Take 2% and 4% Rent Increases for Renewal Leases

On June 21, 2012, the New York City Rent Guidelines Board (RGB) issued an order—RGBO #44—setting the rent increases you may take for rent-stabilized tenants in New York City on leases beginning anytime on or after Oct. 1, 2012, through Sept. 30, 2013. As a result of the RGB's decisions, this year's allowable renewal increases are the lowest increases in a decade.

The increases are at the lower end of a range issued in May of 1.75 to 4 percent for a new one-year lease and 3.5 to 6.75 percent for two years. According to the order, you may take a 2 percent increase or $20, whichever is greater, on a one-year renewal lease and a 4 percent increase or $40, whichever is greater, on a two-year renewal lease.

In determining the rent increases, the RGB considers a number of statistical reports and written and oral testimony presented by owners and tenants. This year, the 2012 Price Index of Operating Costs (PIOC) for Rent-Stabilized Apartment Houses in New York City found a 2.8 percent increase in costs for the period between May 2011 and March 2012, and that fuel costs rose 1.6 percent for the same period. The most recent PIOC was 3.3 percentage points less than the PIOC percentage change from the year before (6.1 percent in 2011). However, this year's PIOC was driven upward by a significant increase in the real estate tax component of 7.5 percent. More moderate increases were seen in Contractor Services (3.2 percent), Administrative Costs (2.6 percent), Insurance Costs (2.5 percent), and Labor Costs (2.5 percent). The Parts and Supplies and Replacement Costs components, each of which carry very little weight in the PIOC, increased 3.7 percent and 3.2 percent respectively. In contrast, the Utilities component declined 4.0 percent.

The RGBO also lets owners collect a sublet allowance when they give permission to a tenant to sublet an apartment. This sublet allowance is 10 percent.

Below, we'll tell you how to calculate rents for renewal leases under RGBO #44. An article in the next issue will explain how RGBO #44 affects vacancy leases.

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 #44 Rent Computation Form for Renewal Leases. Remember that for renewal leases, you calculate all rent hikes based on the rents charged on Sept. 30, 2012.

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, 2012, through Sept. 30, 2013. You can take 2 percent or $20, whichever is greater, on a one-year lease and 4 percent or $40, whichever is greater, 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, 2012? Base the renewal increase under RGBO #44 on what the tenant's rent was before the DHCR-ordered rent cut, says attorney Karen Schwartz-Sidrane. 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, 2012, 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, 2013. 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, 2012). 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, 2012, 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, recommends Schwartz-Sidrane. Add a rider to the renewal lease offer form you send to the tenant. Here's a sample rider that Schwartz-Sidrane has drafted:

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, 2012, should have been lower? You must base the increase available to you under RGBO #44 on the lower amount that the DHCR found was the legal rent you could charge on Sept. 30, 2012. If you use our Rent Computation Form for Renewal Leases, enter that lower amount on line 1 of the form.

If Sublet During Renewal Lease

If a rent-stabilized tenant who's occupying the apartment renews his lease anytime on or after Oct. 1, 2012, through Sept. 30, 2013, and then sublets with your permission, you may collect a sublet surcharge of 10 percent of the rent. If you started collecting a sublet surcharge before Oct. 1, 2012, you can continue collecting it.