Seattle landlords could soon have an easier path to challenging the city’s tenant protection laws.

Division One of the Washington State Court of Appeals ruled Monday that a lawsuit taking aim at city rental regulations could move forward, overturning a lower court decision that had sided with the city.

The case centers on an affordable apartment building in the Chinatown-International District, where owners say city regulations have pushed operations to the financial brink.

Goodman Real Estate, through a subsidiary that owns the Addison on Fourth Apartments, sued the city in 2024, arguing that a slate of laws passed between 2018 and 2021 had “destroyed” the building’s value and amounted to an illegal taking of the property.

Among the regulations: the city’s limits on winter evictions, restrictions on landlords’ use of criminal records to refuse to rent to tenants and the “roommate ordinance” that extends certain rights to tenants’ immediate family and other residents. The suit also blamed a city requirement that landlords give six months’ notice of rent increases; mandatory relocation assistance, in which landlords must pay low- and moderate-income tenants who move out after a landlord hikes their rent by 10% or more; and now-expired COVID-era eviction restrictions.

City leaders passed the regulations over the last decade as high housing costs highlighted the vulnerability of renters living on the edge. Lawmakers in other cities and in the state Legislature have followed suit on some of the policies, and tenant advocates say they help balance the scales between landlords and renters.

Landlords have repeatedly challenged these regulations and others in court over the years, often losing early in the process.

Monday’s ruling marks a departure that could allow similar cases to advance in the legal process.

A King County Superior Court judge dismissed GRE’s lawsuit last year, finding there wasn’t enough evidence the regulations amounted to a taking.

To the extent the city’s laws affect the building, they “do so in the wake of the city’s broader efforts to regulate landlord-tenant relationships,” Superior Court Judge Jason Poydras said when issuing his decision.

“The City has lawful authority to enact citywide landlord-tenant ordinances,” Poydras said.

The Court of Appeals reversed that decision, sending the case back to the lower court.

Among other arguments, the Court of Appeals found that the city’s roommate ordinance “transforms uninvited, third-party tenants into tenants” at the expense of the landlord’s rights

The Addison, a 254-unit building, includes studio and one-bedroom apartments affordable to renters making 60% of area median income, or about $69,000 for a single person in Seattle, as part of the Low Income Housing Tax Credit program. The federal LIHTC program offers tax breaks in exchange for restricted rents for at least 30 years.

GRE, a Seattle-based firm that owns thousands of apartments, bought the building in 2012 for $12.5 million and spent $26.5 million on renovations. The building was cash-flow positive from 2015 through 2018, collecting between 91% and 94% of its maximum potential rental income. That began dropping in 2019 and especially after COVID-19 hit in 2020, according to court filings.

By 2023, 45% of the building’s units were vacant, and it brought in only 44% of its maximum annual rental income. The landlord also faced increased costs for insurance, maintenance and security.

The building lost nearly $6 million from 2019 through 2023, according to court filings, despite earlier projections that it would have been $1.5 million in the black during that same time frame.

The property’s owners blame city regulations for that loss, arguing they forced the building to accept tenants who caused safety and maintenance issues, leading to higher turnover among renters and staff — all amounting to a government taking of the property.

The Addison is now in receivership with no interested buyers, said Sean Flynn, president of the Rental Housing Association of Washington, a lobbying group that represents GRE and other landlords.

“There are limits to what the government can do in terms of regulation in the landlord-tenant sphere. There are indeed boundaries, which the city didn't seem to believe,” Flynn said. (An attorney for GRE directed a request for comment to Flynn.)

City attorneys argued LIHTC restrictions, not city laws, restricted the landlord’s ability to sell the building to be converted into market-rate housing. The Court of Appeals found it was too early to dismiss GRE’s claims that the city’s regulations hampered its ability to find a buyer.

The Seattle city attorney’s office could appeal the decision to the state Supreme Court.

“We’re reviewing the decision and are meeting internally to discuss next steps,” city attorney's office chief of staff Dan Nolte said in an email. “We haven’t made a decision on an appeal yet.”

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