conclusion is inescapable that the effect of the provisions is unconstitutionally to deprive owners of economically viable use of their properties.

(2)

We agree with plaintiffs, moreover, that Local Law No. 9 does not pass the other threshold test for constitutional validity of regulatory takings: that the burdens imposed substantially advance legitimate State interests (see, Nollan v California Coastal Commn., supra; Agins v Tiburon, supra; Penn Cent. Transp. Co. v New York City, supra).

Of course, the end sought to be furthered by Local Law No. 9 is of the greatest societal importance — alleviating the critical problems of homelessness. The question here, however, concerns the means established by the local law purportedly to achieve this end. In other words, can it be said that imposing the burdens of the forced refurbishing and rent-up provisions on the owners of SRO properties substantially advances the aim of alleviating the homelessness problem? (See, Nollan v California Coastal Commn., supra, at 834, 841.) Is there a sufficiently close nexus between these burdens and "the end advanced as the justification for [them]”? (Id., at 837; see also, for discussions of the "close nexus” test which requires "semi-strict or heightened judicial scrutiny of regulatory means-ends relationships” as articulated in Nollan; Michelman, op. cit., 88 Colum L Rev, at 1607-1614; Peterson, op cit., 39 Hastings L Rev, at 354-358; Comment, Trespass at High Tide: The Supreme Court Gives Heightened Scrutiny to a State Imposed Easement Requirement, 54 Brooklyn L Rev 991, 1011-1020.)

Defendants contend that by increasing the availability of SRO units the antiwarehousing and moratorium measures will provide more available low-cost housing and, thereby, further the aim of alleviating homelessness; this relationship between means and ends, they argue, supplies the required "close nexus”. The City’s own Blackburn study, however, acknowledges that a ban on converting, destroying and warehousing SRO units would do little to resolve the homeless crisis. Indeed, the SRO units are not earmarked for the homeless or for potentially homeless low-income families, and there is simply no assurance that the units will be rented to members of either group (see, Blackburn, Single Room Occupancy in New York City, op. cit., at 5-6). While, of course, any increase in the supply of low-cost housing would benefit some prospective tenants, it is by no means clear that it would actually benefit the homeless.

The heavy exactions imposed by Local Law No. 9 must "substantially advance” its putative purpose of relieving homelessness. No such showing of this required "close nexus” has been made. Rather, the nexus between the obligations placed on SRO property owners and the alleviation of the highly complex social problem of homelessness is indirect at best and conjectural. Such a tenuous connection between means and ends cannot justify singling out this group of property owners to bear the costs required by the law toward the cure of the homeless problem. Indeed, by equating the "cure” with dollars — i.e., permitting "buy-out” payments of $45,000 per SRO unit in lieu of keeping the units available for rent (see, discussion of "buy-out” exemption, infra) — the terms of Local Law No. 9 itself demonstrate that the obligations placed on a few property owners are just the kind which could, and should, be borne by the taxpayers as a whole.

Finally, the questionable nexus between means and ends in Local Law No. 9 cannot be compared with the clearly defined means-ends relationships in the statutes upheld in Penn Central, Keystone and Andrus — the decisions on which defendants rely. In Penn Central, the Landmarks Law had the direct and immediate effect of saving a historic landmark, Grand Central Station, the law’s very purpose. Likewise, in Keystone, the Subsidence Act prevented the very hazards to public health, safety and the environment that it was intended to address by prohibiting the mining operations that caused them. Indeed, the court in upholding the act noted that it fell within the "nuisance exception” — i.e., that "the State has not 'taken’ anything when it asserts its power to enjoin the nuisance-like activity” (480 US, at 491, n 20; see, Michelman, op. cit., 88 Colum L Rev, at 1601-1604). And in Andrus, the Eagle Protection Act protected endangered eagles by prohibiting a direct cause of their endangerment, the unrestricted sale of their parts. No such connection has been shown between the restrictions imposed on SRO property owners by Local Law No. 9 and the amelioration of the homeless crisis in New York City. The close relatedness between the ends to be achieved and those who are burdened, as existed in Penn Central, Keystone and Andrus, is just not present.

Ill

The question remains whether the added features of Local Law No. 9 — the buy-out, replacement, and hardship exemptions — in some way mitigate the invidious effects of the law so that it becomes constitutionally acceptable. We agree with Justice Saxe that they do not (Seawall Assocs. v City of New York, 134 Misc 2d 187, supra). The reasons, we think, are evident.

If, as we hold, the effect of the moratorium and antiwarehousing measures is unconstitutionally to deprive owners of their basic rights to possess and to make economically viable use of their properties, merely allowing them to purchase exemptions from the law cannot alter this conclusion. In effect, the City, in the buy-out and replacement exemptions, is saying no more to the owners than that it will not do something unconstitutional if they pay the City not to do it. But if the initial act amounts to an unlawful taking, then permitting the owners to avoid the illegal confiscation by paying a "ransom” cannot make it lawful. Indeed, the stark alternatives offered by Local Law No. 9 — either submit to an uncompensated and, therefore, unconstitutional appropriation of your properties or pay the price (in cash or in replacement units) — amount to just the sort of exaction which could be classified, not as "a valid regulation of land use but 'an out- and-out plan of extortion.’ (J. E. D. Associates, Inc. v. Atkinson, 121 N. H. 581, 584, 432 A. 2d 12, 14-15 (1981)”. (Nollan v California Coastal Commn., supra, at 837; see also, Sterk, Nollan, Henry George, and Exactions, 88 Colum L Rev 1731, 1746-1751.)

Nor can the hardship exemption make a difference. It can do no more than permit the Commissioner — in the event that an owner could ever come within its provisions — to exercise his discretion and lower the purchase price of escape from the law. If Local Law No. 9 creates an illegal taking notwithstanding the buy-out and replacement options — as we hold it does— it certainly does not become legal simply because an owner may, in some cases, buy his way out of the law by paying a lesser sum.

Finally, defendants’ efforts to uphold Local Law No. 9 miss a key feature of the law here and the one that distinguishes it from the Landmarks Law in Penn Central, the Subsidence Act in Keystone, and the Eagle Protection Act in Andrus. Unlike the regulatory actions in those cases, which simply limited the owners’ conduct, Local Law No. 9 not only prohibits conduct but affirmatively requires that the owners dedicate their properties to a public purpose. They must maintain their properties as SROs, they must rehabilitate them, and they must keep them fully rented (see, discussion of significant distinction for purposes of takings analysis between "affirmative easements or servitudes” [as, for example, in Kaiser Aetna] and "those that are negative” [as, for example, in Penn Central]; Radin, op. cit., 88 Colum L Rev, at 1667, 1678-1680). Like the property owners in Loretto, Kaiser Aetna and Nollan, who must subject their properties to public use for purposes of fixing CATV cables or allowing public access to a private marina or across a private beach, owners of SRO buildings have had the use of their properties actually appropriated for the benefit of the public.

In short, the City, by affirmatively requiring the owners to put their properties to a public use, "is acting in its enterprise capacity, where it takes unto itself private resources in use for the common good” (Lutheran Church v City of New York, 35 NY2d 121, 128-129; see, French Investing Co. v City of New York, supra, at 593; Sax, Takings and the Police Power, 74 Yale LJ 36, 62-63). No one disputes the City’s authority, under the police power, to require the SRO owners to put their properties to this use. As an exercise of this authority, however, the stringent obligations imposed by Local Law No. 9 without any offsetting provision for fair payment — like the governmental actions at issue in Loretto, Kaiser Aetna, and Nollan — amount to an unconstitutional confiscation of the owners’ property.

IV

We believe it is evident from an analysis of Local Law No. 9 that the moratorium and antiwarehousing provisions inevitably force property owners "alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole” (Armstrong v United States, supra, at 49). Because the owners are, by the terms of the law, afforded no compensation, Local Law No. 9, we hold, is facially invalid, under the "Takings” Clauses of both the Federal and State Constitutions (US Const 5th, 14th Amends; NY Const, art I, §7).

One last point should be made. The dissent’s erroneous analogy between this case and Lochner v New York (198 US 45) furnishes a useful perspective on what is really at issue here. In Lochner, the Supreme Court — applying a laissez faire jurisprudence of "economic due process” — overturned a law prescribing maximum working hours, on the ground that it violated the freedom of contract rights of both employer and employee; the court held that the Legislature was without power to enact such a law. Here, by contrast, no one disputes the City’s power — indeed its duty — to fashion meaningful solutions to address homelessness. No one disputes that the City has the power to prohibit the demolition of SRO properties, or direct restoration of SRO units to habitable condition to be leased at modest rents for indefinite periods. The City clearly has that power. The question is who is to pay for this and, more particularly, whether the City — in accordance with constitutional mandate — must compensate property owners before it can "place [them] in a business, force[] them to remain in that business and refuse[ ] to allow them to ever cease doing [that] business.” (134 Misc 2d 187, 197, supra.) The issue is not one of "economic due process”, but constitutional command.

No one minimizes the tragic reality of homelessness. But the City’s response — to foist its responsibility on certain private property owners, by requiring them to remain in the SRO business or ransom their property rights — simply does not meet the requirements of the Federal and State Constitutions.

The order of the Appellate Division should be reversed, with costs, Local Law No. 9 declared to be unconstitutional as stated in this opinion, and defendants enjoined from implementing the law’s provisions.

Bellacosa, J.

(dissenting). I vote to affirm the declaration of facial constitutionality of New York City’s Local Law No. 9— the Single Room Occupancy (SRO) Moratorium Law (Administrative Code of City of New York § 27-198.2).

In 1904, Justice Holmes wrote the quintessential dissenting opinion in Lochner v New York (198 US 45, 74), which presciently warned against his own court declaring unconstitutional an act of the New York State Legislature attempting to limit the working hours of children. The historical, economic, social, legal, policy and constitutional parallels to the facial jettisoning of New York City’s SRO law suggest that it would be far better to harken to that history instead of being condemned to relive it.

Justice Holmes eloquently and cogently sums up the relevancy: "[A] constitution is not intended to embody a particular economic [or property] theory, whether of paternalism and the organic relation of the citizen to the State or of laissez faire. It is made for people of fundamentally differing views * * * General propositions do not decide concrete cases. The decision will depend on a judgment or intuition more subtle than any articulate major premise. * * * I think that the word liberty in the Fourteenth Amendment is perverted when it is held to prevent the natural outcome of a dominant opinion, unless it can be said that a rational and fair man necessarily would admit that the statute proposed would infringe fundamental principles as they have been understood by the traditions of our people and our law. It does not need research to show that no such sweeping condemnation can be passed upon the statute before us” (id., at 75-76 [emphasis added]). Nor on the local law before us either!

Eighty-five years after Lochner, we observe property rights, like the contract rights of that bygone era, being exalted over the Legislature’s assessment of social policy. Like the economic theories underlying Lochner we, as Judges, should not inquire into the wisdom or wholesomeness of SRO’s as shelter for potentially 52,000 new, displaced homeless persons — that policy choice belongs to the elected officials who enacted the law (see, Lochner v New York, supra, at 75; Boreali v Axelrod, 71 NY2d 1, 12).

It would seem fundamental that a law that has no real impact upon a person does not deprive that person of a constitutional right. The majority, however, ignores that the SRO law will have varied affects on different landowners. Perhaps there are properties subject to this law for which SRO operation is the highest and best use. For other SRO operations, 8ü% may be a generous rate of return. It is likely that there are SRO owners who have never intended to further develop or differently develop their property. Of course, these persons are not before the court and, if they were, their interests might well be served by upholding the SRO law. Yet, without a record or the means to assess the differing impacts and with no attempt to make this assessment, the majority holds that Local Law No. 9 facially results in a regulatory taking with respect to every SRO dwelling in the City of New York. Resisting the blanket approach and using the concrete facts of an individual case is not a novel approach, especially in this area of constitutional law (see also, Ward v Rock Against Racism, 491 US —, 109 S Ct 2746).

The legislation enjoys a presumptive threshold of constitutionality. Research reveals no cases in which the Supreme Court or our court have used the regulatory taking theory to undo a legislative act on a facial attack. Also, no precedents in the orbit of this case have previously ventured into the per se physical taking universe to declare a legislative act facially unconstitutional. It could well be that, due to the need to assess the real economic impact of this kind of law upon different property owners before a regulatory taking is decreed, no such doctrine as a facial challenge to a law as a regulatory taking will be recognized. But even if such a proposition is possible, it certainly has not been found to and should not be allowed to be applied against a law such as the challenged one which inherently impacts on widely diverse and different property owners.

The ardently protected economic liberties of property owners to do with their property as they wish, as long as that use does not interfere with the liberty of others to do the same— the shibboleth upon which the dual "taking” analysis is erected in this case — can cut both ways and is therefore not dispositive of this case at this stage. This court has in recent years recognized and approved significant encroachments on the libertarian ideal of property rights against "takings” claims. Property rights are acknowledged justly as not absolute, "for government could not exist if a citizen had the unfettered right to use property” (Rochester Gas & Elec. Corp. v Public Serv. Commn., 71 NY2d 313, 321; see, 41 Kew Gardens Rd. Assocs. v Tyburski, 70 NY2d 325; Matter of Jackson v New York State Urban Dev. Corp., 67 NY2d 400; Benson Realty Corp. v Beame, 50 NY2d 994; Penn Cent. Transp. Co. v New York City, 42 NY2d 324, affd 438 US 104). These illustrative contrary precedents sink or at least submerge the logic and absolutist constitutional taking analysis advanced to support a reversal in this case.

In the late 1960’s, New York City enacted a policy of utilizing tax abatements to encourage the destruction of SRO’s as substandard housing. When the staggering impact on the homeless population was realized, the City adjusted its policy, recognizing SRO shelter to be a significant component to the preservation of an affordable housing stock (see, Blackburn, Single Room Occupancy in New York City, at 6-7). This court only recently upheld the 1982 repeal of the tax abatement incentives against a Fifth Amendment due process claim by a property owner (Matter of Replan Dev. v Department of Hous. Preservation & Dev., 70 NY2d 451). We noted, with pertinency here, that "the amendment evidences the Legislature’s attempt to preserve what had become recognized as an important but rapidly disappearing source of low-income housing by eliminating the tax incentive to convert SRO’s” (id., at 454-455; see also, Benson Realty Corp. v Beame, 50 NY2d 994, supra).

The repeal of the tax abatements could not alone stanch the decline in the number of SRO units. Responding to the continued trend, the City passed the first SRO moratorium law, a predecessor to Local Law No. 9, on City Council findings "that a serious public emergency exists * * * created by the loss of single room occupancy dwelling units housing lower income persons” (Local Laws, 1985, No. 59 of City of New York § 1). In extending the moratorium in 1986, the City Council added "that there has been widespread withdrawal of single room occupancy dwelling units from the rental market, which has further reduced an already inadequate supply of such units, [and] that this practice has contributed to the increasing homeless population” (Local Laws, 1986, No. 22 of City of New York § 1). A year later, the Council addressed the SRO housing crisis in terms of the increasing homeless population, stating "that adequate housing resources for such occupants do not currently exist; [and] that there is evidence to conclude that the ordinary operation of the real estate market in the city will result in further reduction of such units and that units which have been lost will not be replaced” (Local Laws, 1987, No. 1 of City of New York § 1, amended and reenacted Local Laws, 1987, No. 9).

Local Law No. 9 (Administrative Code § 27-198.2) builds on these emergency legislative initiatives and establishes a renewable five-year moratorium on the demolition or conversion of SRO units. Owners must make SRO dwelling units habitable, may not warehouse them, and must rent them to bona fide tenants (Administrative Code § 27-2151 [a]). Owners may avoid application of the law by showing hardship, buying out or replacing the units (Administrative Code § 27-198.2 [d] [4]). The replacement provision allows demolition or conversion if new units are created through construction, rehabilitation or by buying an existing multiple dwelling. The hardship exemption applies if the property will not produce a reasonable rate of return and the replacement exemption would substantially impair the feasibility of redeveloping the property. A reasonable rate of return is defined as an annual profit equal to 8Vz% of the assessed value of the property. Another ultimate effort at legislatively balancing the respective rights of owners with the critical public interest in low and moderate housing needs allows an owner to obtain an exemption from the local law, by exercising a buyout of units subject to the moratorium. The $45,000 buy-out money must be used to provide substitutive affordable housing.

The rebellion against this careful legislative calibration, and against the Supreme Court and our own court’s admonitions that constitutional takings claims should be resolved on a singularly analyzed, as-applied basis with concrete factual settings, is untenable (see, Pennell v San Jose, 485 US 1, 11-12; Rochester Gas & Elec. Corp. v Public Serv. Commn., 71 NY2d 313, 324, supra). The court should not sweepingly hold that the SRO moratorium law produces both a regulatory and a per se physical taking, facially violative of the United States Constitution.

Enactments of a local law pursuant to NY Constitution, article IX, § 2 (c) (10) and Municipal Home Rule Law § 10 (1) (ii) (a) (12) enjoy a? full presumption of constitutionality. A challenger must prove the legislation unconstitutional beyond a reasonable doubt (41 Kew Gardens Rd. Assocs. v Tyburski, 70 NY2d 325, 333, supra). Additionally, when the challenge is to economic legislation, "modern substantive due process principles require that the judiciary give great deference to the [legislative body]” (Rochester Gas & Elec. Corp. v Public Serv. Commn., 71 NY2d 313, 320, supra, citing Exxon Corp. v Governor of Md., 437 US 117, 124, reh denied sub nom. Shell Oil Co. v Governor of Md., 439 US 884; see, Lincoln Fed. Union v Northwestern Co., 335 US 525; West Coast Hotel Co. v Parrish, 300 US 379; Tribe, American Constitutional Law, at 581 [2d ed]).

Statutes undergoing constitutional challenge as facially invalid in a takings context enjoy even greater deference because there is "an important distinction between a claim that the mere enactment of a statute constitutes a taking and a claim that the particular impact of government action on a specific piece of property requires the payment of just compensation” (Keystone Bituminous Coal Assn. v DeBenedictis, 480 US 470, 494). The Supreme Court routinely rejects preenforcement taking challenges — conceptually and functionally equivalent to facial attacks — to the constitutionality of legislative enactments. Relevantly and bluntly, that court recently rejected a facial challenge to a rent-control law, stating: "we have found it particularly important in takings cases to adhere to our admonition that 'the constitutionality of statutes ought not be decided except in an actual factual setting that makes such a decision necessary.’ ” (Pennell v San Jose, 485 US 1,10, supra, quoting Hodel v Virginia Surface Min. & Reclamation Assn., 452 US 264, 294-295; see also, Ruckelshaus v Monsanto Co., 467 US 986,1005; Kaiser Aetna v United States, 444 US 164,175, citing Penn Cent. Transp. Co. v New York City, 438 US 104,124, supra.)

The Supreme Court’s "admonition” is particularly pertinent in this case where the declaration of facial unconstitutionality is overinclusive and rooted in a record devoid of specific and relevant facts. The conclusion that the antiwarehousing and rental provisions are a forced occupation, effecting a per se physical taking, contradicts the way high courts have treated their functionally and conceptually equivalent rent-control and regulatory statutes — by repeatedly finding them constitutional, at least facially (see, Pennell v San Jose, 485 US 1, supra; Benson Realty Corp. v Beame, 50 NY2d 994, supra; see also, Nollan v California Coastal Commn., 483 US 825; Loretto v Teleprompter Manhattan CATV Corp., 458 US 419). This contrary holding negates an as-applied analysis which could support findings in appropriate cases that some SRO’s are currently being operated at their highest and best use, thus suffering no economic disadvantage under the law; or that, by reason of the hardship provision, may never be subject to the moratorium. There is no way of knowing on this record the extent to which landlords are economically affected or how profitable the dwelling units might be. Facial constitutional annihilation in such circumstances is a disproportionate remedy.

The majority’s footnote 13 misinterprets what is traditionally referred to as a "facial” challenge and, as such, fails to contend with a real deficiency in its analysis. A facial challenge is an argument that concludes that the law at issue is a taking in all its applications, as to every property within the law’s ambit. Of course there have been preenforcement challenges to laws as regulatory takings as applied to a particular owner’s property, but the majority does not identify even one case that has held that a statute, in all its applications, as to every piece of property affected by the law, works a regulatory taking because it frustrates the planned use for a piece of property. It does not explain how it can hold that the SRO law works a taking wherever the law applies. Yet, the majority concludes that the SRO law is a taking because it subjects properties to a use that owners "neither planned nor desired.” (Majority opn, at 105.) Simply put, the court is without any means in this case to know what every SRO owner "planned or desired”.

Another serious consequence overlooked by the majority is that its facial decree disproportionately demolishes a legislative structure designed to protect those in dire need. It thus legally positions the property owners to seek proportionate "just compensation” from the municipality daring to take, even temporarily, their properties and depriving them of their preferred uses (First Lutheran Church v Los Angeles County, 482 US 304, 321; see, Loretto v Teleprompter Manhattan CATV Corp., 58 NY2d 143, 149, 153, on remand from 458 US 419, supra; see also, Peterson, Land Use Regulatory "Takings” Revisited: The New Supreme Court Approaches, 39 Hastings LJ 335, 337). Thus, ironically, instead of a tax and services burden being shared somewhat equally, one class of property owners may reap a windfall at the expense of all others by the most plenary threshold mechanism. The majority’s decision compensates those from whom nothing is taken at the expense of those who have nothing to give.

In substantive due process inverse condemnation analysis, two distinct tests have evolved; one applicable to physical takings and the other to regulatory types. "A 'taking’ may more readily be found when the interference with property can be characterized as a physical invasion by government, than when interference arises from some public program adjusting the benefits and burdens of economic life to promote the common good” (Penn Cent. Transp. Co. v New York City, 438 US 104, 124, supra [citations omitted]). Physical invasion cases are special because of the nature and quality of the governmental intrusion on a private party’s property rights. A simple bright line rule applies: "any permanent physical occupation is a taking” (Loretto v Teleprompter Manhattan CATV Corp., 458 US 419, 432, supra [emphasis added]). "[W]hen the 'character of the governmental action’ is a permanent physical occupation of property, [the Supreme Court’s] cases uniformly have found a taking to the extent of the occupation, without regard to whether the action achieves an important public benefit or has only minimal economic impact on the owner” (id., at 434-435 [emphasis added; citations omitted]; Nollan v California Coastal Commn., 483 US 825, 831, supra; Kaiser Aetna v United States, 444 US 164, 180, supra).

The moratorium law at issue does not effect a physical taking because on its face it is not permanent in its individual application or in its limited five-year duration. As the Supreme Court reminded in Pennell (485 US 1, 12, n 6, supra), "We stated in Loretto v. Teleprompter Manhattan CATV Corp., 458 U. S. 419 (1982), that we have 'consistently affirmed that States have broad power to regulate housing conditions in general and the landlord-tenant relationship in particular without paying compensation for all economic injuries that such regulation entails.’ Id., at 440 (citing, inter alia, Bowles v. Willingham, 321 U. S. 503, 517-518 (1944)). And in FCC v. Florida Power Corp., 480 U. S. 245 (1987), we stated that 'statutes regulating the economic relations of landlords and tenants are not per se takings.’ Id., at 252.”

Equally inapplicable is the regulatory taking approach. The concept that "if regulation goes too far it will be recognized as a taking”, now universally accepted in light of modern principles of substantive due process, was accompanied, even in its embryonic stage, with guidelines particularly resonant here: "Government hardly could go on if to some extent values incident to property could not be diminished without paying for every such change in the general law. As long recognized, some values are enjoyed under an implied limitation and must yield to the police power. But obviously the implied limitation must have its limits, or the contract and due process clauses are gone. One fact for consideration in determining such limits is the extent of the diminution. When it reaches a certain magnitude, in most if not in all cases there must be an exercise of eminent domain and compensation to sustain the act. So the question depends upon the particular facts.” (Pennsylvania Coal Co. v Mahon, 260 US 393, 413 [Holmes, J.].) Three important elements from this passage have evolved to become integral parts of regulatory taking analysis: claims should be resolved on concrete facts; the property regulation should substantially advance a legitimate governmental interest; and the owner should not be denied economically viable use of the regulated property (see, Nollan v California Coastal Commn., 483 US 825, 834, supra; Agins v Tiburon, 447 US 255, 260; Penn Cent. Transp. Co. v New York City, 438 US 104, 124, 127, supra; see also, Peterson, Land Use Regulatory "Takings” Revisited: The New Supreme Court Approaches, 39 Hastings LJ 335, 339-351).

No litmus test is available to determine what constitutes a legitimate State interest or what type of nexus "between the regulation and the state interest satisfies the requirement that the former 'substantially advance’ the latter”, but it is clear that "a broad range of governmental purposes and regulations satisfies these requirements” (Nollan v California Coastal Commn., 483 US 825, 834-835, supra; see, Pennell v San Jose, 485 US 1, 108 S Ct 849, supra [affordable housing]; Ruckelshaus v Monsanto Co., 467 US 986, supra [pesticide research and registration]; Andrus v Allard, 444 US 51 [protection of endangered birds]; see also, Matter of Replan Dev. v Department of Hous. Preservation & Dev., 70 NY2d 451, supra [preservation SRO housing stock]; Benson Realty Corp. v Beame, 50 NY2d 994, supra [stable stock of affordable housing]). As long as the law has an identifiable public character, the means by which it is attained is for the legislative body to determine, not the courts (Ruckelshaus v Monsanto Co., 467 US 986, 1014, supra).

There is no disagreement that Local Law No. 9 is of the "greatest societal purpose” because it cannot be seriously disputed that preserving SRO housing stock and stanching the growing ranks of the City’s shelter-less population is a legitimate governmental interest of the highest, most critical order (see, Matter of Replan Dev. v Department of Hous. Preservation & Dev., 70 NY2d 451, 454-455, supra). The SRO moratorium applies a tourniquet to the loss of this part of the housing stock and substantially advances the City Council’s expressed legislative interest of preserving these sheltering units and avoiding a further spillage of homeless into the City’s street population.

When it is clear — as in this case — that a law substantially advances a self-evidently legitimate governmental interest, the test to be applied in considering a facial challenge is simplified: "[a] statute regulating the uses that can be made of property effects a taking if it 'denies an owner economically viable use of his land’ ” (Hodel v Virginia Surface Min. & Reclamation Assn., 452 US 264, 295-296, supra; see, Keystone Bituminous Coal Assn. v DeBenedictis, 480 US 470, 495, supra; Agins v Tiburon, 447 US 255, 260, supra). The SRO moratorium law effects no such deprivation. Indeed, it guarantees a fair minimum return, among a whole host of other economic balancing features. Government regulation almost always limits the maximization of the economic aggrandizement from private property ownership. Local Law No. 9 concededly places substantial restraints on the destruction or redevelopment of SRO buildings. But I would find dispositive of this takings challenge that the law leaves the owners in possession and guarantees them a whole web of economic concessions or "give-backs”, including the minimum profit of 8ti% of the assessed value of the property per year (see, Andrus v Allard, 444 US 51, 65-66, supra).

Appellant owners and some amici argue nevertheless that properties could be put to more profitable uses if their destruction or redevelopment options were unimpeded. The simple answer to that proposition is that a property owner is not constitutionally guaranteed the most profitable use (Andrus v Allard, supra; Penn Cent. Transp. Co. v New York City, 438 US 104, 125, supra). In determining whether regulations over property deprive the owner of the economically viable use of the land, we have required proof "by 'dollars and cents’ evidence that under no use permitted by the regulation under attack would the properties be capable of producing a reasonable return; the economic value, or all but a bare residue of the economic value, of the parcels must have been destroyed” (de St. Aubin v Flacke, 68 NY2d 66, 77; see, Penn Cent. Transp. Co. v City of New York, 42 NY2d 324, 329-331, affd 438 US 104, supra; French Investing Co. v City of New York, 39 NY2d 587, 596, appeal dismissed 429 US 990). That standard can be properly ventilated and applied only in administrative and judicial forums on an as-applied case record development — not in an aerie perch on a facial review.

The loss of future profits argument also "provides a slender reed upon which to rest a takings claim. Prediction of profitability is essentially a matter of reasoned speculation that courts are not especially competent to perform. Further, perhaps because of its very uncertainty, the interest in anticipated gains has traditionally been viewed as less compelling than other property-related interests” (Andrus v Allard, 444 US 51, 66, supra). Insofar as the case presents a facial attack, there is absolutely no record basis against which to determine whether the moratorium law interferes with distinct "investment-backed expectations” (see, Penn Cent. Transp. Co. v New York City, 438 US 104, 124, supra).

Peripherally, the court also decides today that one particular known person may not be ousted from his habitation because that would violate a legislated antieviction policy in a rent-control situation (Braschi v Stahl Assocs. Co., 74 NY2d 201 [decided today]). To be sure, the statutes and the issues have some differences, but they have one essential feature in common: Local Law No. 9’s genesis and purpose are founded in the identical social policy as the antieviction regulation — securing shelter for people — only in the instant case the statute tries to protect the most disadvantaged members of our society who truly have no where else to go. The court, contradictorily in my view, authorizes the expulsion of 52,000 people to allow, in the main, for commercial redevelopment of their former less-than-modest dwellings while keeping one known individual in his rent-controlled apartment. The decisional compass seems to be oscillating between opposite poles.

In sum, the Constitution, the authorities and the policies do not support the conclusion that the legislated emergency moratorium against the elimination of SRO dwelling units, societally critical to the temporary preservation of some housing for low-income persons, is a facially impermissible governmental taking, i.e., an inverse condemnation of property. The precedents of the Supreme Court and of our court, properly applied and understood, do not warrant the grave judicial usurpation effected today in the declaration of facial unconstitutionality of an enactment by a duly elected democratic body —a declaration which gives modern intonation to Judge Cardozo’s disquieting observation that: "Judges march at times to pitiless conclusions under the prod of a remorseless logic which is supposed to leave them no alternative. They deplore the sacrificial rite. They perform it, nonetheless, with averted gaze, convinced as they plunge the knife that they obey the bidding of their office. The victim is offered up to the gods of jurisprudence on the altar of regularity” (Cardozo, Growth of the Law, at 66).

Judges Simons, Kaye, Alexander and Titone concur with Judge Hancock, Jr.; Judge Bellacosa dissents and votes to affirm in a separate opinion in which Chief Judge Wachtler concurs.

Order reversed, with costs, Local Law No. 9 declared to be unconstitutional and defendants enjoined from implementing the local law’s provisions.

      . Local Laws, 1985, No. 59, a predecessor of Local Law No. 9, mandated a study of SRO housing in New York City by Urban Systems Research and Engineering, Inc. The report, written by Anthony Blackburn, was issued in February 1986 and recommended efforts by the City to preserve SRO units.

      . The Fifth Amendment "Takings” Clause applies to the States through the Fourteenth Amendment (see, Chicago, Burlington & Quincy R. R. Co. v Chicago, 166 US 226).

      . The Loretto court in dictum — referring to the navigational easement of passage permitting public access to plaintiffs privately owned marina in Kaiser Aetna stated that, although the easement constituted a physical invasion of plaintiffs property, it was not a per se taking but "a government intrusion of an unusually serious character” (458 US 419, 433). The court in Nollan apparently adopted a different view and it would seem that a physical taking of the type at issue in Kaiser Aetna would now be considered to be a per se taking to the extent of the occupation (see, Nollan v California Coastal Commn., 483 US 825, 832; see, Note, Municipal Development Exactions, the Rational Nexus Test, and the Federal Constitution, 102 Harv L Rev 992).

      . It should be noted that the Hall decision preceded the Supreme Court’s decisions in Nollan, First Lutheran Church and Keystone Bituminous Coal Assn. v DeBenedictis (480 US 470). Defendants’ efforts to distinguish Hall upon the ground that the forced leases there were of indefinite duration and transferable are not persuasive. Here, the tenants will occupy the SRO units with all of the legal protection against eviction afforded by applicable landlord-tenant statutes, including those pertaining to rent control, rent stabilization and harassment. The significant point is that in Hall, as in the case at bar, the owners were deprived of their possessory interests —particularly the right to exclude strangers — the determinative factor in Kaiser Aetna, Loretto, and Nollan.

      . Although not urged by the City, some amici contend that a physical taking should not be found because the interference with the owners’ rights resulting from Local Law No. 9 is not permanent. There is no merit to the argument for two reasons: (1) while not specifically made permanent, Local Law No. 9 is, by its own terms, to remain in effect indefinitely since its five-year terms may be extended for additional terms without limit; and (2) even if the local law be viewed as a temporary provision, it results in a deprivation of the owners’ quintessential rights to possess and exclude and, therefore, amounts to a physical taking. Under First Lutheran Church v Los Angeles County (482 US 304), where, as here, the governmental action resulted in a per se taking, the offending action constitutes a taking for whatever time period it is in effect.

      . The Supreme Court seems also to have adopted the view that a regulation which has the effect of substantially frustrating "reasonable investment backed expectations” likewise constitutes a per se taking (see, e.g., Kaiser Aetna v United States, 444 US 164, 175; Keystone Bituminous Coal Assn. v DeBenedictis, 480 US 470, 493, 499; see also, Michelman, Takings, 1987, 88 Colum L Rev 1600, 1604, n 22, 1622). Such a factor, however, would be relevant to a challenge to the regulation as applied to particular owners, not a facial challenge.

      . As outlined, supra, Local Law No. 9 provides for the imposition of a $150,000 civil fine for each room altered, converted or demolished in violation of the ordinance and an additional $45,000 per room for any resulting reduction in the total number of single-room occupancy units (see, Administrative Code § 27-198.2 [d] [4]; [g] [2], [5]).

      . Moreover, the court in Penn Central pointed out that, while the Landmarks Preservation Commission had denied an application to build more than 50 stories above the terminal, there was no showing that permission to build fewer would be denied. Additionally, the court noted that Penn Central had not been deprived of all preexisting air rights, since under the law these rights were transferable (438 US 104,136-137).

      . The majority in Keystone emphasized that, under the statute there in question, the property owners could continue to engage profitably in the business for which they had invested their capital (480 US, at 485) and that the statute ultimately prevented the owners from mining only 2% of the extractable coal (id., at 493). Not surprisingly, then, the majority concluded that the owners failed to demonstrate "any deprivation significant enough” to constitute a regulatory taking (id., at 493).

      . "Preventing homelessness” is what the City itself claims to be the public purpose served by Local Law No. 9 (see, municipal respondents’ brief, at 31-33; see also, Local Laws, 1987, No. 1 of City of New York § 1). We need not, therefore, apply the "close nexus” test to other, hypothetical purposes possibly advanced by the law.

      . The dissenter’s claim that our ruling "authorizes the expulsion of 52,000 people” (see, dissenting opn, at 126) is utterly without basis. As we have already discussed, government has considerable latitude in regulating landlord-tenant relationships to preclude eviction in hardship, emergency and rent-control cases, and both this court and the Supreme Court have upeld such efforts (see, supra, at 105-106). The constitutional invalidity of Local Law No. 9 does not concern the protection it affords to current tenants, but its mandate that property owners rehabilitate their buildings and accept— as new residents — persons with whom they have no existing relationship whatsoever.
      Finally, the dissenter’s argument that Local Law No. 9 must be upheld to prevent the disruption of tenancies is a "bootstrap”. Local Law No. 9 cannot, of course, be deemed constitutional on the ground that it would preserve tenancies which the law, in the first instance, imposes on the property owners unconstitutionally.

      . See, Administrative Code § 27-198.2 (d) (4) (a). The so-called "buy-out” provisions, in effect, permit the owners to "purchase” from the City their freedom from the operation of Local Law No. 9 by paying either $45,000 per unit (e.g., $9,720,000 for a 216-unit building such as that owned by 459 West 43rd Street Corp.) or creating a replacement unit, which must first be approved by the Commissioner for any unit taken off the SRO housing rental market. In effect, the "buy-out” provisions permit the owners to repurchase the basic property rights in their buildings which the City has appropriated under Local Law No. 9. The hardship provisions (§ 27-198.2 [d] [4] [b]) permit a reduction in the "buy-out” price, at the discretion of the Commissioner, when an owner’s return on an SRO property falls below 8Vi% of assessed value. As the provisions point out, however, there are no standards or guidelines for the exercise of the Commissioner’s discretion.

      . See, Administrative Code § 27-198.2 (d) (4) (b). As some of the owners argue, it is unrealistic to expect that the hardship exemption will ever be of any appreciable value to an investor in one of the Manhattan SRO properties. The level of earnings below which a given property must fall before the owner can apply for hardship relief is pegged at a mere 8 Yz% of the property’s assessed value. It is highly unlikely that any of the properties, which must be kept fully rented, will ever produce less than 8ti% of the assessed value, even though the properties are subject to rent control and rent stabilization. The assessed value generally represents only 45% of the full value assigned to the property by the City’s appraiser. Moreover, plaintiffs point out that the City’s appraisal of the property is based on their current use as low-income SRO rental housing. Thus, the City’s appraised full value will typically bear little relation to the property’s true market value for development purposes or to the amount of the owner’s purchase price.

      . [5] Contrary to assertions in the dissenting opinion (see, dissenting opn, at 118,120-121), the Supreme Court and this court have long considered it entirely appropriate to adjudge the facial validity of a land use regulation when challenged by a property owner claiming an unconstitutional "taking” or other deprivation of property rights. As the Supreme Court held over 60 years ago in Euclid v Ambler Realty Co. (272 US 365), a property owner is entitled to challenge a local law regulating the use of his realty on the ground that "the ordinance of its own force operates greatly to reduce the value of [the owner’s] lands and destroy their marketability for industrial, commercial and residential uses” (id., at 386 [emphasis added]). "Assuming [the owner’s] premises”, the court explained, "the existence and maintenance of the ordinance, in effect, constitutes a present invasion of [the owner’s] property rights and a threat to continue it. Under these circumstances * * * jurisdiction is clear” (id. [emphasis added]). The court further elaborated that the property owner was not claiming specific injury from the actual application of the local law, but "that the mere existence and threatened enforcement of the ordinance, by materially and adversely affecting values and curtailing the opportunities of the market, constitute^] a present and irreparable injury” (id., at 395 [emphasis added]).
      More recently, in Hodel v Virginia Surface Min. & Reclamation Assn. (452 US 264) and in Keystone Bituminous Coal Assn. v DeBenedictis (480 US 470) the Supreme Court repeated the distinction between a facial challenge and one based on application. A "facial challenge”, the court noted, "presentís] no concrete controversy concerning either application of the [law] to particular [activities] or its effect on specific [properties]” (Keystone, supra, at 495, quoting Hodel v Virginia Surface Min. & Reclamation Assn., supra, at 295). Numerous such facial challenges have been sustained by both the Supreme Court and our court (see, e.g., Nollan v California Coastal Commn., 483 US 825, 832, 837; Hodel v Irving, 481 US 704, 716-717; Loretto v Teleprompter Manhattan CATV Corp., 458 US 419, 434-435; French Investing Co. v City of New York, 39 NY2d 587, 590-591; Westwood Forest Estates v Village of S. Nyack, 23 NY2d 424, 427; see also, Beacon Hill Farm Assocs. v Loudoun County Bd. of Supervisors, 875 F2d 1081).

      . In view of this holding, we need not decide the extent to which, if at all, the protections of the "Takings Clause” of the New York State Constitution differ from those under the Federal Constitution. Nor is it necessary to address plaintiff’s additional arguments, including their contention that the local law is also unconstitutional under the Due Process Clause of the State Constitution (NY Const, art I, § 6).


source: Caselaw Access Project

author: Bellacosa, J.

license: Public Domain

text:
    In the Matter of Waldbaum, Inc., Respondent, v Finance Administrator of the City of New York et al., Appellants.
    Argued June 1, 1989;
    decided July 11, 1989

      POINTS OF COUNSEL

      Peter L. Zimroth, Corporation Counsel (Edith I. Spivack and Russell D. Scott of counsel), for appellants.
    A rent clause in a commercial lease which provides for additional rent based on a percentage sales clause, adjusted for a prorated share of taxes in excess of a fixed sum, does not convert a partial tenant into a qualified taxpayer with standing under Real Property Tax Law § 704 and Administrative Code of the City of New York § 11-231 to institute a certiorari proceeding challenging the total assessment. (Rodolitz v Neptune Paper Prods., 22 NY2d 383; Stein Shops v Roscon Realty, 59 Misc 2d 122; Matter of Mott Haven Furniture Co. v Finance Adm’r of City of N. Y., 130 Misc 2d 667; Matter of Walter, 75 NY 354; Matter of Suburbia Fed. Sav. & Loan Assn. v Mayor of Inc. Vil. of Lynbrook, 76 AD2d 841, 52 NY2d 702; Matter of Burke, 62 NY 224; Matter of Arlen Realty & Dev. Corp. v Board of Assessors, 74 AD2d 905; Matter of McLean’s Dept. Stores v Commissioner of Assessment of City of Binghamton, 2 AD2d 98; Matter of Trinity Place Co. v Finance Adm’r of City of N. Y., 72 AD2d 274, 51 NY2d 890; Matter of Spatt v Finance Adm’r of City of N. Y., 73 AD2d 918.)

      Hubert J. Brandt, Richard A. Steinberg, Willa I. Lewis and Peter H. Brandt for respondent.
    A commercial tenant obligated to pay a portion of the real estate taxes assessed against the property it leases is an "aggrieved person” within the meaning of RPTL 704 and has standing to maintain assessment review proceedings. (Matter of Burke, 62 NY 224; Ames Dept. Stores v Board of Assessors, 126 AD2d 990; Matter of Big "V” Supermarkets v Assessor of Town of E. Greenbush, 114 AD2d 726; Matter of Ames Dept. Stores v Assessor of Town of Concord, 102 AD2d 9; Matter of Caldor, Inc. v Board of Assessors, 104 AD2d 883; Matter of Arlen Realty & Dev. Corp. v Board of Assessors, 74 AD2d 905; Matter of McLean’s Dept. Stores v Commissioner of Assessment of City of Binghamton, 2 AD2d 98; Matter of Pass & Seymour v Town of Geddes, 126 Misc 2d 805; New York Yankees v Tax Commn., 74 Misc 2d 752; Matter of Grecian Garden Apts. v Barlow, 71 Misc 2d 457.)

      Laureen C. Harris for Ames Department Store, amicus curiae.

    I. A tenant obligated to pay moneys based on an assessment is independently aggrieved under RPTL 704. (Matter of Ames Dept. Stores v Assessor of Town of Concord, 102 AD2d 9; People ex rel. Bingham Operating Corp. v Eyrich, 265 App Div 562; Matter of McLean’s Dept. Stores v Commissioner of Assessment of City of Binghamton, 2 AD2d 98; Matter of Burke, 62 NY 224; Matter of Arlen Realty & Dev. Corp. v Board of Assessors, 74 AD2d 905; Matter of Big "V” Supermarkets v Assessor of Town of E. Greenbush, 114 AD2d 726; Matter of Mack v Assessor of Town of Ramapo, 72 AD2d 604; Matter of Pass & Seymour v Town of Geddes, 126 Misc 2d 805.) II. Since Waldbaum, Inc. is legally obligated to pay money calculated on the assessment, it is directly aggrieved under RPTL 704. (Matter of Trinity Place v Finance Adm’r of City of N. Y., 72 AD2d 274; Matter of Spatt v Finance Adm’r of City of N. Y., 73 AD2d 918; Matter of Ames Dept. Stores v Assessor of Town of Concord, 102 AD2d 9; Matter of Big "V” Supermarkets v Assessor of Town of E. Greenbush,, 114 AD2d 726; City of Mount Vernon v State Bd. of Equalization & Assessment, 44 NY2d 960; Vantage Petroleum v Board of Assessment Review, 91 AD2d 1037, 61 NY2d 695; Matter of Burke, 62 NY 224; Matter of Arlen Realty & Dev. Corp. v Board of Assessors, 74 AD2d 905; Matter of McLean’s Dept. Stores v Commissioner of Assessment of City of Binghamton, 2 AD2d 98.) III. Administrative difficulties endured by a municipality are outweighed by the danger of foreclosing the taxpayer’s right to redress an overassessment. (Matter of Ames Dept. Stores v Assessor of Town of Concord, 102 AD2d 9; People ex rel. Jamaica Water

      Supply Co. v State Bd. of Tax Commrs., 196 NY 39; People ex rel. Manhattan Ry. Co. v Barker, 146 NY 304; City of Mount Vernon v State Bd. of Equalization & Assessment, 44 NY2d 960; People ex rel. Bingham Operating Corp. v Eyrich, 265 App Div 562.)
   OPINION OF THE COURT

Bellacosa, J.

We reverse the order of the Appellate Division which gave petitioner Waldbaum, Inc. — a substantial but still partial lessee — standing to bring its own tax certiorari proceeding with respect to its leased premises. Petitioner does not enjoy this right because the lease does not obligate Waldbaum to pay the real property taxes on the leased premises. It pays only rent which may be affected, in part, by an increase in the landlord’s tax obligation. Nor has Waldbaum acquired a contractual right under the lease to contest the assessment in the owner-lessor’s name. The assessment at issue, therefore has, in the legal sense, only a remote and consequential impact on petitioner’s pecuniary interest, not the required direct adverse affect necessary to confer standing.

In 1961, petitioner Waldbaum’s wholly owned subsidiary entered into a 20-year lease with the Carlyle Shopping Center, Inc. (Carlyle), for the rental of 49% of Carlyle’s premises. Throughout the leasehold period, all taxes were levied against and paid by Carlyle. The lease obligated Waldbaum to pay a fixed annual "minimum rent”, plus a fluctuating "percentage rent” equal to lVz% of its gross annual sales over a base amount, and then also, under a tax escalation clause, "additional rent” equal to a 49% pro rata share of the real property taxes levied against Carlyle in excess of a base tax. Payments of "additional rent” were to reduce any "percentage rent” owing for the same year dollar for dollar. Consequently, a tax increase would cause an increase in Waldbaum’s annual rental costs only to the extent that its pro rata tax escalation share exceeded the "percentage rent” owed in the same year.

Waldbaum instituted successive tax certiorari proceedings challenging the validity of real property tax assessments levied against Carlyle from 1971 through 1982. Carlyle itself initiated, then abandoned, duplicative proceedings for some of the same tax years. By a "so ordered” stipulation, the parties consolidated six of the proceedings and several others were deemed not pending. In 1985, Waldbaum moved for partial summary judgment seeking a declaration that it could proceed as a party aggrieved to challenge the assessments under Real Property Tax Law (RPTL) § 704 and the Administrative Code of the City of New York § 11-231 (formerly § 166-1.0 [a]). The Finance Administrator cross-moved for an order dismissing the six pending consolidated proceedings as well as a seventh "mistakenly filed” proceeding, on the ground that Waldbaum lacked standing. Supreme Court denied the latter, granted the former and declared Waldbaum had standing.

The Appellate Division modified in an aspect not before us but otherwise affirmed as to the issue now on appeal and held that as a fractional lessee paying a pro rata share of the real property tax, Waldbaum was aggrieved and could bring the proceedings. It reasoned that insofar as Waldbaum was contractually bound to pay "additional rent” as a consequence of increased assessments, its pecuniary interest may be adversely affected. The dissenting Justices would have denied standing because the alleged pecuniary consequences from increased assessments were deemed too remote and indirect; that is, dependent upon the net annual computation and effect of a prorated tax increase as offset by the percentage of gross sales for the same tax year. The dissenters also emphasized that taxpayer-lessor, Carlyle, did not contract with Waldbaum for it to bring a tax certiorari proceeding. Leave to appeal was granted by that court on a certified question.

We are asked to determine, as a matter of first impression for this court, whether Waldbaum, a fractional lessee who is obligated to pay rent which includes a variable pro rata share of the landlord’s real property taxes pursuant to a particular contractual formula, is a party aggrieved sufficient to warrant its personal challenge of an assessment in a tax certiorari proceeding.

We hold that it is not, reverse the order of the Appellate Division and answer the certified question in the negative. A fractional lessee lacks standing to maintain a tax certiorari proceeding unless the lease expressly confers the right to assert the lessor’s undivided property interest in a challenge of the assessment, or unless the lessee is required to pay directly the taxes levied against the lessor’s undivided parcel. In either instance, the assessment must also have a direct adverse affect on the challenger’s pecuniary interests.

Before resolving finally whether Waldbaum is a person or corporation aggrieved by the assessed valuation of real property (Administrative Code § 11-231; RPTL § 704 [1]; NY City Charter § 163 [b]), we acknowledge that " '[t]he Tax Law relating to review of assessments is remedial in character and should be liberally construed to the end that the taxpayer’s right to have his assessment reviewed should not be defeated by a technicality’ ” (Matter of Great Eastern Mall v Condon, 36 NY2d 544, 548, quoting People ex rel. New York City Omnibus Corp. v Miller, 282 NY 5, 9). Consistent with the review principle, this court has previously held that the lessee of an undivided assessment unit may challenge the assessment if legally bound by the lease to pay the entire assessment on behalf of the owner at the time it is laid (see, Matter of Burke, 62 NY 224, 227-228; see also, Matter of Gantz, 85 NY 536, 539; Matter of Walter, 75 NY 354, 357; Matter of McLean’s Dept. Stores v Commissioner of Assessment of City of Binghamton, 2 AD2d 98, 101).

Implicit in the precedents upholding the right of a non-owner to maintain a tax certiorari proceeding has been the requirement for an undivided tax liability. In each cited case, the party aggrieved was, by contractual rearrangement of the obligation, made wholly responsible for the entire tax levy in the stead of the owner-taxpayer. Aggrievement was recognized where an assessment adversely affected a challenger’s pecuniary interests causing the loss of "something from his own property or means” (Matter of Walter, 75 NY 354, 357, supra; see, Matter of Phillips, 60 NY 16, 20-21; People ex rel. Bingham Operating Corp. v Eyrich, 265 App Div 562, 565, lv denied 266 App Div 803). The adverse impact on a petitioner’s pecuniary interests "must not be a remote and consequential result, but a direct one” (Matter of Walter, supra, at 357). Thus, for example, a purchase-money mortgagee does not have standing on the "mere possibility separated by several contingencies” that its pecuniary interest may henceforth be affected (Matter of Suburbia Fed. Sav. & Loan Assn. v Mayor of Inc. Vil. of Lynbrook, 76 AD2d 841, lv denied 52 NY2d 702), while the parent company of a wholly owned subsidiary, obligated to pay all the taxes on premises it leases, has standing to sue on behalf of the subsidiary (Matter of Arlen Realty & Dev. Corp. v Board of Assessors, 74 AD2d 905).

Petitioner Waldbaum argued successfully in the Appellate Division that there is no substantive difference between a total lessee and a fractional lessee paying, in effect, a pro rata share of the real property taxes. It is not so successful here. The authorities pointed to as persuasive support for its view are consonant with the rule, to which we adhere, that the aggrieved party’s pecuniary interest be directly affected and that the total assessment be subject to the challenge. In Matter of Big "V” Supermarkets v Assessor of Town of E. Greenbush (114 AD2d 726), the fractional lessee petitioner agreed to pay "all taxes and assessments which will or may become a lien on the Shopping Center” and was properly found to be a party aggrieved. In Matter of Ames Dept. Stores v Assessor of Town of Concord (102 AD2d 9), a commercial lessee responsible for a pro rata share of the taxes had, by express lease provision, the right to contest a tax assessment in the name of the lessor. In each case, the lessee asserted a unitary property interest pursuant to a contractual obligation. To the extent that these precedents have been or may be read to the contrary, they are subsumed in the holding of the instant case.

It seems necessary to us as a matter of sound policy and interpretation to condition a partial lessee’s procedural standing in such matters on a direct obligation to pay the lessor’s taxes or on a contractual authorization to pursue a tax certiorari proceeding, representing the undivided assessment unit, in the lessor’s stead in order to avoid a fracturing of challenges against an assessment; to prevent duplicative petitions, as initially arose in this very case (see, e.g., Matter of Mott Haven Furniture Co. v Finance Adm’r of City of N. Y., 130 Misc 2d 667; Village Supermarkets v Township of W. Orange, 106 NJ 628, 525 A2d 323); to protect the taxing authority from multiple litigation as to the same parcel by parties of unknown relation to the taxed premises; and to ensure that the assessment consequences are proportionately spread among all entities having obligations flowing out of a divided assessment unit.

In the consolidated assessment proceedings before us, lessor-owner Carlyle, not the partial lessee Waldbaum, remained always the sole party legally responsible to pay the tax. Waldbaum was not a total lessee; it was not obligated directly to pay the taxes levied against the whole of the property assessed; and it was not given a contractual entitlement to bring a tax certiorari proceeding in Carlyle’s name. Moreover, the lease imposed no obligation for a corresponding increase in rent payment tied directly to a tax increase, but was keyed by formula to a deductible, variable offset. "Additional rent” under the tax escalation clause had an actual impact on Waldbaum’s pecuniary interest only to the extent that it exceeded the "percentage rent” Waldbaum owed on its gross annual sales. This contractual formula renders the impact of a tax increase legally remote and only consequential on this pro rata indirect "taxpayer” and is, thus, an insufficient predicate for allowing it to bring a personal tax certiorari proceeding in lieu of or in addition to the owner-lessor.

Accordingly, the order of the Appellate Division should be reversed, with costs, the petition dismissed, and the certified question answered in the negative.

Chief Judge Wachtler and Judges Simons, Kaye, Alexander, Titone and Hancock, Jr., concur.

Order reversed, etc.