Business Exclusion Exception to Home Rule Law
Landlord Service Bureau v. City of Pittsburgh, 291 A.3d 961 (Pa. Cmwlth. 2023), allocatur granted Aug. 21, 2023, appeal docket 15 WAP 2023
Pennsylvania’s Home Rule Law gives municipalities that adopt a home rule charter the authority to exercise any and all powers and functions of government that are not denied by the Pennsylvania Constitution, the municipality’s home rule charter or an act of the General Assembly with certain exceptions. This case centers on the application of the Business Exclusion exception to the Home Rule Law, 53 Pa.C.S. § 2962(f), which provides that:
(f) Regulation of business and employment.–A municipality which adopts a home rule charter shall not determine duties, responsibilities or requirements placed upon businesses, occupations and employers, including the duty to withhold, remit or report taxes or penalties levied or imposed upon them or upon persons in their employment, except as expressly provided by statutes which are applicable in every part of this Commonwealth or which are applicable to all municipalities or to a class or classes of municipalities. This subsection shall not be construed as a limitation in fixing rates of taxation on permissible subjects of taxation.
This case arises from an ordinance enacted by the City of Pittsburgh and the Council of the City of Pittsburgh (City Council) (collectively, the City) in 2005, which required “the registration of residential rental units within the City … so that an inventory of rental properties and a verification of compliance can be made by City officials,” PITTSBURGH CODE § 781.00 (Renal Ordinance). Commonwealth Court summarized the relevant portions of the Rental Ordinance as follows:
Under the Rental Ordinance, no rental unit can be leased, rented, or occupied without the owner first obtaining a permit from the City and designating a “responsible local agent.” PITTSBURGH CODE § 781.02. A “rental unit” is defined as “any dwelling unit or residential structure containing sleeping units, which is leased or rented from the owner or other person in control of such units, to any tenant for a term exceeding fifteen (15) consecutive days within a thirty[(30)]-day period.” PITTSBURGH CODE § 781.01(k). The Ordinance exempts hotels, motels, bed and breakfast establishments, public housing units, dormitories, certified rehabilitation facilities, long-term medical care facilities, and owner-occupied rental units from its terms. Id.
To qualify for a rental permit, the owner must provide the following information:
(1) The street address and block and lot number of the rental unit(s);
(2) The number and types of rental units within the rental property;
(3) Name, residence address, telephone number, and where applicable an E-mail address, mobile telephone number, and facsimile number of all property owners of the rental unit(s);
(4) Name, residence address, telephone number, and where applicable an E-mail address, mobile telephone number, and facsimile number of the responsible local agent designated by the owner, if applicable;
(5) The name, residence address, telephone number and where applicable an E-mail address, mobile telephone number, and facsimile number of the person authorized to collect rent from the tenants;
(6) The name, residence address, telephone number and where applicable an E-mail address, mobile telephone number, and facsimile number of the person authorized to make or order repairs or services of the property, if in violation of City or State codes, if the person is other than the owner or the responsible local agent;
(7) The name, address and telephone number of any lien-holder(s) on the rental unit or the real property on which the rental unit is located at time of annual registration.
(8) A copy of a current valid occupancy permit for the property shall be provided at the initial application.
PITTSBURGH CODE § 781.03(a). This information goes into a publicly available database. The annual fee for a rental permit is: $65 per unit for properties that house 10 or fewer units; $55 per unit for properties that house between 11 and 100 units; and $45 per unit for properties that house more than 100 units, plus applicable charges. PITTSBURGH CODE § 781.05(b)(i). Rental property owners domiciled outside of Allegheny County must hire a licensed real estate management firm in Allegheny County to:
(1) Operat[e] the registered rental unit in compliance with all applicable City ordinances; and
(2) Provid[e] access to the rental unit in compliance with all applicable City ordinances; and
(3) [Be] designated … for acceptance of all legal notices or services of process with respect to the rental units.
PITTSBURGH CODE § 781.03(e).
The Rental Ordinance authorizes the City’s Department of Permits, Licenses, and Inspections (Department) to inspect each registered rental unit at least once every three years. PITTSBURGH CODE § 781.04. The Ordinance requires the Department to promulgate regulations and to create “a manual of good landlord practice,” “a performance-based regulatory system,” a “landlord academy,” “incentives to encourage ‘good landlords,’ ” and “other best practices in the field of rental licensing.” PITTSBURGH CODE § 781.06(a)-(b). It also requires the Department to “create an online database” for the public to access information related to rental properties and their inspections. PITTSBURGH CODE § 781.06(c). Violations of the Ordinance are summary offenses, and the failure to register each rental unit can be sanctioned by a fine of $500 per unit per month. PITTSBURGH CODE § 781.09.
Slip op. at 2-4. Landlord Service Bureau, Inc., Michelle Williams, Collyer Realty Company d/b/a Galasso Real Estate Services, Santo Policichio, and Crown Real Estate and Management Services (collectively, Landlord Service Bureau) filed suit against the City seeking a declaration that the Rental Ordinance was ultra vires, void, and unconstitutional and a permanent injunction against its enforcement. Commonwealth Court summarized the Landlord Service Bureau’s argument as to the Home Rule Law as follows:
Noting that a rental permit requires the owner to present a copy of its occupancy permit, Landlord Service Bureau asserts that “owners of single-family dwellings constructed prior to 1958, have never been required to obtain occupancy permits … unless after 1958 the exterior dimensions of the single[-]family dwelling had been altered resulting in an expanded footprint.” Landlord Service Bureau Complaint ¶21; Reproduced Record 17a-18a (R.R. __) (emphasis in original). Landlord Service Bureau contends that requiring an occupancy permit and the other affirmative requirements in the Rental Ordinance constitute a regulation of its business, which a home rule municipality lacks power to do under the Home Rule Law.
Slip op. at 5. The trial court held that the City had authority to enact an ordinance to require property owners to obtain a permit before renting their properties for residential use and to take certain affirmative actions to qualify for a permit, reasoning that: “Without an identified person of record, there is nobody to notify of violations” and “the Ordinance ‘will positively impact neighborhoods by ensuring rental properties are safe;’ further, if there is a violation, a registered contact person will assist the City’s enforcement response.” Slip op. at 7, quoting trial court op. at 3-4. LSB appealed.
Commonwealth Court summarized the parties’ arguments on appeal as follows:
Here, Challengers argue that the Rental Ordinance imposes “a farrago of affirmative duties on housing-provider businesses” without an underlying statewide statute to authorize such regulation. Challengers Brief at 22. The Ordinance requires rental property owners to obtain a permit and allow inspections of each rental unit, with or without permission of the tenant; to report personal and private data to the City for disclosure to the public; and to designate a responsible local agent for out-of-county owners. The local agent must be a property management company located in Allegheny County that will manage the rental unit; allow City officials to enter their properties to conduct an inspection; and accept legal process on behalf of the rental unit owner.
The City argues that the Rental Ordinance is authorized by its broad police power to protect the health and safety of rental housing residents. This Court has already held that rental registration and inspection ordinances are a valid exercise of the police power. City Brief at 18 (citing Berwick Area Landlord Association v. Borough of Berwick, 48 A.3d 524 (Pa. Cmwlth. 2012); Simpson v. City of New Castle, 740 A.2d 287 (Pa. Cmwlth. 1999); McSwain v. Commonwealth, 103 Pa.Cmwlth. 326, 520 A.2d 527 (1987)).
Slip op. at 19-20.
Commonwealth Court held that the Rental Ordinance imposes numerous affirmative duties upon rental unit owners, contrary to the express limitations in Section 2962(f) of the Home Rule Law, therefore the City was without authority to enact the Rental Ordinance. Relying on the Supreme Court’s decision in Pennsylvania Rest. & Lodging Ass’n v. City of Pittsburgh, 653 Pa. 596, 211 A.3d 810 (Pa. 2019), Commonwealth Court reasoned the City needed “express authorization” to enact the Rental Ordinance’s affirmative requirements:
Section 2962(f) prevents “regulations that burden commercial interest absent express authorization[.]” Pennsylvania Restaurant and Lodging Association, 211 A.3d at 832. The Rental Ordinance imposes affirmative and numerous duties and requirements on businesses engaged in renting residential units, beyond just the registration and permitting of rental units. The Ordinance requires inspections of rental units and the employment of a licensed real estate management firm in Allegheny County. The Ordinance requires the creation of a landlord academy and a manual of good landlord practice. To the extent this will require participation of landlords, it is a training that was held to be unauthorized for building managers in Pennsylvania Restaurant and Lodging Association. The Ordinance directs the City to create a database on rental units and their inspections and make this information available to the public, which will impact landlords by having their contact information and other personal, identifying information accessible to the public. Pittsburgh Code § 781.06(c).
To adopt such affirmative requirements, the City needed “express authorization,” Pennsylvania Restaurant and Lodging Association, 211 A.3d at 832, under a statute “applicable in every part of this Commonwealth or which [is] applicable to all municipalities or to a class or classes of municipalities.” 53 Pa. C.S. § 2962(f). The City asserts that this authority is found in Section 101 of its Home Rule Charter:
The City of Pittsburgh has all home rule powers and may perform any function and exercise any power not denied by the Constitution, the laws of Pennsylvania, or this charter whether such powers or functions are presently available to the City or may in the future become available. The powers of the City shall be construed liberally in favor of the City, and the specific mention of particular powers in this charter shall not be construed as limiting in any way the general power stated in this article. All possible powers of the City, except as limited above, are to be considered as if expressly set forth in this article whether such powers are presently available to the City, or may in the future become available.
Home Rule Charter of the City of Pittsburgh (City Charter) § 101 (emphasis added). One power denied to the City is the power to impose “duties, responsibilities or requirements” upon the conduct of “businesses, occupations and employers.” 53 Pa. C.S. § 2962(f).
The City argues that if it cannot enact its Rental Ordinance, it will have less power than a non-home rule counterpart, which would be contrary to law. This Court has explained that “a home[ ]rule municipality cannot, except where specified clearly by statute or the municipality’s own charter, find itself vested with less power than a non-home[ ]rule counterpart.” Apartment Association of Metropolitan Pittsburgh, Inc. v. City of Pittsburgh, 228 A.3d 960, 972 (Pa. Cmwlth. 2020) (Apartment Association I) (quoting Pennsylvania Restaurant and Lodging Association, 211 A.3d at 824). Here, Section 2962(f) of the Home Rule Law provides this “clear specification.” Id
Slip op. at 20-22 (emphasis in original). Commonwealth Court further found the City’s reliance on Berwick, 48 A.3d 524, Simpson, 740 A.2d 287, and McSwain, 520 A.2d 527, was misplaced, opining that:
Each case raised similar constitutional issues: equal protection, due process, and the Fourth Amendment. However, none raised the issue of Section 2962(f) of the Home Rule Law. In Berwick, 48 A.3d at 535, the ordinance required landlords to prevent violations of the noise ordinance by their tenants; it did not impose any “additional civil/criminal liability upon owners other than that which is imposed by existing law.” In Simpson, an ordinance requiring an inspection before renewal of a two-year permit was held not to implicate the Fourth Amendment because a warrant was required. In McSwain, an ordinance requiring a vacant dwelling to pass a housing code inspection before it could be rented again was authorized by the municipality’s police powers. The ordinances were expressly authorized by the applicable borough or city code. Here, the Rental Ordinance imposes many more requirements upon rental unit owners, such as the appointment of an agent in Allegheny County and a search without the owner’s or lessee’s permission.
Slip op. at 22-23. Additionally, Commonwealth Court rejected the City’s argument that the Rental Ordinance is similar to the ordinance upheld in Hartman v. City of Allentown, 880 A.2d 737 (Pa. Cmwlth. 2005), reasoning:
In Hartman, a home rule municipality passed an ordinance that made sexual orientation and identity a prohibited basis of discrimination in employment, housing, and public accommodations. The anti-discrimination ordinance did not require businesses to do anything; rather, it was prohibitory in its effect. As such, we held that the ordinance did not violate Section 2962(f) of the Home Rule Law. We stated that “a narrow reading of Section 2962(f) of the Home Rule Law is consistent with the Legislature’s intent … that the phrase ‘regulation of business’ means affirmative duties being placed on businesses.” Hartman, 880 A.2d at 746.
Hartman addressed an anti-discrimination ordinance that was amended to include sexual orientation and gender identity within its scope. In contrast, the Rental Ordinance places affirmative and specific duties upon those in the business of renting real property, which is the type of regulation that Section 2962(f) prohibits.
Slip op. at 23. Commonwealth Court concluded:
As established in Berwick, Simpson, and McSwain, requiring the registration of rental units is not the problem with the Rental Ordinance. It is the inspection without permission of an owner and lessee, together with the obligation of rental unit owners to hire a responsible local agent, to follow best practices, to attend a landlord academy, and to have their registration and inspection information put on a public, online database that place affirmative “duties, responsibilities [and] requirements” on rental unit owners. The City has not identified “a statute applicable in every part of this Commonwealth” that “expressly” authorized this wide-ranging regulation of the residential landlord business. 53 Pa. C.S. § 2962(f). Consequently, the City was without authority to enact the Rental Ordinance in its present configuration.
Slip op. at 24.
The Pennsylvania Supreme Court granted allocatur to consider the following issue:
Did the Commonwealth Court err when it held, in light of Pennsylvania Rest. & Lodging Ass’n v. City of Pittsburgh, 653 Pa. 596, 211 A.3d 810 (Pa. 2019), that the City of Pittsburgh lacked home rule authority under 53 P.S. § 2962(f) to enact its Rental Registration Ordinance?
For more information, contact Kevin McKeon or Dennis Whitaker.