The unparalleled state Senate and Assembly’s “Housing Stability and Tenant Protection Act” marks the onset of sweeping changes to New York City’s residential rental market. While the agreement concludes months of speculation, the deal – affecting nearly a million housing units and 2.4 million people in New York City – unleashes a Pandora’s Box of concerns, opportunities and questions for landlords and owners.
This article highlights the significant changes created under the 2019 legislation, with a look ahead to help you adapt to further outcomes.
Condo and Co-Op Conversion
Previously, as a landlord you could convert your property from a rental to a condominium or co-op if you sold 15% of the total units of your property to buyers who intended to occupy the apartment as their primary residence. Under the new deal, 51% of a building’s tenants must purchase their units before a conversion.
This provision, which gives tenants more control in the process, was created in an effort to shelter tenants from being coerced into vacating their rent-regulated buildings if they declined to purchase their apartments. However, a byproduct of this ruling—among others—may have an adverse effect on incentivizing landlords to renovate outdated housing units, which is an important thread of New York City’s development fabric.
New Tenant Provisions
The Democrat-controlled state senate and assembly, along with tenant advocacy groups, celebrate the new law, citing certain tenant-centric provisions that make illegal the following:
- forcibly evicting or locking a tenant out of their home;
- failing to notify a tenant if their lease won't be renewed; or
- increasing rent by 5% or more without notifying the tenant.
Further, tenants now have the benefit of additional time to obtain a lawyer or fix lease violations, in effect delaying eviction. In some instances, a judge has the ability to postpone an eviction for up to a year if the tenant is unable to relocate to comparable housing in the same neighborhood. Beyond these changes created under the deal, several provisions may have a direct impact on you and your real estate business.
Four Significant Changes You Need to Know
- Limit on MCI Rent Increases: The Major Capital Improvements (MCI) provision allowed landlords to invest in improvements to building-wide systems and consequently increase rent to tenants who would benefit from these enhancements. While formerly a NYC landlord could permanently increase a tenant’s rents up to 6% annually, the new law curbs the increase to 2% across New York State—effective for 30 years. What now qualifies as an MCI is under greater scrutiny.
A significant concern following the release of this new deal is that it could negatively impact the environment and tenants’ quality of life if landlords and owners cannot fund necessary capital improvements. Such vital enhancements include installing new windows and more efficient HVAC systems. Without the ability to recoup some of the improvement costs, landlords and owners may stop making these much-needed changes.
- Caps on IAIs: The Individual Apartment Improvements (IAI) provision allowed landlords to improve units and equipment and increase rents to the tenants who would benefit from the IAI. The increases to the monthly legal rent were for 1/40 to 1/60 of the IAI costs. Now, IAIs are limited to a total of $15,000 in costs incurred over a 15-year period and the related rent increases expire after 30 years. Such rent increases were previously permanent and there was no cap on expenditures.
- Destabilization: Previously, certain units could be removed from stabilization when rent exceeded $2,775 as of January 1, 2019, upon vacancy, and/or when a tenant’s income surpassed a specified threshold. However, because these changes triggered the deregulation of nearly a half million units, this is no longer permissible. It’s important to note that this change could curb a landlord’s ability to increase revenues to offset unforeseeable future increases in operating costs.
- Elimination of Vacancy and Longevity Bonus: The vacancy bonus enabled landlords to align more evenly with the current market by allowing increases up to 20% if the last vacancy was four or more years prior. The longevity bonus enabled rent increases by additional amounts related to the length of time of the previous tenant’s occupancy of the unit. There is a possibility that landlords may become reluctant to invest in rent-regulated buildings due to the repeal of this provision.
What's Next on the Horizon
While the sound of tenants breathing a sigh of relief may be heard across New York City, provisions made to protect tenants under the new deal may lead to unexpected and far-reaching challenges. This includes a potential adverse impact on government revenue, because if values go down so do property taxes.
Please contact Fred Berk at email@example.com or 212.842.7530 with any questions you have, or reach out to a Friedman professional for advisory services.