Extortionate Fees to Convert Property Usage Violate the Fifth Amendment

New York City demands a massive fee to convert residential units from artist-only use to general use. That fee amounts to an extortionate seizure of money, and the Supreme Court should hold that it violates the Fifth Amendment.

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Thomas A. Berry, Dan Greenberg, and Kimberly Coleman

America faces a housing crisis, and that crisis has become particularly acute in New York City. The City’s rate of overcrowding is more than double the nation’s rate, and the City’s homelessness rate is the highest in the nation. By 2030, the City will need 560,000 additional housing units. As a result, the average rent there has skyrocketed.

And in many ways, this is a crisis of New York’s own making. Various misguided policies have only exacerbated the shortage of available housing on the market, among them a longstanding policy that reserved various units for only “licensed artists.” Mercifully, the City has finally allowed these units to be converted to unrestricted residential use. Unfortunately, that conversion requires payment of an exorbitant fee of at least $250,000 for the typical home.

A group of property owners challenged this fee as a taking without just compensation in violation of the Fifth Amendment. They argued that because the fee massively exceeded any reasonable administrative costs for the conversion, it essentially amounted to nothing but an extortionate seizure of money. But the New York Court of Appeals (New York’s highest state court) disagreed. The court held that the Supreme Court’s doctrine preventing the government from making extortionate demands for property does not apply at all to monetary fees unless those fees are imposed in lieu of some other demanded property interest (like an easement).

Now the property owners have asked the Supreme Court to take the case and answer whether exorbitant monetary fees can, on their own, trigger a Fifth Amendment violation. And Cato has filed an amicus brief asking the Supreme Court to grant their petition.

In our brief, we explain how the lower court failed to protect the petitioners’ property rights—rights that hark back to England’s pre-colonial common-law right to property. That vision of property rights encouraged the Framers to craft the robust property rights found in the Takings Clause. The Takings Clause is meant to protect those like Petitioners who are subject to the government’s overreach, whether that overreach amounts to seizing money, real estate, or any other form of property.

In particular, the Takings Clause prevents the government from subjecting a land-use permit applicant to an unlawful monetary demand—that is, a demand that fails the requirements set out by the Supreme Court in two cases known as Nollan and Dolan. The Nollan/​Dolan standard requires the government’s demand to have both an essential nexus and a rough proportionality with the land use. The requirement the City has imposed on Petitioners lacks both, since it so massively exceeds the cost of converting the property to general use. If the lower court had applied Nollan/​Dolan, the scheme would have failed. That is why it is so important to answer the question whether Nollan/​Dolan applies in the first place.

The Supreme Court should grant the petition and strike down the City’s unconstitutional regulatory scheme.