Facts
- Private landlords participated in HUD’s Section 8 program under housing assistance payments contracts, which set a “contract rent” subsidized by HUD.
- The contracts provided for annual rent adjustments using HUD’s automatic adjustment factors.
- The same contracts also included a separate cap providing that, “[n]otwithstanding any other provisions,” adjustments could not create “material differences” between assisted rents and rents for comparable unassisted units, as determined by the Government.
- HUD concluded that formula-based adjustments in some markets produced rents above market levels and began using comparability studies to limit rent increases.
- Congress enacted § 801 of the Department of Housing and Urban Development Reform Act of 1989, authorizing HUD to limit future automatic rent adjustments through comparability studies.
- Landlords claimed § 801 violated the Fifth Amendment Due Process Clause by abrogating purported vested contractual rights to formula-based increases without an independent cap.
Issues
- Whether § 801 violated the Fifth Amendment Due Process Clause by abrogating landlords’ contract rights to annual rent adjustments based solely on automatic adjustment factors.
- Whether the assistance contracts permitted HUD to use comparability studies to cap rent adjustments notwithstanding the automatic adjustment provision.
Decision
- The Supreme Court unanimously reversed the Ninth Circuit.
- The Court held it need not decide the constitutional question because the landlords lacked a contract right to “unobstructed” formula-based rent adjustments.
- The “notwithstanding” comparability clause controlled and prevented adjustments that would create material differences from comparable unassisted market rents.
- The contracts did not prohibit HUD from using comparability studies to determine market comparability and impose an independent cap on adjustments.
Legal Principles
- A “notwithstanding” clause is read to override conflicting provisions within the same instrument when its text directly addresses the dispute.
- Claimed “vested” contractual rights are defined and limited by the contract’s own conditions; a party cannot treat a qualified contractual benefit as an unconditional entitlement.
- Courts may avoid deciding a constitutional challenge when the asserted predicate contract right does not exist under ordinary contract interpretation.
Conclusion
Because the Section 8 assistance contracts subordinated automatic annual adjustments to a government-determined comparability cap, landlords had no contractual entitlement to formula-only increases, and HUD could use comparability studies to limit rent adjustments without triggering a due process violation.