Not for rent: Homeowners appeal MN city’s restrictions on rental property

NO RENTERS: Winona, Minn., implemented the nation’s first comprehensive rental cap ordinance in 2006.WINONA, Minn. — Cities and property rights groups around the state are watching a court case challenging the constitutionality of a Winona ordinance.

The rule prohibits homeowners from renting their property in the college community. Three homeowners went before the Minnesota Court of Appeals on Dec. 12 to challenge the law.

“To me it’s getting beyond what elected officials are supposed to do — starting to dictate who can rent, who can’t rent, who can do this, who can do that,” said Ted Dzierzbicki, a plaintiff whose house is across the street from Winona State University. ”They’re not the kind of laws that benefit and protect people. It’s more to do with somebody having a bug about something and trying to get a law towards it.”

Winona implemented the nation’s first comprehensive rental cap ordinance in 2006. The so-called 30 percent rule was imposed to rein in “excessive on-street parking, anti-social behavior and deteriorating housing conditions” among students renting houses near the university.

“The importance of the case is the city’s ability to impose appropriate licensing standards for the betterment of the community,” said George Hoff, who represented the city before the appellate court.

Since property owners with rental units were grandfathered in, the number of houses that can be legally rented varies block to block.

“Our argument is you cannot be denied your right to rent out your perfectly safe house to perfectly safe tenants just because a neighbor of yours has decided to do the same thing,” said Anthony Sanders, an attorney with the Institute for Justice who argued for the homeowners.  “Otherwise the government is just picking and choosing who gets to exercise their property rights.”

In April, a district court in Winona upheld the controversial ordinance.

“There is no indication that the 30% Rule was enacted or conceived as an insidious means of keeping certain constitutionally protected classes of people out of certain neighborhoods or any other improper purpose,” Winona County District Court Judge Jeffrey Thompson wrote in his ruling. “It is a good faith attempt to address real problems.”

The property owners appealed the lower court decision, but their two-year-plus legal challenge has cost each of them in different ways.

Without rental income, one plaintiff, Ethan Dean, lost his house to foreclosure.  Another participant in the lawsuit, Holly Richard, lost nearly three years’ rental income because the city mistakenly denied her rental permit. Meanwhile, Ted and Lauren Dzierzbicki continue to pay an $800 monthly mortgage on an empty house that could rent for more than $1,000 a month.

“Everybody has to look at these types of laws and realize at some point in time it’s going to affect them,” said Ted Dzierzbicki. “Some of these people that live close to the university that were behind this concept of trying to protect their neighborhood, when they pass on, what are their kids going to do with their house?  How are they going to get rid of their house?”

At least three other Minnesota cities have passed ordinances with similar restrictions on rental properties. In an indication of the importance of the issue to other municipalities, the League of Minnesota Cities submitted a legal briefing in support of Winona.

“This court’s decision will have a significant, statewide impact on Minnesota cities including cities with ordinances similar to the one at issue here and cities that want to protect their authority to adopt similar ordinances in the future.  In addition, all Minnesota cities have a public interest in ensuring the city councils’ legislative decisions receive the constitutionally required deference on appeal,” states the League of Minnesota Cities in a friend of the court filing.

The Minnesota Court of Appeals will issue a ruling within 90 days. For now, the Dzierzbickis’ four-bedroom house remains for sale, though the lack of a city rental license undercuts its market value and sales potential.

“That’s the kind of thing hundreds of Minnesota homeowners are faced with today in cities that have these laws,” said Sanders.  “They are unconstitutionally being denied the right to exercise their property rights.”

Contact Tom Steward at [email protected]