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As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowAn Illinois man who owns rental property in Hammond failed to convince the 7th Circuit Court of Appeals that a city licensing ordinance requiring he obtain a license to make repairs to his properties was discriminatory.
Christopher Regan lives in the Chicago area and also owns property in Hammond that he leases and rents out. Regan teamed up with other real estate investors of the Northwest Indiana Creative Investors Association Inc. who also own property in the Indiana city to sue it after the investors ran into issues making necessary repairs and improvements to their rental properties.
In order to repair or remodel, Regan and the NICIA are required by Hammond municipal code to either obtain a license from the city or hire a Hammond-licensed general contractor. To obtain a license, a general contractor or landlord must, among other things, submit an application, pass a test and criminal background check, and pay a fee. However, an exception to the license requirement was made for individuals making repairs to private, single family residence where they reside.
Regan and the NICIA alleged the license requirement, coupled with the exemption, impermissibly burdened interstate commerce by imposing costs on property owners who do not reside in Hammond that locally-domiciled homeowners do not have to pay. They argued the burden was inconsistent with the dormant commerce clause.
The Northern Indiana District Court disagreed with their contentions and entered summary judgement for the city, finding the city’s license requirement did not facially discriminate against property owners who don’t live in Hammond. It also found that the requirement did not have a disparate impact on those owners and was rationally related to the city’s interest in public safety.
The 7th Circuit Court of Appeals agreed, affirming the district court’s decision in Christopher Regan, et al. v. City of Hammond, Indiana, 18-3051, and first finding that the city ordinance applies to all landlords, regardless of where they may be located.
“So the landlord who lives in Chicago and owns a rental property in Hammond must obtain a license or hire a licensed contractor, but so must the landlord who lives next door to his Hammond rental,” Circuit Judge Illana Rovner wrote. “The ordinance imposes no impediment or burden for the non-Hammond landlord that it does not also impose on the Hammond landlord. There is no disparity in classification of local versus non-local landlords nor is there a disparity in how the two are impacted by the ordinance.”
The 7th Circuit further delved into the differences between landlords and occupant homeowners, noting owner-occupants of a single-family home typically do not derive rental income from the property, eliminating any meaningful competition with landlords. Likewise, while occupants and landlords alike may ultimately suffer the economic consequences of bad work, only the occupant would experience the deterioration in living conditions with its attendant hardships and dangers.
“Given the material distinctions between occupant owners and landlords, the exception for occupant owners does not make the ordinance one that discriminates against non-Hammond property owners, so as to trigger a presumption of invalidity,” Rovner wrote. “…Hammond’s ordinance does not impede interstate commerce in the sense that it poses an obstacle to non-residents who wish to invest in Hammond rental properties or imposes a surcharge on such non-residents that is not imposed on local, similarly-situated investors.”
The panel continued in finding that Hammond has an obvious interest in the safety and habitability of the homes in which its residents live and that the ordinance is a legitimate exercise of its authority to promote that interest.
“The license requirement serves to ensure not only that whoever performs the work, be it the property owner or a contractor, is familiar with the local code requirements and is therefore capable of completing work in a sound manner that complies with those requirements, but that he lacks a criminal background that may place the property’s owner or occupant in jeopardy of fraud,” Rovner concluded. “Insofar as the exemption for occupant homeowners is concerned, it is reasonable for the city to think that such homeowners, who have a keen interest in the adequacy of repairs and improvements made to their own homes, will also endeavor to comply with all local requirements.”
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