Take 1.5% and 2.5% Rent Increases for Renewal Leases

On June 25, 2019, the New York City Rent Guidelines Board (RGB) issued an order—RGBO #51—setting the rent increases you may take for rent-stabilized tenants in New York City on leases beginning anytime on or after Oct. 1, 2019, through Sept. 30, 2012. The board is mandated to establish fair rents for property owners and tenants. And the mayor appoints members to the board. The board is made up of two tenant representatives, two landlord representatives, and five members of the public with experience in housing or economics. In determining the increases, board members consider detailed reports that outline the condition of the housing stock, the rent tenants are already paying, and landlords’ operating costs.

This order’s permitted increases are the same as last year’s increases. According to the order, you may take a 1.5 percent increase on a one-year renewal lease and a 2.5 percent increase on a two-year renewal lease. The board voted five in favor with four opposed to the increases.

Owners had argued for increases at the high end of the range considered by the board. With the enactment of the Housing Stability and Tenant Protection Act of 2019, provisions owners had relied upon to raise rents beyond ceilings that are approved by the Rent Guidelines Board were taken away. Before the law change, landlords could, for example, increase rents by up to 20 percent when a unit became vacant. And lawmakers terminated another provision that allowed owners to deregulate rent-stabilized unit when rents passed a certain threshold.

With those provisions gone, owners now have significantly fewer ways to raise rents, making the rent increases approved annually by the city all the more important.

Below, we’ll tell you how to calculate rents for renewal leases under RGBO #51. 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 #51 Rent Computation Form for Renewal Leases. Remember that for renewal leases, you calculate all rent hikes based on the rents charged on Sept. 30, 2019.

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, 2019, through Sept. 30, 2019. You can take 1.5 percent on a one-year lease and 2.5 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, 2019? Base the renewal increase under RGBO #51 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, 2019, 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, 2020. 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, 2019). 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, 2019, 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, 2019, should have been lower? You must base the increase available to you under RGBO #51 on the lower amount that the DHCR found was the legal rent you could charge on Sept. 30, 2019. If you use our Rent Computation Form for Renewal Leases, enter that lower amount on line 1 of the form.

Major Capital Improvements and Base Rent

Major capital improvements (MCIs) are upgrades that “directly or indirectly benefit all tenants” in a building, and meet a few other criteria. Based on a formula that considers the number of units in the building, the number of rooms per unit, as well as the percentage of residential space, owners can pass the costs of an MCI on to tenants but are subject to a cap on annual rent increases.

MCI rent increases previously were permanent and added to an apartment’s base rent. Going forward, as a result of the Housing Stability and Tenant Protection Act of 2019, MCI rent increases are now temporary and, presumably, cannot be added to the base rent. Temporary MCI increases can be collected for 30 years and must then be discontinued.

Under the old rules, the annual cap was 6 percent. Currently, the cap has been reduced to 2 percent. In addition, for any renewal lease commencing on or after June 14, 2019, the collection of any MCI rent increase approved by the DHCR between June 16, 2012, and before June 16, 2019, shall not exceed 2 percent in any year for any tenant in occupancy on the date the MCI was approved.

Preferential Rents and Lease Renewals

According to some estimates, approximately 30 percent of all stabilized apartments charge preferential rents. A preferential rent is a rent which an owner agrees to charge that is lower than the legal regulated rent that the owner could lawfully collect. Since 2003, the law allowed owners who charged preferential rents to increase rents upon renewal by any amount up to the legal regulated rent.

Now, with the new law, the preferential rent granted in a rent-stabilized tenant’s lease rider or provision must become the base rent upon lease renewal for that tenant, subject to applicable RGB renewal increases.

However, upon vacancy, owners are allowed to return to the previously established legal regulated rent provided that the vacancy wasn’t caused by the owner’s failure to maintain the unit in compliance with the warranty of habitability.