Changes to NYC Rent Laws for 2019
A number of new rent laws and regulations recently took effect in NYC following the passage of the Housing Stability and Tenant Protection Act of 2019 by the New York State Legislature. Changes were made to rent stabilization laws, real property law as well as the procedure of housing court.
While most of the changes affect rent-stabilized units, some of the new regulation affects market-rate (unstabilized) units including individual condo and co-op apartments.
Changes to Deregulation of Rent Stabilized Units
The vast majority of the deregulation pathways for rent stabilized units have been eliminated under the Housing Stability and Tenant Protection Act of 2019. Deregulation is essentially a thing of the past, with the exception of rent stabilized units in buildings with 421a tax benefits. Stabilized units in 421a buildings can still high rent vacancy deregulate over time under the new legislation.
There are approximately one million rent stabilized rental units in New York City which are affected by the 2019 legislation. Rent stabilized units in NYC consist of all apartments built before 1974 (and after 1947) with the exception of those deregulated before the new law. There are also rent stabilized units in buildings constructed after 1974 which received tax benefits under the 421a and J-51 tax abatement programs. The new legislation does not re-regulate any apartments which were previously removed from the rent-stabilization program.
Prior to the 2019 legislation, it was possible to ‘deregulate’ a stabilized apartment over time through a High-Rent Vacancy Deregulation or a High-Rent High Income-Deregulation.
In announcing the legislation, lawmakers cited an affordability crisis and claimed that more than 300,000 rent-stabilized apartments were removed from the rent regulation program and converted to market-rate units in NYC and surrounding counties since vacancy decontrol was enacted in 1994.
Under a High-Rent Vacancy Deregulation, a vacant unit could be deregulated if a tenant moved into a vacant apartment and the legal rent rose above the Deregulation Threshold. This threshold was most recently $2,774.76 for 2019 in NYC. Deregulation under this method would still apply if the new tenant paid a rent amount which was below the Deregulation Rent Threshold (DRT), as long as the legal rent was above the threshold.
It was also possible to deregulate an occupied unit if rent was above the Deregulation Rent Threshold (DRT) and the total household annual federal adjusted gross incomes were in excess of the Deregulation Income Threshold (DRT) of $200,000 for each of the two preceding calendar years. This was known as a High-Rent High Income-Deregulation.
Pro Tip: Estimate your buyer closing costs in NYC with Hauseit’s interactive closing cost calculator.
Changes to Rent Increases for Rent Stabilized Units
Pathways for rent increases on rent stabilized apartments have also been significantly curtailed under the Housing Stability and Tenant Protection Act of 2019. Previously there were four (4) ways to legally adjust rents on rent stabilized units prior to the legislation, including the ability to raise rents up to 20% upon a vacancy using the ‘statutory vacancy bonus’. Under the 2019 legislation, the only way to adjust rents going forward is based on capital improvement work done to stabilized units (IAI) and buildings (MCI).
Furthermore, a landlord’s ability to raise the rent based on an Individual Apartment Improvement (“IAI”) has been drastically scaled back under the new legislation. Prior to the 2019 legislation, apartment improvements used to permit a rent increase of 1/40th in buildings with 35 apartments or less and 1/60th in buildings with more than 35 apartments. This has been reduced to 1/168th and 1/180th under the Housing Stability and Tenant Protection Act of 2019. In addition, the amount of work which can qualify under an IAI is now capped at total of $15k for three (3) improvements in any 15 year time period.
The ability to raise rents through a building-wide Major Capital Improvement (MCI) has also been curtailed under the Housing Stability and Tenant Protection Act of 2019. Prior to the 2019 legislation, building-wide improvements used to permit a rent increase of 1/96th for buildings with 35 or fewer apartments and 1/108th for buildings with more than 35 apartments. This has been changed to 1/144th and 1/150th under the new legislation.
In addition, the new law limits eligibility for MCI work to essential building functions and other improvements such as windows, roofing, plumbing and heating. The cost of such improvements will also be regulated according to a schedule of reasonable costs set forth by the Division of Housing & Community Renewal (DHCR). Buildings with less than 35% regulated tenants are also ineligible for MCI rent increases under the 2019 legislation.
Furthermore, all rent-increases from IAIs (Individual Apartment Improvements) and MCIs (Major Capital Improvements) expire in 30 years under the new legislation. Previously, such increases were permanent.
The 2019 Legislation has also curtailed a landlord’s ability to start charging the legal rent upon a lease renewal if the tenant was previously receiving a preferential rent. Preferential rent is a rent lower than the legal rent on a rent stabilized unit. Previously upon lease renewal the preferential rent could be fully or partially eliminated. Under the new legislation, all future renewals are based on preferential rent plus whatever rent increases are permitted by the NYC Rent Guidelines Board.
Pro Tip: Estimate your seller closing costs in NYC with Hauseit’s interactive closing cost calculator for sellers.
Changes to Rent Overcharge Laws for Stabilized Units
Rent overcharge rules have been drastically altered in tenants favor as a result of the Housing Stability and Tenant Protection Act of 2019. The 2019 legislation has expanded the statute of limitations for recovery of a rent overcharge to six (6) years from four (4). Prior to the legislation, there was a 4 year statute of limitations for a rent overcharge complaint.
Consequentially, it was previously permitted for landlords to dispose of rent records older than 4 years. The courts carved out some limited exceptions to this statute of limitations, such as if a tenant could show that the landlord had fraudulently increased rent. Based on the 2019 legislation as written, there is currently no limitation on the look-back period despite the fact that landlords were previously told that they could dispose of records more than 4 years old.
The Housing Stability and Tenant Protection Act of 2019 also increased a landlord’s exposure to treble damages for a rent overcharge to six (6) years from two (2). The legislation also removed the ability for owners to avoid treble damages if they voluntarily return the amount of the rent overcharge prior to a decision being made by a court or the Department of Housing and Community Renewal (DHCR).
Pro Tip: Thinking of buying a rental property? Estimate your rental property returns using Hauseit’s interactive rental property calculator.
Changes to the Owner Use Exception for Rent Regulated Housing
The Housing Stability and Tenant Protection Act of 2019 limits the “owner use” provision to the use of a single unit of rent regulated housing stock by the owner or their immediate family as their primary residence. Furthermore, the landlord must demonstrate an “immediate and compelling” necessity instead of the less restrictive “good faith” standard employed prior to the 2019 legislation.
The new legislation also restricts eligibility of the owner use exception if the tenant is over 62 years of age, is disabled or has occupied the apartment for at least 15 years. In addition, the 2019 legislation Provides tenants with cause of action if they are evicted because the landlord makes a fraudulent claim about the intended use of the unit.
Under the new legislation, combining or splitting apartments to obtain a ‘first rent’ is still possible. In addition, a ‘substantial building rehabilitation’ will still take it out of stabilization under the new law. A landlord may still ask for permission to demolish, and the outer walls don’t have to come down. Being able to ‘see the sky from the basement’ under a permission to demolish will remove the building from stabilization.
Pro Tip: Calculate your seller flip tax in NYC with Hauseit’s interactive co-op flip tax calculator.
Changes to the Real Property Law for All Apartments in NYC
A number of changes were made to the real property which apply to both regulated and unregulated apartments in NYC. Changes were made to the retaliatory eviction provision, notice requirements for non-renewal and rent increases above 5%, tenant screening blacklists, apartment re-letting, rent receipts, security deposits and application fees.
The retaliatory eviction provision for all apartments in NYC (regulated and unregulated) was strengthened as part of the Housing Stability and Tenant Protection Act of 2019. The new legislation prohibits retaliatory eviction by a landlord against a tenant who makes a good faith complaint to them alleging a violation of the warranty of habitability.
In addition, the timeframe for which the landlord has to prove that an eviction is not retaliation was increased to one year from within six months of the tenant making a good faith complaint under the previous legislation.
The new law broadens the scope to include complaints made by tenants directly to landlords, whereas under previous legislation the complaints had to be made to government authorities. In addition, the 2019 legislation adds a legal fees provision for successful action by a tenant.
Notice Requirements for Non-Renewal and Large Rent Increases
The Housing Stability and Tenant Protection Act of 2019 increases the notice requirements for a non-renewal of a lease or a rent increase greater than 5% to 30 days notice for leases under a year, 60 days for leases between one and two years and 90 days for leases of 2 years or more. Prior the legislation, landlords of unregulated units did not have to send out any notice of non-renewal.
Duty to Mitigate Damages for Re-Letting
The Housing Stability and Tenant Protection Act of 2019 requires landlords of both regulated and unrelated units to make a reasonable, good faith attempt at re-letting a unit if a tenant vacates before their lease expires. Landlords must re-rent at the lesser of previous rent or market rent, and the existing tenant is off the hook for damages once a new lease is signed.
If the market rent falls after a lease is signed, the current tenant is only responsible for the lower, market rent as opposed to the monthly rent agreed to in the lease.
Restrictions on Usage of Housing Court Records to Screen Tenants
Under the new legislation, a landlord may not consult housing court records as part of the screening process for a prospective tenant. Accessing court records or tenant blacklists will automatically create a rebuttable presumption that the landlord has violated this statute. While this statute is enforceable by the New York Attorney General, it remains to be seen whether it’s also enforceable by individual tenants.
While a bad credit score is still legitimate grounds for rejecting a tenant under the new legislation, the utilization of a credit report that includes prior housing court litigation records will still run afoul of this new provision.
Limitations on Security Deposits for All Apartments
The Housing Stability and Tenant Protection Act of 2019 mandates a maximum security deposit for both regulated and unregulated units of no more than one (1) month of rent. The maximum amount which may be collected upon the commencement of a lease is one month rent and one month security deposit. Collecting more than one month of prepaid rent would subject a landlord to treble damages by way of a rent overcharge complaint under the new legislation. Furthermore, security deposits must now be returned to the tenant within 14 days of moving out.
Under the new law, a landlord must offer to accompany the tenant to a walkthrough inspection of the apartment upon initial lease signing. The landlord must provide a written agreement which specifies any defects or damages discovered during the inspection.
In addition, tenants have the right to request an inspection prior to move-out and receive an itemized statement from landlord specifying any repairs or cleaning which may warrant any reduction in a tenant’s security deposit. Tenants now have the opportunity to cure any defects discovered during the inspection prior to the expiration of the lease.
Limitations on Application and Late Fees
Under the new legislation, a tenant may only be charged the minimum of $20 or the actual cost of a credit report (whichever is lower). Landlords must also furnish a copy of any credit report obtained to the prospective tenant(s). The legislation as it stands is somewhat vague as it relates to multiple tenants under one lease. Currently it’s unclear whether the maximum would be $20 total under this scenario, or $20 per individual tenant under the lease.
The new legislation also caps late fees for both regulated and unregulated units to the lesser of $50 or 5% of rent. A minimum of 5 days must be offered as a grace period before any late fee can be assessed. The new legislation also prohibits the payment of outstanding late fees as a predicate to a non-payment court proceeding.
Pro Tip: Calculate your seller transfer tax in NYC with Hauseit’s interactive Transfer Tax Calculator for NYC.
Changes to Housing Court Procedures
The Housing Stability and Tenant Protection Act of 2019 significantly expands the procedure for handling non-payment of rent. Specifically, the landlord must first must give a 5 day notice to the tenant by certified mail that the tenant’s rent has not been received. The landlord must retain the receipt, and if no receipt is retained it may be used as a defense of non-payment in order to dismiss a non-payment case against a tenant. Furthermore, the tenant must also receive a fourteen (14) day demand for rent in addition to the aforementioned 5 day notice.
Any demands for rent and subsequent non-payment summary judgement may only be in the amount of the rent and cannot include any other charges such as late fees. In addition, the amount of time a tenant has to answer a non-payment petition has increased to ten (10) days from five (5). Furthermore, landlord’s counsel is now required to submit a written motion to request continued rent payment during proceeding. Prior to the 2019 legislation, an oral motion for continued rent payment was permitted.
The 2019 legislation also permits tenants to bring forth orders to show cause and seek further stays of courts determination after trial. Previously, a trial was the final determination in a non-payment proceeding.
In addition, the new legislation has created a new criminal offense of wrongful eviction. Landlords who illegally evict a tenant or harass a tenant out of dwelling unit are subject to prosecution for a Class A Misdemeanor and a fine between $1,000 and $10,000.
The Uncertainties of Recent Changes to NY Rent Laws
The largest unknown effect of the 2019 Amendments to the NY Rent Laws will be the impact it has on the valuations of older rental buildings which have rent stabilized apartments. Prior to the legislative changes, there were a number of ways an owner or prospective purchaser could raise rents and remove units from rent-stabilization. This ability to increase the Net Operating Income (NOI) over time was priced into the valuations of buildings being sold in NYC.
Because the new legislation severely curtails the ability to raise rents and remove units from the stabilization program, the assumption is that the NOI for buildings with rent-stabilized units may actually decline over time. Furthermore, the valuation ‘multiples’ may decline over time to reflect the increased risk associated with owning a building in NYC with rent-stabilized units. Consequently, it’s possible that the 2019 legislation could severely depress the valuations of multifamily buildings in New York City.
The new legislation has also created uncertainty when it comes to the legality of brokers collecting a reasonable application fee in connection with rental applications. The legislation as currently written does not specifically mention real estate brokers, as it only states that landlords can no longer collect fees to cover the “processing, review or acceptance of an application.” Therefore, it’s unclear whether brokers (who are acting on behalf of landlords) are also bound by the new rules.
The recent legislation is also unclear when it comes to the legality of charging co-op board application fees as well as the legality of co-op board approvalwhich is conditional upon a purchaser or renter placing money in escrow.
Read the Full Article: https://www.hauseit.com/nyc-rent-laws-regulations-changes-2019/
Disclosure: Hauseit (https://www.hauseit.com) and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. The services marketed on Hauseit.com are provided by licensed real estate brokers and other third party professional service providers. Hauseit LLC is not a licensed real estate broker nor a member of any multiple listing service (MLS).