State Legislators Extend City's Rent Laws, Expand Tenant Protections

On June 24, 2011, New York State legislators passed new rent regulations codified in Chapter 97 of the Laws of 2011 (S-5856). Amid a push by Assembly Democrats and Gov. Andrew Cuomo to expand the law, the new laws call for a four-year extension of the existing regulations as well as changes that make it more difficult for owners to deregulate the city's one-million rent-stabilized apartments.

Increased Rent Ceiling, Income Requirement

Under the prior rules, rent increases were limited and owners generally could only deregulate rent-stabilized apartments through one of two methods: when an apartment becomes vacant and its rent passes $2,000 a month, or when a family's income passes $175,000 a year when its rent is at least $2,000 a month. Now, the $2,000 threshold for both vacancy and income deregulation is increased to $2,500 a month, while the minimum family income is increased to $200,000 a year.

In modifying these “luxury decontrol” thresholds, legislators pointed out that in the 17 years since the luxury decontrol system was put in place, the basic rents for rent-stabilized apartments have increased each year by the annual adjustment factors approved by the appropriate Rent Guidelines Board. However, while rents have steadily increased, the deregulation threshold has not changed. As a result, more and more units were being decontrolled.

Modifications to Individual Apartment Improvements Increases

Perhaps more significantly, the amount an owner must invest in individual apartment improvements to deregulate vacant apartments increased. For years, owners have been deregulating apartments by renovating them as soon as the tenants moved out, allowing them to significantly raise rents to free-market rates. This substantive change to allowable rent increases for individual apartment improvements is the first modification of this increase since the inception of rent stabilization in New York City over 40 years ago. Because of this new legislation, the DHCR estimates that 543,000 units, or 62 percent of all rent-stabilized housing accommodations, will now be subject to lower increases for individual apartment improvements.

Before the new law, owners were allowed to increase rents by 1/40th of the value of the improvements they make to an empty apartment. For example, an owner who spends $20,000 installing a new kitchen could raise the rent by $500 before the next tenant moved in. And if the increase raised the total above $2,000, that apartment would have been removed from rent stabilization.

Now, effective Sept. 24, 2011, owners are allowed to pass only 1/60th of the cost of the improvements onto incoming tenants in larger buildings. Smaller buildings with 35 or fewer apartments remain subject to the old 1/40th rule.

Limit to the Number of Vacancy Increases

The new legislation also stipulates that there be a limit of one vacancy increase per apartment per year. The legislators noted that this limitation is consistent with assuring fair compensation for owners under the Rent Stabilization Law without overcompensating owners for unexpected multiple vacancies to an apartment in a given year. The legislators felt that the former rent regulatory system had not contemplated this situation.

Tax Breaks, Dismissed Measures

Both owners and advocates of greater tenant protections had been pushing for far more. The Real Estate Board of New York had made efforts to get three additional owner-friendly measures approved. But only one of those, a four-year extension of the 421-a tax break for residential development was included in the new law, while the other two measures were set aside.

Those other two initiatives were a tax cap on some rental buildings and a reversal of Roberts v. Tishman Speyer Properties, which ruled that it was improper for owners to deregulate rent-stabilized apartments and charge market-rate rents while at the same time continuing to receive J-51 tax abatements.

Sidebar

New Rent Regulations: Chapter 97 of the Laws of 2011

The following summarizes the provisions of Chapter 97 of the Laws of 2011 (S-5856):

• Extender Period—the rent laws are extended for four years to June 15, 2015.

• Luxury Decontrol (High Rent)—The program is continued, but the rent threshold is set at $2,500. Previously deregulated units are not re-regulated. This new threshold is applicable from the effective date of the new act forward.

• Luxury Decontrol (High Income)—The program is continued, but the rent threshold is set at $2,500 and the income threshold is set at $200,000 instead of $175,000. This change takes effect on July 1, 2011. The $200,000 threshold must have been met in each of the two preceding calendar years.

• Major Capital Improvements—No changes are made to MCIs.

• Individual Apartment Improvements (IAIs)—For buildings with 35 or fewer units, IAIs remain at 1/40th. For buildings with 36 or more units, IAIs become 1/60th, effective Sept. 24, 2011. The requirement for pre-filing or certification of IAIs that was most recently reported in the press is not in the final law. For rent-controlled apartments, the prior statutory requirement of written notice to the DHCR remains undisturbed.

  Note that the effective date is introduced by the phrase “where such adjustment takes effect.” The phrase is not further defined and leaves open to question when an owner can begin charging an IAI. Presumably, it is no sooner than the date of completion of the work.

• Preferential Rent—No changes are made to preferential rents. Accordingly, owners may still increase a preferential rent up to the amount of the legal regulated rent on lease renewals rather than at the end of the tenancy.

• Vacancy Allowance—This remains at 20 percent, but it can be used only once during any calendar year.

• Roberts Decision Relief—This refers to legislation that would respond to the uncertainties created by the Court of Appeals decision in the Roberts matter. Chapter 97 does not address Roberts.

Please note that items in the law are subject to administrative determinations and court challenges, and their meanings and effect can be altered.