State Assembly Approves Sweeping Rent-Regulation Revisions

In an attempt to address affordable housing issues in New York City and surrounding communities, the state assembly overwhelmingly passed a sweeping 10-bill legislative package that, among other things, would scale back increases on rent-regulated apartments statewide, returning to regulation tens of thousands of units that were converted to market rate in recent years.

From an owner's point of view, there is much reason for alarm. The proposed bills would lower the rent-stabilized vacancy increase from 20 percent to 10 percent; limit an owner's ability to recover a rent-regulated apartment for personal use; and increase fines for owners who harass their tenants in an attempt to drive them away.

The legislation would also increase the rental ceiling for luxury decontrol from $2,000 to $5,000 a month, and repeal the Urstadt Laws that in 1971 transferred the city's authority to regulate rents to the state. This attempt at repealing the Urstadt Laws causes New York City owners much worry because the general consensus is that the New York city council will enact a flood of pro-tenant laws.

Already, last year, the city council, under the leadership of Speaker Christine Quinn, passed the Tenant Protection Act, an anti-tenant-harassment law. The bill made any harassment action intended to cause a tenant to vacate an apartment by an owner against a tenant a Class C (immediately hazardous) violation of the Housing Maintenance Code, which carries a penalty ranging between $1,000 and $5,000 per unit. This bill also empowered tenants so that they may be able to bring a claim of harassment in housing court and enabled the court to issue restraining orders against owners if violations have been found.

Additional owners' fears stem from the bills' potential affect on their finances. New or changed rent regulations may lead to widespread defaults on apartment buildings purchased at the peak of the market earlier this decade, as owners of these buildings may have been relying on deregulated apartments to boost income in the near future.

The best example of this scenario is the purchase of the 11,000-unit Stuyvesant Town-Peter Cooper Village, which Tishman Speyer bought in late 2006, near the market's peak, for $5.4 billion. At the time, the purchase price was justified by the beliefs that rents would continue to rise and that thousands of the complex's apartments could quickly be destabilized.

At this point, the 10-bill legislative package has to pass in the senate, where Democrats hold a narrow 32-30 majority, with some Democratic members in decidedly non-liberal districts. Democrat Pedro Espada, chairman of the senate housing committee, has said that his committee will take up to three weeks to decide which bills to support, and Senate Majority Leader Malcolm Smith has stated that he won't take up rent regulation until the state's budget problems have been addressed, presumably sometime after March 31 when the fiscal year ends.

SUMMARY OF LEGISLATIVE PACKAGE

Here's a list of the 10 bills that passed the New York State assembly and are up for consideration in the state senate. Included are the bills' excerpted purpose and the reasons why assembly Democrats pursued the corresponding bill.

Adjusting Preferential Rents Upon Renewal (Bill No. A.465)

Purpose of Bill: To prohibit an owner from adjusting the amount of preferential rent upon the renewal of a lease. It allows the owner to make such adjustments to a preferential lease only upon a vacancy that is not the result of the failure of the owner to maintain a habitable residence.

Justification: As housing costs increase exponentially across the City of New York, the displacement of working families and middle-class residents from rent-regulated apartments has reached crisis proportions. Without question, the displacement is aggravated by the ability of landlords to abandon a preferential rent upon the renewal of a lease. Prior to a change in law, a preferential rent was permanent for the duration of a tenancy, and could be increased only upon vacancy.

There also is no “clean hands” requirement that the landlord conduct itself responsibly in order to abandon a preferential rent and impose the maximum rent upon a vacancy. Consequently, if a tenant leaves an apartment that is uninhabitable due to lack of heat, hot water, electricity, repairs, or unsanitary conditions, the landlord remains eligible to dramatically increase the rent upon the vacancy of the apartment. As a result, current law encourages “bad actors” to deprive tenants of a habitable apartment in order to benefit from the ability to abandon a preferential rent.

Mitchell-Lama Tenants (Bill No. A.857)

Purpose of Bill: The purpose of this bill is to protect tenants in Mitchell-Lama developments that become subject to rent stabilization or the Emergency Tenant Protection Act, by prohibiting an owner from applying for a rent increase based on “unique and peculiar” circumstances when a project withdraws from this program.

Justification: This bill was written to address a recent Court of Appeals ruling that allowed a landlord to use the “unique and peculiar” clause in the Administrative Code to cause a steep increase in rents for Mitchell-Lama tenants in buildings exiting from the Mitchell-Lama program. By making the last rent paid prior to dissolution the initial legal regulated rent and prohibiting any use of the unique and peculiar provision, this bill will ensure the continued affordability of these apartments, and the opportunity for tenants to remain in their homes.

Luxury Decontrol Thresholds (Bill No. A.860)

Purpose of Bill: The rent regulation laws currently provide for the deregulation of housing units that have a legal regulated rent of $2,000 or more per month and are occupied by a tenant or tenants whose incomes collectively exceed $175,000 per year. This bill amends New York State's rent regulation laws to adjust the “luxury decontrol” thresholds to more accurately reflect economic realities and tie future increases to the rate of inflation in the New York metropolitan area. Each threshold would be adjusted by an amount approximately equal to the percentage change in the regional consumer price index for New York-Northern New Jersey-Long Island between 1998 and 2008, raising the rent threshold to $2,700 per month and the income threshold to $240,000 per year.

Justification: Without some basic mechanism to account for the effects of inflation, the deregulation thresholds will continue to decrease in value due to inflation, and the tenant protections envisioned in the original compromise behind the high-income/high-rent deregulation laws will become ineffective. This bill would remedy this basic flaw in the rent regulation laws by adjusting the deregulation thresholds for past inflation and providing for similar adjustments in the future.

Possession for Owner's Use (Bill No. A.1685)

Purpose of Bill: The purpose of the bill is to expand tenant protections by limiting a landlord's ability to take possession of units for their own personal use. It limit's a landlord's ability to recover an apartment for personal use to one unit per property. The legislation also includes stringent guidelines preventing a landlord from recovering an apartment rented by a long-term tenant or senior citizen.

Justification: According to the Rent Guidelines Board report “Housing NYC: Rents, Markets and Trends 2000,” while New York City experienced a net gain of total units from 1996-1999, the number of rental units declined. In fact, the report states that vacant available rentals fell by almost 17,000 units, or 20.7 percent, over the years studied, lowering the vacancy rate from 4.01 percent in 1996 to 3.19 percent in 1999. Clarifying when landlords can take units for their own personal use will help keep units in the rent regulation system, and thus preserve these units in the affordable housing stock.

Vacancy Increase (Bill No. A.1686)

Purpose of Bill: The purpose of this bill is to expand tenant protections by reducing the percentage by which rent may be increased upon vacancy. It limits the amount a landlord could increase rent on a vacated apartment from 20 percent to 10 percent.

Justification: There continues to be an ongoing housing emergency in many areas of New York State, and especially in New York City. According to the Rent Guidelines Board report “Housing NYC: Rents, Markets and Trends 2000,” while New York City experienced a net gain of total units from 1996-1999, the number of rental units declined. In fact, the report states that vacant available rentals fell by almost 17,000 units, or 20.7 percent, during the time period studied, lowering the vacancy rate from 4.01 percent in 1996 to 3.19 percent in 1999. Limiting the amount by which rent may be increased upon vacancy will help keep units in the rent regulation system, and thus preserve these units in the affordable housing stock.

Section 8 Projects (Bill No. A.1687)

Purpose of Bill: The purpose of this legislation is to extend rent and eviction protections to tenants living in former federal Section 8 projects.

Justification: This legislation will ensure that all buildings that opt out of Section 8 in New York City and Nassau, Westchester, and Rockland counties may become subject to rent regulation. Under current law, only those buildings that were occupied prior to Jan. 1, 1974, will become subject to the rent and eviction protections offered by rent regulation.

Urstadt Laws (Bill No. A.1688)

Purpose of Bill: This bill would revoke the Urstadt Laws that prohibit cities of one million or more from having rent regulation laws that provide more comprehensive coverage than state laws allow.

Justification: The Urstadt Laws grant municipalities the right to impose a rent regulatory system and set the parameters of that system. Currently, municipalities that “opt into” this legislation cannot strengthen the laws to provide more comprehensive coverage than that allowed in state law. By removing this provision, New York City would gain tremendous local control to protect its affordable housing stock.

Major Capital Improvements (Bill No. A.1928)

Purpose of Bill: Expenses for major capital improvements in rental housing are currently recovered over seven years in calculating the permissible monthly rent increase. The bill provides that such MCIs shall be calculated as a rent surcharge and shall not become part of the base legal regulated rent by which rent increases are calculated. Also, this bill would prohibit rent surcharges authorized for MCIs after the cost of the improvement has been recovered.

Justification: In 1989, the Court of Appeals ruled unanimously that building owners might increase rent levels in perpetuity based on major capital improvements to their buildings. However, since the actual cost of the improvement is recovered after seven years of increased rent collection, this ruling means that tenants are forced to continue to pay for improvements long after those costs have been fully recovered, and even after they have outlived their useful life. In addition, most MCIs, such as window replacement or heating system improvements, create energy savings that further increase the profitability of MCIs. This bill seeks to balance the conflicting concerns of maintaining affordable housing and ensuring adequate incentives for investment in MCIs in order to preserve and improve our housing stock. Since the court decision permits MCIs to be collected in perpetuity, this legislation would allow landlords to recoup an amount well beyond their actual costs and to receive a reasonable return on their investment.

Tenant Harassment (Bill No. A.2002)

Purpose of Bill: This bill increases the penalties for tenant harassment by owners and for violation of an order of the Commissioner of the DHCR. The bill would also stiffen penalties for landlords who violate DHCR rent-regulated housing codes.

Summary of Provisions: Amendments increase the penalties for a violation of an order of the Commissioner to $1,000 for a first offense and to $2,000 for each subsequent offense; and increase the penalties for tenant harassment by owners to $2,000 for a first offense and up to $10,000 for each subsequent offense.

Vacancy Decontrol (Bill No. A.2005)

Purpose of Bill: Repeals vacancy decontrol laws that permit landlords to remove apartments from regulation by charging monthly rents of $2,000 or more.

Justification: Available data and several studies suggest that over 300,000 rent-stabilized apartments have been removed from regulation in New York City and the counties of Westchester, Nassau, and Rockland under vacancy decontrol. The pace at which vacancy decontrol removes affordable housing units from regulation is accelerating with each passing year.

Vacancy decontrol is an incentive for owners of rental housing to withhold services and to use forms of harassment to induce regulated tenants to vacate their rental units. In some instances, costs of renovation have been inflated or even falsified in order to drive apartment rents to the $2,000 threshold for vacancy decontrol. In other cases no renovations at all are done to vacant apartments, and such apartments are treated as deregulated regardless of the legal rent. Such abuses are made possible by the existence of the vacancy decontrol laws.