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The Lofts at Farmers Market in St. Paul's Lowertown
The Lofts at Farmers Market acquired its building in St. Paul’s Lowertown after it had been operated for years by the city. However, the plaintiff alleged that the building has been much more costly to operate than what was represented. (File photo: Bill Klotz)

U.S. judge rejects challenge to St. Paul’s rent ordinance

Landlords filed suit against the city of St. Paul last year, alleging that the city’s rent-control ordinance violated their due process rights as well as the contract clauses of the Minnesota and U.S. constitutions. U.S. District Judge Nancy Brasel disagreed, and granted the city’s summary judgment request on Monday.

The dispute arose out of a rent ordinance enacted by St. Paul in 2022. On Nov. 2, 2021, St. Paul voted to limit monthly rent increases to just 3% in any 12-month period, even when tenants move out. Landlords who failed to comply are subject to civil and criminal penalties, including serving 90 days in jail. At the time, the rent-control ordinance was one of the strictest in the nation. Only a handful of states have localities with some sort of rent-control ordinance.

Two plaintiffs contested the ordinance. Lofts at Farmers Market and Woodstone Limited Partnership, who owns an interest in Woodstone Apartments, filed a 59-page lawsuit in the U.S. District Court for Minnesota.

Woodstone Limited Partnership bought its property over 30 years ago. When it bought the property, it had no reason to expect that it would be subject to rent-control legislation, as Minn. Stat. § 471.9996 preempts rent-control legislation unless it is approved by voters in a general election. Woodstone argued that St. Paul enacted a 15% hard cap on rent increases by landlords granted exemptions from the 3% limit, which was not approved by voters. The Lofts at Farmers Market acquired the building after years of being operated by St. Paul. However, plaintiff Lofts alleged the building had been much more costly to operate than what had been represented, as property taxes increased by double the estimates. Both plaintiffs claimed that raising rent higher than 3% is necessary to make a profit.

Calling the ordinance “draconian” and a “procedural straitjacket,” Woodstone Limited Partnership and Lofts at Farmers Market, LLC filed the 59-page original lawsuit in U.S. District Court for the District of Minnesota on June 16, 2022. It asked the court to strike down the ordinance, or, at minimum, strike down the 15% cap on rent.

The plaintiffs argued that, while there was a process to get an exemption, it was unclear and unpredictable. They alleged that there were only three employees who made the decisions and that none of them had experience in the residential leasing industry.

However, Brasel was unconvinced by plaintiffs’ argument, citing a process for landlords to seek rent increases of up to 8%. Most of the requests, Brasel noted, were granted and the level of appeals was very low.

Brasel also contended that courts have held that rent-stabilization policies were constitutional. In particular, Brasel cited the U.S. Supreme Court, which she asserted consistently affirmed states’ broad power to regulate housing conditions without the need to compensate for all economic injuries that result. She maintained that plaintiffs “should have reasonably known” that courts have upheld the constitutionality of rent-stabilization policies that “guarantee a reasonable return on investment.”

The ruling is in lockstep with other courts reviewing this issue. Landlords challenged the constitutionality of New York’s rent law, the Housing Stability and Tenant Protection Act, which passed in 2019. The 2nd U.S. Circuit Court of Appeals affirmed the rental law in February 2023.

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