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June 17, 2019

Stroock Special Bulletin

By: James L. Bernard, Leonard Boxer, Brian Diamond, Ross F. Moskowitz, , Karen Scanna, Joshua Sohn, Claude Szyfer

On Friday night, Gov. Andrew Cuomo signed new, permanent rent regulation legislation that will reshape the real estate market in New York City and beyond.

New York’s previous rent regulation regime took into consideration market conditions in setting rent, and included provisions that permitted owners to recoup investments made in buildings or apartments by adjusting rent upwards, sometimes to market rate. Small and large owners could afford to maintain and improve their properties under these “exceptions” to the rent regulation system.

The new legislation repeals many of the exceptions landlords depended on, including provisions related to capital improvements and high tenant incomes.

But will the rent regulations be effective, or will they lower the quality of housing and deter construction of new rental properties?

Landlords who feel blindsided by the tenor of the new rules are also asking whether the regulations are constitutional – and considering all of their legal options.

The new rules clearly mark a profound overhaul of rent regulation in New York.  Among other things, the new legislation:

  • Extends the rent regulation laws and makes them permanent;
  • Lowers the rent increase cap for major capital improvements, or MCIs, from 6% to 2% in New York City and from 15% to 2% in other counties, applies the lower cap going forward on rent increases attributable to MCIs that became effective within the last seven years, lengthens the MCI amortization period, eliminates MCI increases after 30 years, restricts what work qualifies for MCI increases, and requires 25% of all MCIs to be audited;
  • Reforms rent increases for individual apartment improvements, or IAIs, by capping the amount of IAI spending at $15,000 over a 15-year period, to be expended on no more than three IAIs during that time, and makes IAI increases temporary for 30 years rather than permanent;
  • Repeals high rent vacancy and high income deregulation;
  • Modifies the owner use exception, limiting it to a single unit, and requires that the owner or their immediate family use the unit as their primary residence;
  • Repeals the vacancy and longevity bonuses that permitted owners to raise rents when units were vacated and allowed rents to be raised higher based on the duration of the previous tenant’s rental;
  • Prohibits the Rent Guidelines Board from setting class-specific renewal increases;
  • Makes “preferential rents” landlords may have voluntarily offered to tenants below the legal regulated rent the base rent for lease renewals;
  • Sets the maximum collectible rent increases at the average of the five most recent Rent Guidelines Board for one year renewals and prohibits fuel pass along charges;
  • Extends the rent overcharge lookback period from four years to six years;
  • Limits Co-Op/Condo Conversions by removing eviction plans from future filings and requires 51% of tenants in residence to agree to purchase apartments before conversions can be effective;
  • Removes the geographical restrictions on the applicability of rent stabilization, permitting any municipality that has less than 5% vacancy to opt into rent stabilization;
  • Establishes additional notice requirements for landlords, provides additional protections to tenants including limiting security deposits to one month’s rent, creates additional hurdles in the eviction process, makes unlawful eviction a crime, and expands the authority of courts to stay evictions;
  • Keeps apartments rented by nonprofits to serve the homeless or people at risk of homelessness in the rent stabilization system;
  • Implements mobile and manufactured home tenant protections;
  • Requires an annual report from the Division of Housing and Community Renewal on rent administration and tenant protection.

The transactional and litigation lawyers in our national Real Estate Group are closely monitoring these and other regulatory developments, and we are available to address any related questions that may arise.

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For More Information:

James L. Bernard

Leonard Boxer

Brian Diamond

Ross F. Moskowitz

Jennifer S. Recine

Karen Scanna

Joshua Sohn

Claude Szyfer

This article is for general information purposes only. It is not intended as legal advice, and you should not consider it as such.

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