Court of Appeals Prohibits Section 8 Terminations

This conclusion ' that a New York landlord was obligated to renew the lease of a section 8 tenant and to continue participation in the section 8 program ' was mandated by two different statutes. First, the federal statute itself provided that a landlord could not terminate a section 8 tenancy except for violations of the terms of the lease, violations of federal law, or other good cause. The statute then created what came to be known as the 'endless lease rule' because section 8 tenant received statutory protection not extended, in most jurisdictions, to other tenants who were subject to non-renewal at the expiration of their lease terms.

In New York, however, a second statutory scheme ' the rent stabilization scheme ' protected rent-stabilized section 8 tenants against eviction at the expiration of tenant's lease. The Rent Stabilization Code entitles stabilized tenants to renewal leases at the expiration of the lease term, and requires that the renewal 'shall be on the same terms and conditions as the expired lease ' ' 9 NYCRR 2522.5(g)(1). Hence, if, under the terms of the original lease, landlord agreed to accept section 8 payments on behalf of a tenant, then landlord was obligated to renew the lease on the same terms ' acceptance of section 8 payments.

The 1998 Amendments

Because landlord participation in the section 8 program has been voluntary, the program's success has depended on the willingness of a landlord to accept section 8 tenants. Two aspects of the section 8 program acted as disincentives for landlords to participate. One was the 'endless lease' provision that limited the right of landlords to evict section 8 tenants. The other was the anti-discrimination, 'take one, take all' feature of the program, which provided that if a landlord accepted section 8 payments on behalf of one tenant, the landlord could not refuse to accept section 8 payments on behalf of other tenants. Landlord groups (among others) argued that these provisions, in tandem, made participation in section 8 unattractive for many landlords.

Responding to these concerns, Congress amended the statute. In 1996, Congress repealed the 'take one, take all' provision and added language qualifying the prohibition on eviction of section 8 tenants by adding the phrase 'during the term of the lease' before the language prohibiting eviction. (Pub. L 104-134; 110 U.S. Stat 1321; see also HR Rep 104-461). That statute was effective for 1996 only, but the change was made permanent in 1998 (42 U.S.C. sec. 1437f(d)(1)(B); Pub L 105-276; 112 U.S. Stat 2461).

New York Cases

The interplay between the Congressional statute and the New York regulatory scheme engendered considerable litigation in New York ' with varying results. Some courts concluded that the Congressional statute pre-empted New York's regulatory scheme with regard to acceptance of rent subsidies. See, e.g., Seminara Pelham LLC v. Formisano, 5 Misc.3d 695. Other courts rejected the pre-emption argument, concluding that upon expiration of a lease with a section 8 tenant, the rent stabilization code required landlord to offer tenant a new lease on the same terms ' including acceptance of section 8 payments. See, e.g., M 1849 v. Innis, N.Y.L.J., Nov. 10, 2004, pg. 20, col. 3; Bran-Tran v. Matus, N.Y.L.J., Aug. 11, 2004, pg. 19, col. 3. Indeed, as the Court of Appeals noted in the Rosario opinion, the Division of Housing and Community Renewal (DHCR) has been on both sides of the issue ' first concluding that the federal statute relieved landlords of the obligation to accept section 8 payments upon renewal, and later abandoning that position.

The Rosario Opinion

In Rosario, the issue reached the Court of Appeals, and the court confronted the pre-emption issue squarely. The court noted that pre-emption could arise in any of three ways: expressly, implicitly when Congress occupies the entire field, or implicitly when state and federal law conflict. The court had little difficulty finding no implied pre-emption, because Congress left most regulation of landlord-tenant law to the states, and because state and federal law could easily be harmonized by concluding that the 1998 statute terminated the endless lease rule for free-market landlords but not for rent-stabilized landlords.

To resolve the most difficult issue ' the express pre-emption issue ' the court turned to legislative history. That history, however, is hardly dispositive. The court cited language in the Senate Report expressing the view that repeal of the endless lease rule would not subject section 8 tenants to discrimination because 'protections will be continued under State, and local tenant laws as well as Federal protections under the Fair Housing Act and the Americans with Disabilities Act.' S. Rep. No. 21, 105^th Cong., 1^st Sess., at 36. That, in the court's view, suggested that Congress had left room for the states to regulate a landlord's right to terminate section 8 participation. The same paragraph, however, also indicates that the amendments were designed 'to remove disincentives for owner participation and to expand the number of housing choices available to section 8 families' ' suggesting that state regulation that results in 'endless leases' might be inconsistent with the statutory purpose.

Ultimately, however, the court's decision is consistent with the principle that Congress must express itself more clearly if it intends a statute to pre-empt state regulation. And in this case, Congress was anything but clear. The result, then, is that in New York's rent-stabilized apartments, a landlord who agrees to accept a section 8 tenant initially is required to continue accepting section 8 payments upon lease renewal.

Stewart E. Sterk is Editor-in-Chief of this newsletter.

In Rosario v. Diagonal Realty, LLC (infra, p. 5), the Court of Appeals addressed an issue that has perplexed New York courts since Congress amended the section 8 housing program almost ten years ago: Can a landlord terminate its participation in the program at the expiration of a rent-stabilized lease? The Court of Appeals held that the rent stabilization code prohibits termination, and that federal law does not pre-empt the code.

Section 8 and Rent Stabilization

The federal section 8 program provides housing assistance to low-income families by issuing vouchers to eligible families. If a landlord is willing to accept the voucher, tenant pays rent based on ability to pay, and the voucher covers the balance of the agreed-upon rent. Federal law has never required landlords to participate in the section 8 program. Until the 1998 amendment at issue in Rosario, however, it was also clear that a New York landlord could not, at the expiration of a tenant's lease, elect to stop accepting section 8 subsidies on tenant's behalf.

This conclusion ' that a New York landlord was obligated to renew the lease of a section 8 tenant and to continue participation in the section 8 program ' was mandated by two different statutes. First, the federal statute itself provided that a landlord could not terminate a section 8 tenancy except for violations of the terms of the lease, violations of federal law, or other good cause. The statute then created what came to be known as the 'endless lease rule' because section 8 tenant received statutory protection not extended, in most jurisdictions, to other tenants who were subject to non-renewal at the expiration of their lease terms.

In New York, however, a second statutory scheme ' the rent stabilization scheme ' protected rent-stabilized section 8 tenants against eviction at the expiration of tenant's lease. The Rent Stabilization Code entitles stabilized tenants to renewal leases at the expiration of the lease term, and requires that the renewal 'shall be on the same terms and conditions as the expired lease ' ' 9 NYCRR 2522.5(g)(1). Hence, if, under the terms of the original lease, landlord agreed to accept section 8 payments on behalf of a tenant, then landlord was obligated to renew the lease on the same terms ' acceptance of section 8 payments.

The 1998 Amendments

Because landlord participation in the section 8 program has been voluntary, the program's success has depended on the willingness of a landlord to accept section 8 tenants. Two aspects of the section 8 program acted as disincentives for landlords to participate. One was the 'endless lease' provision that limited the right of landlords to evict section 8 tenants. The other was the anti-discrimination, 'take one, take all' feature of the program, which provided that if a landlord accepted section 8 payments on behalf of one tenant, the landlord could not refuse to accept section 8 payments on behalf of other tenants. Landlord groups (among others) argued that these provisions, in tandem, made participation in section 8 unattractive for many landlords.

Responding to these concerns, Congress amended the statute. In 1996, Congress repealed the 'take one, take all' provision and added language qualifying the prohibition on eviction of section 8 tenants by adding the phrase 'during the term of the lease' before the language prohibiting eviction. (Pub. L 104-134; 110 U.S. Stat 1321; see also HR Rep 104-461). That statute was effective for 1996 only, but the change was made permanent in 1998 (42 U.S.C. sec. 1437f(d)(1)(B); Pub L 105-276; 112 U.S. Stat 2461).

New York Cases

The interplay between the Congressional statute and the New York regulatory scheme engendered considerable litigation in New York ' with varying results. Some courts concluded that the Congressional statute pre-empted New York's regulatory scheme with regard to acceptance of rent subsidies. See, e.g. , Seminara Pelham LLC v. Formisano , 5 Misc.3d 695. Other courts rejected the pre-emption argument, concluding that upon expiration of a lease with a section 8 tenant, the rent stabilization code required landlord to offer tenant a new lease on the same terms ' including acceptance of section 8 payments. See, e.g., M 1849 v. Innis, N.Y.L.J., Nov. 10, 2004, pg. 20, col. 3; Bran-Tran v. Matus, N.Y.L.J., Aug. 11, 2004, pg. 19, col. 3. Indeed, as the Court of Appeals noted in the Rosario opinion, the Division of Housing and Community Renewal (DHCR) has been on both sides of the issue ' first concluding that the federal statute relieved landlords of the obligation to accept section 8 payments upon renewal, and later abandoning that position.

The Rosario Opinion

In Rosario, the issue reached the Court of Appeals, and the court confronted the pre-emption issue squarely. The court noted that pre-emption could arise in any of three ways: expressly, implicitly when Congress occupies the entire field, or implicitly when state and federal law conflict. The court had little difficulty finding no implied pre-emption, because Congress left most regulation of landlord-tenant law to the states, and because state and federal law could easily be harmonized by concluding that the 1998 statute terminated the endless lease rule for free-market landlords but not for rent-stabilized landlords.

To resolve the most difficult issue ' the express pre-emption issue ' the court turned to legislative history. That history, however, is hardly dispositive. The court cited language in the Senate Report expressing the view that repeal of the endless lease rule would not subject section 8 tenants to discrimination because 'protections will be continued under State, and local tenant laws as well as Federal protections under the Fair Housing Act and the Americans with Disabilities Act.' S. Rep. No. 21, 105^th Cong., 1^st Sess., at 36. That, in the court's view, suggested that Congress had left room for the states to regulate a landlord's right to terminate section 8 participation. The same paragraph, however, also indicates that the amendments were designed 'to remove disincentives for owner participation and to expand the number of housing choices available to section 8 families' ' suggesting that state regulation that results in 'endless leases' might be inconsistent with the statutory purpose.

Ultimately, however, the court's decision is consistent with the principle that Congress must express itself more clearly if it intends a statute to pre-empt state regulation. And in this case, Congress was anything but clear. The result, then, is that in New York's rent-stabilized apartments, a landlord who agrees to accept a section 8 tenant initially is required to continue accepting section 8 payments upon lease renewal.

Stewart E. Sterk is Editor-in-Chief of this newsletter.