Landlord looks to Seventh Circuit to challenge Chicago tenant-protection ordinance

CHICAGO (CN) — A panel of Seventh Circuit judges appeared apprehensive Friday morning about the scope of a Chicago landlord's argument against one of the city's tenant protection laws.

Chicago’s “Keep Chicago Renting Ordinance” requires buyers of recently foreclosed properties to give tenants either a one-time $10,600 relocation payment or a new one-year lease negotiated in good faith. In 2021, an appellate court blocked an earlier provision that capped rent increases at 102% of the prior rent.

Chicago property owner BBLI Edison challenged the ordinance, enacted after the 2008 financial crisis, arguing it violates a Fifth Amendment provision that bars the government from seizing private property for public use without just compensation.

The company said the relocation payments amount to an unconstitutional taking and that the ordinance itself violates due process and the Equal Protection Clause by treating foreclosed lenders differently from other lenders. A U.S. District Judge struck down the lawsuit against the city in 2024, and BBLI Edison appealed to the Seventh Circuit.

Ethan Merel, an attorney representing the city of Chicago, told the panel of judges Friday that the ordinance is a valid regulation of the landlord-tenant relationship that doesn't violate the Constitution.

"BBLI attempts to create the physical appearance of that taking claim where none exists by ignoring that broad power and focusing on the mere transfer of money in the ordinance in isolation," Merel said. "But the Supreme Court has recognized that the governments may require landlords as part of entering into this relationship to provide for things of value to their tenants benefits. This could be utility connections, mailboxes, building wide sprinkler systems, etc... providing relocation assistance can just be easily added to the list of things."

David Breemer, an attorney on behalf of BBLI Edison, argued before the panel of judges that the ordinance violates the Takings Clause of the Fifth Amendment because the payments to tenants are mandatory, triggered by tenants' choice whether to renew a lease and directly diminish the property owner's ability to use and rent the building.

U.S. Circuit Judge Amy St. Eve pressed Breemer on the bounds of his argument.

"It seems like if we agree that's a taking, that there are a whole lot of regulations out there about real property that have been long understood as okay that this would overturn," St. Eve, a Donald Trump appointee, said. "In other words, it seems like we would be opening up all sorts of landlord tenant regulations as to buildings and money to constitutional challenges which would be very, very different from where the Supreme Court has been... so what are the limits?"

Breemer responded that standard monetary obligations aren't, per se, takings unless the taking of money also interferes with the use of real property, as in his client's case.

St. Eve asked Breemer why, then, wouldn't property owners sue all the time and say that this regulation that requires them to pay however much, or limit how much, they're spending is taking away money they want to use on their property.

"User fees, permit fees, all of those sort of things that we're used to, those are not takings. The Supreme Court has held that that's not what we're dealing with here. We are dealing with a one-of-a-kind, unique ordinance that requires landlords to pay tenants who voluntarily choose to leave," Breemer, an attorney with California based firm Pacific Legal, said in court Friday.

Breemer argued the ordinance harms property owners because it gives tenants — not landlords — the choice between signing a new lease or taking the $10,600 relocation payment.

St. Eve asked Breemer whether the law would be constitutional if tenants were required to use the lump sum specifically for new housing, and he responded that it would be a closer case to litigate.

U.S. Circuit Judge Michael Scudder, a fellow Trump appointee, followed up, asking how Breemer’s argument would apply if the ordinance had a reimbursement program for tenants who did not renew their lease rather than offering a lump-sum payment.

"The landlords, in this context are not causing the need for this payment. The tenants are choosing to leave and take the money, so regardless how they ultimately use it and I think that they should be controlled because that goes to whether it's a public use and its proportionality," Breemer said.

Merel maintained that the relocation payments are well within the constitutional bounds of regulating landlords. In his appellee's brief, he noted that the case had previously been dismissed because a judge found that the ordinance served a public purpose.

"[T]he KCRO is a constitutional, direct regulation of the landlord-tenant relationship, not an indirect means to coerce property owners to give up property, which is what the unconstitutional conditions doctrine guards against," Merel wrote in the brief. "To the extent the doctrine applies, there is an essential nexus and rough proportionality between the relocation fee and the social costs of foreclosure."

Joining judges St. Eve and Scudder on the panel was U.S. Circuit Judge Candace Jackson-Akiwumi, a Joe Biden appointee. The panel did not indicate when it might rule on the matter.

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