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Property II
University of Iowa School of Law
Hovenkamp, Herbert J.

I. Rent Control
A. In General
· The authority to impose rent control comes from…
– Home rule provision (state statute or constitutional provision)
– Enabling Act
○ State legislatures are starting to take away the power for localities to engage in rent control
○ Local government is more inclined to be in favor of rent control
· Identifying some “base” rent for each rental unit in the controlled area (usually the old rent being charged)
– Laws that attempt to control the rent for residential leases
· Some ordinances limit the maximum amounts rents can periodically increase
– The market rate increased by 20% for example
– The rent control will say you can only increase the rent by 5%
– So what happens, over the long-haul rents increase at a slower rate than they would if it was based on the market price, and eventually the gap gets very large
· Does not effect the initial rental agreement, the initial rent is computed by bargaining between landlord and tenant
– Than rent control comes in and stops you from increasing the rent
· Factors to look at
(1) The cost of servicing the landlord’s debt (mortgage)
(2) The rental history of the unit
(3) The physical condition of the unit
(4) Changes in the amount of services the landlord provided
(5) Any additional financial information supplied by the landlord
(6) The market value for similar units
· Taking Case
– private property can not be taking for public use without just compensation
○ What is wrong with forcing you to accept lower rent
– Rule à You cannot go below cost. this is the right under the 5th amendment
○ The price must be sufficient to provide a reasonable rate of return on historic cost otherwise it VIOLATES THE TAKING CLAUSE
i. Actually have to be used to reduce rents under cost to violate the constitution
· Two Types of Constitutional challenges
(1) Facial à look at the provision, and you can tell on its face it is unconstitutional
(2) As Applied à look at how the provision is applied, was it used for an unconstitutional purpose
– Pennell v. City of San Jose
○ Rent control upheld to be constitutional under attack that it violates the takings clause.
○ Due process and equal protection claims
○ L brings suit because he thinks that hardship clause of the rent control ordinance is unconstitutional.
i. The hardship clause takes into consideration the financial condition of T
○ Court finds that rent control must be reasonable
i. Reasonable rate of return on historical investment
* Take the investment and calculate a reasonable rate of return on the initial investment + pass thru of recurring costs
ii. If the rent control rent falls below that amount, then it is unconstitutional taking
* L claims that the hardship clause is bad because L’s minimum rent could be dropped when the economic hardship of T is considered AFTER calculating the appropriate rent (reasonable rent + pass thru of recurring costs)
* The court does not accept L’s argument because the L is bring a facial challenge to the statute and the statute is not facially a violation of the equal protection clause or due process
○ As a result, this statute could only be found unconstitutional by an “As Applied challenge” – not unconstitutional on the face but only susceptible to that finding once it is applied.
i. The examiners can apply the T hardship clause, but not so severely as to bring down the constitutional minimum.
– Example-L’s investment is $100,000 and a reasonable rate of return is 5%, then the minimum rents would have to give the L a reasonable return of investment + incurring or variable costs. L has certain recurring expenses: property taxes, utilities. Constitutional Minimum here would be $5000 + incurring costs for the year. If the imposed new rent fell below that figure this would constitute an unconstitutional taking. Adds up to $650 a month, the T cannot come in and only pay $300 this would be unconstitutional and amount to a taking because it would not provide the L with a reasonable rate of return.
· Vacancy Control Statutes
– Sets a base rent and that base rent does not change
· Vacancy Decontrol Statutes
– Once landlord negotiates the price the price is set, the landlord can negotiate a new price with a new tenant once the 1st tenant moves out
○ The increases look much like a stair case
○ Encourages kicking people out but there is protection to the tenant
· Economics
– Were to regulate prices:
○ If we regulate to low, no new houses will be built, if we regulate two high, than people don’t have houses
i. Solution à regulate separately
* This way no monopoly returns, and no disincentive not to build new houses
– Supply/Demand
○ Sometimes increase rent for other tenants, b/c landlords will increase their rent on apartments not under rent control to make up for their losses
· Criticism:
– Rent control makes housing shortage WORSE
○ No incentive to build in a rent controlled area
i. Communities deal with by exempting new construction from rent control
* Addresses the shortage issue, but makes the disparity worse
· Example:
– Base rent is the market price rent at the time the T moves in, subject to annual adjustments
– L and T submit to the Board evidence that a rise in expenses does and does not warrant an increase in rent.
○ Board reviews and determines the appropriate amount of increase
○ Causes a divergence between rent-controlled rent and market rent
– In a new building in a rent controlled district, L charges the market rent and the regulation starts from there.
– When a T moves out of rent-controlled apartment:
○ Vacancy control (rent controlled) – regulated rent remains the same.
i. Many owners convert to condos because there is no rent control on condos and this exacerbates the driving of low-income folks out of town. The class divisions that occur often limit the amount of condo conversions that there are.
○ Vacancy decontrol (rent stabilized) – rent c

Horizontal privity req’ed for assignability

NO

-in almost all cases privity is req’ed before the burden will run.
-many cases suggest that privity is not required before the benefit will run

NO

Vertical privity req’ed for assignability

-in modern amer law commercial easements in gross are assignable
-there is some doubt about the assignability of noncommercial easements in gross

YES, although it is sometimes stated that the burden will not run if the benefit is in gross

Interests in gross are generally assignable. Sometimes said that the burden will not run if the benefit is in gross, but there are many exceptions to this rule

Touch & concern req

NO

YES. Neither the benefit nor the burden will run if the covenant at issue does not touch & concern the land

YES, although many cases state the requirement in a differ way, ie affecting the use of real property, or it must be a promise to do or refrain from doing something upon the land

C. Easements
· Introductory
– Definition: Irrevocable right to use another person’s land for a specific purpose
○ Entitles the owner of such interest to a limited use or enjoyment of the land in which the interest exists
i. Can be an affirmative right to use the property; or
ii. Negative restriction that prevents the owner of the property from using it in a way that would defeat the easement owner’s rights
○ Entitles the him to protection as against third parties from interference in such use or enjoyment
○ Is not subject to the will of the possessor of the land
○ Is not a normal incident of the possession of any land possessed by the owner of the interest
○ Is capable of creation by conveyance
– Owner of land
○ Landowner’s use may not unreasonably interfere with the easement holder’ use of the easement for its intended purpose