Does government-mandated rent relief require just compensation under the takings clause?
Our nation, and indeed the world, is currently facing immense economic tension and struggles as the COVID-19 pandemic has struck at the heart of virtually every segment of our economy and threatened vast swaths of industry.
The real estate industry is no exception and has, in fact, been the subject of much debate involving tenants, landlords, lenders and the government.
In the residential arena in particular, one common theme of debate has been the impassioned (and sometimes menacing) demands for rent relief in the form of “rent strikes,” and full-on rent forgiveness by landlords. Municipalities have, in varying forms, discussed, considered, even proposed laws requiring that landlords either forgive or defer rent collection. Not surprisingly, landlords have resisted – mainly citing their own mortgage, labor, tax, insurance and other operational costs.
In the opinion of this author, actions of lawmakers to support those tenant demands, while perhaps well-meaning (although often significantly tainted by political aggrandizement), are violations of our Constitution, at both the federal and, in Illinois, at least, the state level.
United States Constitution
The “takings clause” in the Fifth Amendment of our Constitution prevents the government from taking private property for public use without just compensation. In 1897, in Chicago, B&Q. Railroad Co. v. Chicago, the U.S. Supreme Court ruled that the Fourteenth Amendment extended the effects of the takings clause to the states. The takings clause of the Fifth Amendment has also been ruled to apply not just to land and real estate itself, but to financial interests, as well. Armstrong v. United States (1960).
Where the U.S. Supreme Court has undertaken to analyze the Takings clause in the context of rent restrictions, there has been no deviation from the most fundamental principle espoused by that clause – that just compensation must accompany the taking of private property for public use.
In Pennell v. San Jose, 485 U.S. 1 (1988), the Court upheld the right of the city of San Jose to enforce a rent ordinance that took tenant hardships into account, in part because the restriction imposed was to limit rent increases to no more than 8%. Effectively, the court’s ruling was that the city was permitted to balance the public welfare against the private need, and to determine in some cases that an 8% increase was just compensation to the landlord.
Article I, Section 15 of the Illinois Constitution also states that “private property shall not be taken or damaged for public use without just compensation as provided by law.”
Illinois caselaw holds that police powers “cannot be invoked to sanction the taking of private property for public use without just compensation, even where such taking is essential for the public health or welfare.” Village Of Arlington Heights v. Ill. Commerce Commission., 64 Ill.App.3d 364 (1978), citing Sanitary District v. Commonwealth Edison Co. (1934), 357 Ill. 255, 192 N.E. 248).
Activism v. Law
Critics of the takings clause and state statutes of the same nature often argue that those laws “perpetuate injustices that exist in the initial distribution of entitlements.” See, for example, Takings, Moral Evolution, and Justice, T. Nicolaus Tideman, 88 Colum. L. Rev. 1714. These activist arguments, based on morality issues and property rights predating our nation, have no place in our courts or in the application or promulgation of municipal or state laws. These debates can only be heard in the context of whether or not the United States Constitution, itself, should be amended. Barring any such amendment, any governmental actions to mandate that landlords forgive rent, particularly when coupled with actions to prevent evictions through moratoriums, amount to a taking of private property for public use and, therefore, require that the government provide just and fair compensation to the landlords.
If you would like to discuss this, or any other issue that may be affecting you and your property, call Erwin Law at 773-525-0153.
For more than 25 years. we’ve been helping landlords and small businesses with a wide variety of legal needs.