Take 1.25% and 2% Rent Increases for Renewal Leases

On June 27, 2017, the New York City Rent Guidelines Board (RGB) issued an order—RGBO #49—setting the rent increases you may take for rent-stabilized tenants in New York City on leases beginning anytime on or after Oct. 1, 2017, through Sept. 30, 2018. This order represents the first hike on one-year renewal leases after two years of rent freezes by the board.

According to the order, you may take a 1.25 percent increase on a one-year renewal lease and a 2 percent increase on a two-year renewal lease. The board voted seven in favor, with two opposed to the increases. The two dissenting votes were cast by board members representing rent-stabilized owners.

In determining the rent increases, the RGB considered a number of statistical reports and written and oral testimony presented by owners and tenants. Studies commissioned by the board calculated that the price of operating rent-stabilized buildings increased by 6.2 percent in 2016 and is projected to increase another 4.4 percent in 2017. The numbers were likely driven by large increases in the price of fuel, which were low in 2015, according to the board’s data.

Below, we’ll tell you how to calculate rents for renewal leases under RGBO #49. An article in the next issue will explain how RGBO #49 affects vacancy leases. This year, as a result of the Rent Act of 2015, owners will need to note changes to the luxury deregulation rent threshold. The act provides that “starting on January 1, 2016, and annually thereafter, the maximum legal regulated rent for this deregulation threshold, shall also be increased by the same percentage as the most recent one year renewal adjustment, adopted by the applicable rent guidelines board.”

This adjustment didn’t come into play last year due to the one-year renewal lease’s rent freeze. This year, however, the deregulation threshold for luxury decontrol increases to $2,733.75 effective Jan. 1, 2018.

To help you calculate the rent hike you may charge for each of your tenants when you renew a lease, we’ve included a rent increase calculation chart—Apartment Law Insider’s RGBO #49 Rent Computation Form for Renewal Leases. Remember that for renewal leases, you calculate all rent hikes based on the rents charged on Sept. 30, 2017.

Here are details of the new rent guidelines order:

Rent Increase Permitted

The RGBO applies to renewal leases for rent-stabilized apartments, beginning anytime on or after Oct. 1, 2017, through Sept. 30, 2018. You can take 1.25 percent on a one-year lease and 2 percent on a two-year lease.

If Rent Cut in Effect

How do you calculate the rent increase for a renewal lease on an apartment where a Division of Housing and Community Renewal (DHCR) order cutting the rent for reduced services was in effect on Sept. 30, 2017? Base the renewal increase under RGBO #49 on what the tenant’s rent was before the DHCR-ordered rent cut. That’s because a rent cut for a reduced service is temporary. When you fix the problem, you can apply to the DHCR to restore the rent. But don’t collect the guidelines increase until after the DHCR restores the rent.

Example: On July 1, 2017, a tenant’s monthly rent is $1,200. In August, the DHCR cuts the monthly rent by $100, to $1,100. The tenant’s lease is up for renewal on Jan. 1, 2018. To calculate the guidelines increase, multiply $1,200 (the rent the tenant was paying before the rent cut order) by the appropriate renewal increase. If you use our Rent Computation Form for Renewal Leases, you would enter $1,200—not $1,100—on line 1 (rent charged for apartment on Sept. 30, 2017). But remember: You may collect the guidelines increase only after you get a rent restoration order.

> How to fill out DHCR renewal lease offer form. In New York City, owners must give written notice of renewal by mail or personal delivery not more than 150 days and not less than 90 days before the existing lease expires on a DHCR Renewal Lease Form.

When a tenant signs the Renewal Lease Form and returns it to the owner, the owner must return the fully signed and dated copy to the tenant within 30 days. A renewal should go into effect on or after the date that it’s signed and returned to the tenant, but no earlier than the expiration date of the current lease. In general, the lease and any rent increase may not begin retroactively.

On the renewal lease offer form, fill out section 2 (which shows your calculation of the rent increase) as if no rent cut is in effect. In section 2, column b, enter the rent that you could have charged on Sept. 30, 2017, if no rent cut had been in effect. Base the rest of your section 2 calculations on the rent you entered in column b. Make sure you check the box at the top of column g, which indicates you’ll be charging the tenant a lower rent than the amount you’ve entered.

Then fill out section 5. Enter the lower rent you’ll be charging the tenant until you get a rent restoration order from the DHCR. Also, check the box that indicates that an agreement is attached to the renewal lease offer form. The agreement is the lease rider discussed in the next paragraph.

Once you get a rent restoration order, you may collect the higher rent listed in section 2, column g, of the renewal lease offer form. To head off tenant confusion and complaints, let the tenant know when and why you’ll be collecting the higher rent. You can add a rider to the renewal lease offer form you send to the tenant. Here’s a sample rider:

     Model Language

A DHCR rent reduction order is currently in effect; therefore, the tenant will be obligated to pay only the reduced rental in effect pursuant to said order until such time as the DHCR issues an order restoring the rent based upon the restoration of services or upon other grounds. Upon the issuance of said order, the tenant will become obligated to pay the increased rental reserved in this lease, effective as of the date specified in the DHCR’s order.

Editor’s Note: After the renewal offer is made, the tenant has 60 days to choose a lease term, sign the lease, and return it to the owner. If the tenant doesn’t accept the renewal lease offer within this 60-day period, the owner may refuse to renew the lease and may also proceed in court after the expiration of the current lease, to have the tenant evicted.

If Rent Overcharge Order Issued

What if the DHCR has issued an order finding that you’ve collected a rent overcharge, and that order includes a finding that the rent you charged on Sept. 30, 2017, should have been lower? You must base the increase available to you under RGBO #49 on the lower amount that the DHCR found was the legal rent you could charge on Sept. 30, 2017. If you use our Rent Computation Form for Renewal Leases, enter that lower amount on line 1 of the form.