NYC's Rent Regulations for Affordable Housing

On June 14, 2019, New York State Governor Andrew Cuomo signed into law the Housing Stability and Tenant Protection Act of 2019. The new legislation makes sweeping reforms of the multifamily housing industry and puts into place new restrictions on the New York affordable housing sector.

Prior to June 14, 2019, under previous rent regulation laws, most property owners of rent-stabilized units were able to take advantage of the previous affordable housing law that allowed them to raise rents and deregulate their units. In the past, most property owners of rent-stabilized units could renovate their vacated rent-stabilized apartments to bring modern improvements to units. Most of these units have not been renovated or improved upon throughout their occupancy by the rent-stabilized tenants, which could sometimes mean for over half a century. Under the previous law, the property owners were allowed to apply for a permanent increase in rent for the renovated unit up to 6% of the amount of renovations attributed to that unit (“Major Capital Improvements”) and increase the rent by 19-20% upon tenant vacancy (“Vacancy Lease Increase”). If the new unit rent were above $2,774.76, the unit would be classified as deregulated (“Deregulation”). If the market rent did not surpass $2,774.76, the property owner would simply offer a preferential rent to a new tenant and make additional renovations to further increase the rent, or patiently wait for the market rent to catch up past $2,774.76.

The new regulations have restricted all of the above. Property owners no longer have the opportunity for Deregulation through legal market rent. Major Capital Improvement rent increases are temporary and were reduced from 6% of renovation costs to 2%, and are no longer entitled to Vacancy Lease Increases. Any preferential rent is now considered the base rent of a new tenant lease. Furthermore, any increases in rent for rent controlled units must be the lesser of i) 7.5% and ii) the average of the five most recent Rent Guidelines Board (“RGB”) for one-year renewals. Rent increases for stabilized units are determined solely by the RGB, which is currently 1.5% for one-year renewals and 2.5% for two-year renewals. Under Mayor Bill de Blasio, who appoints the RGB voting members, the rates for rent increases are expected to remain low.

In addition, the new law make condominium and cooperative conversions nearly impossible. Previously, the threshold for conversion required 15% of the units of the building or group of buildings to be in agreement with the conversion. If 15% of the tenants were not in agreement, outside investors were allowed to purchase 15% of converted units instead. The new law increased the threshold to 51%, and the 51% must agree to purchase their units.

The laws also includes several tenant protections. It bans any blacklisting of tenants, even tenants who have a history of late and/or non-payment of rent and nuisance issues. Late fees are capped at $50. Security deposits are to be returned to tenants two weeks before their vacancy, thus reducing the chances of recouping any costs related to damages or issues left behind by the tenant.

While the new legislation restricts the previous increases in rent allowed property owners of affordable housing, it did nothing to restrict the growth of expenses. Thus, rent increases will no longer offset the increase in inflation rates and the increase in the cost of business from year to year.

As a positive aspect, 421-a rent-stabilized units can come out of rent-stabilized status upon the expiration of the 421-a benefits, as long as that the proper riders were provided to the tenants by landlords upon occupancy. In addition, the State Senate also recently voted through a cleanup bill to allow for Deregulation of 421-a units, when the rent surpasses the $2,744.76 threshold. In addition, two of New York City’s largest landlord organizations, the Rent Stabilization Association and the Community Housing Improvement Program, have announced plans to launch constitutional challenges against the new rent regulation legislation by mid-July.

While the Housing Stability and Tenant Protection Act of 2019 aims to protect tenants of affordable housing in New York, it appears to do so at the expense of the property owners. However, there are measures being taken to help bring the situation around. It seems too soon to judge if the new legislation will truly spell the end of the affordable housing sector of New York.