On June 14, 2019, Governor Andrew Cuomo signed off on the “Housing Stability and Tenant Protection Act of 2019” (TPA) (see Senate Bill 6458), a package of rent laws which represent a monumental change from the laws that have governed landlord-tenant relations in New York City for decades. These laws bolster residential tenant protections for any apartments which are government by the rent guidelines. This law is a directly attributed to increasing rental prices in New York State and the rights of all tenants to be able to have affordable rent. The only problem is that the law overreaches its objective abd disincentivizes investment in new development and redevelopment of residential rental buildings. This will ultimately decrease available options for tenants and it severely harms landlords.
The Tenant Protection Act
The changes to longstanding law brought about by this new package of laws are far-reaching. Some of the more notable changes include:
Codification of Rent Stabilization and Rent Control Laws.
The Act permanently codified Rent Stabilization and Rent Control regulations in New York City, and the Emergency Tenant Protection Act in Nassau, Rockland and Westchester Counties. The effect is that the Rent Guidelines Board of individual counties shall no longer enact adjustments in the legal regulated rent for vacancy leases, and now landlords are bound by the last stated rent of an apartment.
Deregulation of Unit No Longer and Option
High-rent vacancy deregulation, a provision within the Rent Stabilization and Rent Control laws, which allowed landlords to deregulate a unit in the event it became vacant and the legal regulated rent (for rent stabilized units) or the maximum rent (for rent-controlled units) was at or above the deregulation threshold when rented to a new tenant, has been repealed. High-income deregulation, which permitted a landlord to deregulate a unit, or remove the unit from all rent regulations in the event a rent-stabilized tenant earned over $200,000 per annum for two consecutive years, has likewise been repealed.
These changes in the law are detrimental to a landlord and his ability to recoup a fair return on his investment and lead to apartments not being rented once they are vacated.
Caps on Rent Increases. Individual Apartment Improvements (IAIs), which permitted property owners to increase rents based on improvements made to individual apartments, are now capped at $15,000 every 15 years, and expire after 30 years. (See NYC Admin. Code 26-511(13). Major Capital Improvements (MCIs), which permitted property owners to increase rents based on the costs of building improvements, are now capped at 2%. (See NYC Admin. Code 26-405.1). The practice of charging a tenant a “preferential rent,” a rent amount charged to a rent stabilized tenant that was lower than the legal registered rent, is no longer permitted. Under the TPA, the rent currently charged to a rent stabilized tenant, even if less than the legal registered rent, becomes the base rent off which a landlord may implement increases going forward. (See NYC Admin. Code 26-511(14).) These changes in the law make a landlord’s ability to rehabilitate its housing stock virtually impossible since the investment is not proportionate to the return that he could get from a new tenant’s rent. As such the housing stock will continue to deteriorate since its not worth for a landlord to upgrade any vacant apartments once they are vacated.
Condominium and Cooperative Conversions Are More Difficult to Accomplish
Landlords who wish to convert rent-stabilized buildings to condominium or cooperative ownership must now obtain agreements to purchase from 51% of the bona fide tenants in occupancy of all units, up from 15%. (See GOL352-eeee.)
Security Deposit and Other Leasing Procedures Modified. With respect to all units (both regulated and market rate), at lease commencement, security deposits have been capped at one month’s rent (see GOL 7-108(1-a), application fees for apartments have been capped at $20, inclusive of background check fees (see RPL 238-a). In addition a landlord’s blacklist have been banned, so a landlord cannot refuse leases to tenant who have been sued in housing court. and landlord “blacklists” have been banned, meaning landlords will no longer be able to refuse leases to tenants who have been sued in housing court (see RPL 227-f). Landlords must give at least 30 days’ notice to tenants if they intend to raise rents by more than 5%, with the notice requirements increasing based on a tenant’s time in occupancy. (See RPL 226-c.) Late fees are now capped at lesser of $50 or 5% of the monthly rent, and may only be charged after payment of rent is late by 5 or more days. Id. In the event a tenant vacates an apartment in violation of the terms of the lease, including prior to lease expiration, landlord is required to mitigate its damages by re-letting the apartment. (See RPL 227-e.)
Predicate Notice and Summary Eviction Proceeding Procedures Modified. If rent is not received within five days of the date specified in the lease to receive payment, landlords are required to send a notice via certified mail to the tenant demanding payment. Failure to send such notice may be used as an affirmative defense in a nonpayment summary proceeding. (See RPL 235-e.) Statutory rent demands must be written and must provide tenants with fourteen days to make payment (up from three days). (See RPL 711(2).) In the event a landlord commences a summary proceeding, tenants will now have ten days to answer a petition (up from five days previously). (See RPL 732(1).) Where such proceeding is based upon a claim that the tenant has breached a provision of the lease, the court may grant a thirty-day stay of issuance of the warrant (up from ten days), during which time the tenant may cure its default. (See RPAPL 753(4).) If a tenant has been evicted, judges may stay execution of a warrant for up to one year (from six months) if the tenant is unable to find alternate housing close-by. (See RPAPL 732(2).) In determining whether to grant a stay, judges must consider how an eviction will affect a tenant’s well-being, including the school enrollment of the tenant’s children.
Effects on Landlords and Tenants
The Act poses potentially negative consequences for both landlords and tenants. These laws substantially impact the value of regulated buildings decreasing their value and making them a less attractive to investors. This will decrease the attractiveness of them as investments and will decrease the housing stock in New York City. Additionally, market rate apartments will increase in costs.
Landlords may also be less likely to invest in rent-regulated buildings due to the repeal of high-vacancy deregulation and caps on both MCI’s and IAI’s, causing buildings to fall into disrepair. Moreover, smaller landlords, unable to absorb escalating building costs without the ability to raise rents, may be forced out of business.
As for the city of New York, due to a lack of financial motivation, the TPA may ultimately discourage developers from investing in new residential buildings. This will also deteriorate neighborhoods and increase the housing shortage in New York City.
What Happens Next?
Several prominent real estate groups are already preparing to challenge the Act on the grounds that it violates building owners’ constitutional right against an unlawful taking of property, and litigation concerning the act will certainly be on going for many years. In the meantime, since the act was promulgated, building owners are likely to focus their efforts on the acquisition of rental properties not subject to rent regulation. Although more difficult to achieve under the new law given the new increased approval threshold, building owners may be persuaded to consider converting current rental buildings to cooperative or condominium ownership whereby owners can offer apartments to 51% of the current tenants for a premium, renovate the remaining apartments and selling them for a profit.