In the Zone: Court Rejects "Takings" Challenge to City's Rental Assistance Ordinance
The Seventh Circuit Court of Appeals rejected a "takings" challenge to a city ordinance that protects tenants in residential buildings when ownership is transferred through a foreclosure action. BBLI Edison, LLC v. City of Chicago.
In 2021, the City of Chicago adopted the "Keep Chicago Renting Ordinance." That ordinance requires anyone who obtains a rental property through a foreclosure action to negotiate new leases with existing tenants in good faith and if the tenant declines to renew a lease, pay the tenant $10,600 to assist with relocation expenses. When BBLI took control of a rental property through a sheriff's deed in 2024, BBLI followed the procedures under the ordinance for negotiating new leases, but at least five tenants declined new leases and requested the relocation assistance fee. BBLI filed a lawsuit against the city claiming that the ordinance violated its civil rights because requiring payment of the fee constituted an unconstitutional "takings" under the Fifth Amendment to the U.S. Constitution. The district court dismissed the case, and BBLI appealed to the Seventh Circuit Court of Appeals. The Seventh Circuit uphold the dismissal of the case.
First, the Court found that the city had authority to adopt the ordinance as a regulation of the landlord-tenant relationship.
Second, the Court rejected BBLI's argument that the relocation assistance fee requirement was a "physical" taking because it transfers wealth, finding this ordinance to be similar to rent control regulations which courts have found are not "physical" takings.
Third, the Court did not find a "regulatory" taking because, among other things, the city's ordinance did not interfere with BBLI's "investment-backed expectations" since the ordinance was already in effect when BBLI purchased the property.
Finally, the Court rejected BBLI's "unconstitutional conditions" argument because BBLI was not asking for permission to build or engage in some other lawful activity that the city was withholding or imposing conditions on the issuance. Instead, the ordinance was enacted to further the city's interest in keeping its residents housed.
In short, the Court upheld the dismissal of BBLI's "takings" challenge to the rental assistance ordinance.
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