In the NYC real estate market the developers of apartment buildings, current multifamily building owners, residential tenants and prospective tenants face an uncertain future due to the Housing Act of 2019, signed June 14, 2019!
Today I had the opportunity to attend a real estate panel discussion organized and presented by AmTrust Title as part of the company’s Summit Series.
The topic of discussion could not have been more important, and the opinions of the panelists could not have been more telling in terms of:
- The potential negative impact to the New York City multifamily housing sector (and the ancillary industries around it such as banks, building employees, construction workers, etc.) from the Housing Stability and Tenant Protection Act of 2019 (Act).
- The potential and likely unintended consequences impacting tenants from the law, that politicians never seem to consider as long the majority of voters involved are initially happy. In this case the law appears on its surface to be great for tenants, and thus will please a very large block of voters. Meanwhile, a relatively small block of voters known here as the ‘evil empire of developers’ (Jeff Levine) will be extremely unhappy. However, this initial euphoria experienced by tenants may fade later as the impact of the law becomes known, but by this time the politicians responsible are either out of office, not up for election or will simply be depending on the short memories of most of their constituents,
- The potential for investment opportunity at some point in the future, as out of any period of pain for a specific asset class comes the ability for those unscathed of with ‘dry powder’, to buy on a price drop. The nature and size of any drop at this point in time is an unknown.
Michael Stoler was moderator, and panelists included Jeff Levine (Douglaston Development), David Schwartz (Slate Property Group), Eli Weiss (Joy Construction), Victor Sozio (Ariel Property Advisors), Jeffrey Goldman (Belkin Burden), Dan Harris (Oceanfirst Bank), Tony Fineman (Acore Capital) and Joseph Pistilli (Pistilli Realty Group).
In the next article I will offer the thoughts of the panelists, but first I want to share the specifics of this Act as it’s important to understand the sweeping changes that it puts into place. This summary is courtesy of REBNY:
Housing Stability and Tenant Protection Act of 2019
A.8281/S.6458 (C.36 of the Laws of 2019)
Adopted June 14, 2019
On Friday, June 14, 2019 Albany lawmakers approved, and Governor Cuomo signed, legislation entitled The Housing Stability and Tenant Protection Act of 2019. A technical correction by way of a Chapter Amendment passed the Legislature on June 20, 2019 and was signed by the Governor on June 25, 2019. This legislation will significantly change New York State’s rent laws.
In prior years, the rent regulation law was up for examination and renewal, based on whether a housing crisis still existed, every 4-8 years. Now the rules have no expiration date. Additionally, other municipalities outside of New York City and its neighboring counties of Rockland, Westchester and Nassau may also opt-in to the provisions of stabilization.
A.8433/S.6615 – Part Q (C.39 of the Laws of 2019)
Effective Date: June 14, 2019
The Chapter Amendment provides a series of technical corrections and edits to the adopted bill. The Rent Regulations sections of the bill (Part Q) are retroactive to the same date as Chapter 36 of the Laws of 2019.
SUMMARY OF CHANGES TO RENT STABILIZATION LAW
Please note, in parentheses is the relevant sub-section of A.8281/S.6458 for reference.
Changes to stabilization:
– Sunset Provision: Eliminates the sunset provision of the Emergency Tenant Protection Act (ETPA) and makes rent regulation permanent (Part A).
– Extension of the ETPA state-wide as an opt-in program by individual counties meeting the criteria of a housing emergency, as defined by a vacancy rate of less than 5% (Part G).
– High-rent vacancy and High income/high rent (luxury) deregulation are eliminated (Part D).
– “Owner use” provision limited to a single unit for a “immediate and compelling necessity” and lowers the tenure provision from 20 years to 15. Additionally, tenant is due damages and reasonable attorneys’ fee for fraudulent statements (Part I).
– Non-profit status: Units rented by non-profits for homeless must remain in stabilization (Part J).
– Overcharges – extends the overcharge look back from four to six years, allows for the examination of all available rental history, no “safe harbor” for proactively providing refunds (Part F).
– $10 fee is increased to $20 per unit to offset the cost of administering the ETPA (Part K).
– DHCR is subject to greater accountability through an annual public reporting requirement (Part L). According to the Chapter Amendment, it must promulgate its rules and regulations and have its centralized electronic retention system operational by June 14, 2020.
Changes that impact 421a/Affordable New York
– As amended by the Chapter Amendment, A.8433/S.6615, there are no changes to the 421a or Affordable New York programs’ stabilization status.
– However, those changes outlined in Part M that affect all rental units would apply, and if an owner sought a co-op or condo conversion, those changes as outlined in Part N would apply as well.
– Elimination of the vacancy allowance.
Status of De-Regulated Units prior to the 2019 Act
·The Chapter Amendment adds clarifying language that units lawfully deregulated prior to the adoption of The Housing Stability & Tenant Protection Act of 2019, Chapter 36 of the Laws of 2019 are not being re-regulated.
Changes that impact the ability to raise rents to cover expenses or improvements:
– 20% vacancy allowance and longevity bonus are eliminated (Part B) and prohibits a rent guidelines board (RGB) from instituting vacancy allowances (Part C)
– Preferential rents cannot be increased to the legal rent at renewal unless such rents are set pursuant to a regulatory agreement with a local government agency and uses project based rental assistance (HUD Funding) where the rents are set by a federal, state or local governmental agency (Part E)
– Rent controlled apartments now limit the maximum collectible rent increase to a five-year average of RGB increases and eliminates the fuel pass through (Part H)
– Individual Apartment Improvements (IAIs) are significantly curtailed along with increased oversight by DHCR (Part K):
o Improvements limited to $15,000 cap that can be expended on no more than three separate IAIs within a 15-year period.
o Licensed contractors must be used and there can be no common ownership between the landlord and the contractor or vendor.
o Increases shall be 1/168 for buildings with 35 or less units or 1/180 for buildings with more than 35 units, for a period of 30 years.
o Surcharges are eligible for increases but such increases must also be removed at the end of 30 years.
o Mandates DHCR to create a notification and documentation procedure and the electronic retention of such.
o The Chapter Amendment requires that forms for tenant consent of IAIs are provided in English and the top 6 other languages spoken in the state.
o The Chapter Amendment clarifies that new caps on rent increases for IAIs will go into effect at the next lease renewal for affected tenants.
– Major Capital Improvements (MCIs) are significantly curtailed along with increased oversight by DHCR (Part K):
o Increases shall be capped at 2% for a period of 30 years, amortized at a 12-year period for buildings with 35 or less units or 12.5 years for buildings with more than 35 units.
o For any previously granted MCIs between June 16, 2012 and June 14, 2019, increases will be capped at 2% instead of 6%. The Chapter Amendment clarifies that new caps on rent increases for MCIs will go into effect at the next lease renewal for affected tenants.
o Surcharges are eligible for increases but increases must cease at the end of 30 years.
o Licensed contractors must be used and there can be no common ownership between the landlord and the contractor or vendor.
o DHCR must set a schedule of reasonable costs for MCIS, included a ceiling for what can be recovered, and prohibits group work done in an individual unit that is otherwise not an improvement to an entire building.
o The law prohibits MCI in buildings with fewer than 35% of units that are stabilized.
o The law specifically prohibits MCIs if the landlord is receiving federal grants or insurance proceeds for the repair. However, insurance and Federal recovery aid can take multiple years to process, leaving MCIs as the bridge to recover a portion of the costs. Insurance and recovery aid often do not cover the full cost of repairs following a natural disaster.
o DHCR must inspect and audit for the review of 25% of the filed MCI applications.
o Tenants have a 60-day comment/review period.
o DHCR must provide reasons for approval or denial of a MCI application.
Changes that impact ALL rental units
Part M, entitled “Statewide Housing Security and Tenant Protection Act of 2019” enacts the following changes which would apply to all rental units, regardless of stabilization status:
– When signing a new lease:
o Limits security deposits to one month’s rent.
o Bans the use of “tenant blacklists.”
o Limits application fees.
– For lease renewals:
o Prohibits denying lease renewals or an unreasonable rent increase as a retaliatory measure when code complaints have been made.
o Aside from what the lease itself may state, if the owner intends to raise the rent above 5% or intends to not renew the tenancy, the owner must send notice. If the tenant has occupied the unit for less than one year, 30 days’ notice is required. For a tenant that occupies a unit for more than one year but less than two and has a lease of more than one year but less than two, 60 days’ notice is required. For tenants that have occupied a unit more than two years or a lease term or at least two years, 90 days’ notice is required.
o Requires written notice of late payments.
– When ending a lease:
o Provides a “cure” path on behalf of the tenant to fix any issues to secure the full or partial security deposit amount.
o Limits recoverable rents for early lease termination.
o Warranty of habitability is amended to include a duty to repair, thus extending the warranty to include a retaliatory eviction due to complaints on housing condition. A finding of retaliatory eviction carries severe penalties.
– Changes to landlord-tenant proceedings:
o For all apartments, rent stabilized or fair market, RPL 226-c requires notice of rent increase of more than 5% or a notice of non-renewal depending on the term of the lease and RPL 232-a requires this notice to be served by a process server service, not mail.
o For all apartments, under RPL 232-e, a Landlord has a duty to mitigate damages.
o For all apartments, RPL 238-a limits fees that can be sought in a summary proceeding except if provided by regulation or statute.
o For all apartments, RPAPL 702 definition of Rent.
o Rent demands are now 14 days, not 3.
o RPAPL 745: Where you used to be able to seek use and occupancy in court as of the date the (notice of petition and petition) NPP was served, after Tenant adjournment of more than 30 days and get dismissal of defenses and counterclaims if not paid, now it is 60 days, a Tenant request to seek counsel does not count, the order to pay is only as of the date of the order not back to when NPP served and it must now be on written notice and if not paid pursuant to the court order, remedy is not dismissal of defenses and counterclaims, but a trial subject to Court’s scheduling. No Court order if Tenant can make a colorable claim of overcharge or hazardous or immediately hazardous conditions.
o RPAPL 749: Marshall notice now 14 not 3 days. Eliminated that issuance of warrant cancels lease [impacts bankruptcy], Court now has power at any time to stay, vacate or restore. Now Tenant in a nonpayment proceeding can pay anytime before execution of warrant. Before it used to be 5 days.
o RPAPL 753: Instead of court having discretion to give only up to 6-month stay if pay use and occupancy, it is now one year and where it applied only to tenants, it now applies to occupants. Factors to consider include extreme hardship for the Tenant. Changes the time to cure defaults after trial from 10 to 30 days.
Co-Op/Condo Conversions (Part N).
– Removes eviction plans from future filings;
– Prohibits unreasonable increases for eligible seniors or disabled tenants who are unable to purchase their units.
– Conversion rate increased to purchase of 51% of all apartments solely by tenants in occupancy.
– Exclusive right to purchase for 90 days with a six-month extension.
Mobile & Manufactured Home (MMH) tenant protections, including provisions around rent-to-own contracts, rent increases, a bill of rights, and changes in use to the underlying land are covered in Part O.
Mike Haltman, CEO
Hallmark Abstract Service
(646) 741-6101, email@example.com