New York's highest court on Thursday struck down a portion of the state's new rent law, ruling that it violated due process for building owners who could be exposed to "enormous" liability if it were left intact.

The 4-3 decision, from the bitterly divided New York Court of Appeals, held that the Housing Stability and Tenant Protection Act of 2019 did not apply retroactively to cases involving rent overcharges and limited damages calculations to rent charged four years prior to the filing of a complaint.

The majority held that, even though the state legislature intended to apply the HSTPA's new provisions to old and pending claims, the scope of the changes were too broad to survive a rational-basis review.

"Retroactive application of the overcharge calculation amendments would create or considerably enlarge owners' financial liability for conduct that occurred, in some cases, many years or even decades before the HSTPA was enacted and for which the prior statutory scheme conferred on owners clear repose," Judges Janet DiFiore, Leslie Stein, Michael Garcia and Paul Feinman said in a 57-page per curiam opinion.

The ruling, however, came over the strong objection of the court's three dissenting judges, who accused the majority of "wielding substantive due process as a sword" to invalidate a duly-passed economic regulatory statute.

"For the first time in its history, our court has struck down, as violative of substantive due process, a remedial statute duly enacted by the legislature," Judge Rowan Wilson wrote in a blistering 52-page dissent, which also alleged that the majority had "abandoned jurisdictional and procedural rules along the way."

The ruling, which considered appeals in four cases, addressed the proper method for determining rent overcharges as a result of the Court of Appeals' 2009 ruling in Roberts v. Tishman. In that case, the court held that landlords who received J-51 tax breaks for renovating properties had unlawfully removed their apartments from rent stabilization, leading to an influx of overcharge claims.

New York law at the time mandated that, except in cases involving fraud, overcharges would be determined by looking to the rent charged four years prior to the filing of the complaint. The legislature, however, upended that approach last year with a provision of the HSTPA, which significantly extended the statute of limitations for such claims and altered the method for determining legal rent.

The tenants asked the court to apply the new overcharge calculation to their own appeals, which were pending at the time of the new law's enactment, a move that would have affected an untold number of other cases.

But the majority ruled that the proposed approach would extend to overcharges that occurred more than a decade prior to the new law, and "severely impact the substantial rights" of landlords. In one case, the court said, an owner could go from owing around $10,000 in overcharges to more than $285,000.

"Such a vast period of retroactivity upends owners' expectations of repose relating to conduct that may have occurred many years prior to the recovery period," the judges said.

Deborah Riegel, a Rosenberg & Estis attorney who represented the landlords, praised the ruling as a "fair and extraordinarily thoughtful" decision that would reverberate across the New York real estate industry.

"'A ruling against the owners' would have been catastrophic, retroactively subjecting them to large overcharge claims," she said. "The Court recognized that the policies implemented by the HSTPA are within the legislature's province, but only on a prospective basis."

Darryl Vernon, who argued in favor of the tenants, said Thursday that he was considering an appeal to the U.S. Supreme Court.

"It just seems to be that the decision went out of its way to favor landlords here. The legislature specifically said [the HSTPA] applies to claims that were pending," Vernon, of Vernon & Ginsburg, said when reached by phone late Thursday afternoon.

"The court upended all of that," he said, adding that "they didn't really have a constitutional right to do that."