Background
Chicago’s Keep Chicago Renting Ordinance requires an owner who acquires a rental property through foreclosure to negotiate in good faith for a new lease of at least 12 months with each existing tenant. If a tenant does not sign a new lease for any reason, the new owner must pay the tenant $10,600 in relocation assistance. The ordinance applies to owners who acquire covered properties after its enactment.
BBLI Edison acquired a Chicago apartment building through a sheriff’s deed in February 2024, when more than 220 tenants lived there. At least five tenants declined new leases and requested the relocation payment. BBLI sued Chicago under 42 U.S.C. § 1983, alleging that the ordinance effected an unconstitutional taking. The district court dismissed the complaint, and BBLI declined an opportunity to amend before appealing.
The Court’s Holding
The Seventh Circuit affirmed the dismissal. It held that the relocation-payment requirement was not a per se physical taking because the ordinance regulates the economic relationship between landlords and tenants. Although it requires a transfer of money, established Supreme Court precedent treats landlord-tenant economic regulations—including measures that shift wealth from landlords to tenants—as regulations rather than physical invasions. The court viewed the ordinance as resembling an indirect form of rent control and declined to extend land-use-exaction precedent to this class-wide regulation.
The court also rejected BBLI’s regulatory-takings claim under the Penn Central factors. BBLI did not allege facts showing that the ordinance made the property economically infeasible; it acquired the property after the ordinance took effect, undermining any claim of interference with reasonable investment-backed expectations; and the measure regulated a landlord-tenant relationship over which governments possess broad authority. Finally, the unconstitutional-conditions doctrine was a poor fit because Chicago had not conditioned a permit or governmental benefit on BBLI’s surrender of property. Even if that doctrine applied, the housing-stability purpose supplied an essential nexus, and BBLI offered no facts showing that the $10,600 payment was disproportionate.
Key Takeaways
- A generally applicable ordinance requiring foreclosure purchasers to pay relocation assistance when existing tenants reject new leases is not a per se physical taking merely because it transfers money from landlords to tenants.
- A purchaser who acquires property after a regulation takes effect faces a substantial obstacle in showing interference with reasonable investment-backed expectations.
- A takings complaint must plead facts demonstrating economic impact and, when asserting an exaction theory, disproportionality; BBLI’s complaint did neither.
Why It Matters
The decision applies the Supreme Court’s established landlord-tenant precedents despite acknowledging a recent expansion in the circumstances covered by the Takings Clause. In the Seventh Circuit, economic obligations imposed broadly on landlords remain distinguishable from physical appropriations and individualized land-use exactions.
The ruling also illustrates the importance of pleading concrete economic facts. Because BBLI declined to amend its complaint, the court evaluated its regulatory-taking and proportionality theories without allegations about the building’s economic viability, actual moving expenses, or the lease terms needed to retain tenants.