New York City Rent Stabilization Law – It Offers Both Risks And Rewards!

By | January 20, 2019

apartment building photo

Hallmark Abstract Service was extremely fortunate to enlist the help of Craig M. Notte, a Partner at Borah, Goldstein, Altschuler, Nahins & Goidel, who has provided his insights and ultimately an article on the complicated and often difficult to play-in world of New York City rent stabilization law.

When operating properly, the laws surrounding this segment of apartment rents can provide an opportunity for a landlord to legally raise the monthly price for an apartment. However, when rent stabilization laws are abused, or when a tenant believes they are being abused and files a lawsuit, there are serious potential risks facing the building owner.

The article below is a fascinating look at the issue of New York City rent stabilization law, and we would highly recommend it as an important read for any landlord or potential tenant who is involved in the multifamily or rental space, or who may be in the future.

Potential plaintiffs or defendants that is!

How One Court Of Appeals Decision On Rent Stabilization Can Change The Course Of A Litigation by Craig Notte

To the uninitiated, rent stabilization can seem obtuse, at best. Why is rent stabilization so complicated, and why is the law still evolving, unlike most real property jurisprudence that is relatively established? (Can the law of adverse possession really change that much going forward?)

Very simply, rent stabilization evolves as New York City’s housing policies shift, and housing policies shift with market forces, demographic upheavals, and the accompanying political maneuvers. The rules keep changing, while the courts continue to interpret and reinterpret the rules. For landlords large and small, there’s a lot to keep up with.

As such, I get curious about the fanfare around new appellate court decisions about rent stabilization. Could this obscure fact pattern ever come up again in this lifetime? Will the decision be rendered obsolete by the next round of statutory amendments and the decisions that follow?

I was skeptical when the Court of Appeals decided Altman v. 285 West Fourth, LLC in April 2018. I wondered whether this decision on a seemingly obscure feature of high rent vacancy deregulation could actually be impactful. Did I really need to know about this one? The answer turned out to be yes, because sometimes, one new decision can change the course of a pending litigation.

The Facts In Altman v. 285 West Fourth, LLC

Rent stabilized apartments can be deregulated if the tenant vacates and the landlord legally increases the monthly rent over the deregulation threshold (currently $2,700.00). Besides the usual rent increases decided each year by the Rent Guidelines Board, landlords can increase the rent on rent stabilized apartments by 20% when the apartment is vacated, meaning the landlord can charge the new tenant 20% more than the prior tenant (or more if the apartment is rehabilitated while vacant). Thus, when a tenant vacates and the landlord increases the rent by 20%, the apartment may be deregulated if that 20% increase pushes the monthly rent over the threshold. Before Altman, there was no question that tenants should receive a market rate, non-stabilized lease if the vacancy allowed the landlord to increase the rent over the threshold. Then in 2015, the Altman case was filed and the courts were undecided if the normal course was, in fact, legal.

In Altman, Richard Altman subleased a rent stabilized apartment. When the prime tenant returned possession to landlord in 1994, the landlord entered into a direct lease with Altman. Landlord gave Altman a market rate lease, having added the 20% vacancy increase to the prior tenant’s rent, such that the deregulation threshold was met when Altman signed the lease.

In June 2014, Altman decided that he should have received a rent stabilized lease in 1994 and filed a lawsuit in Supreme Court, New York County. Altman argued the apartment was not “vacated” when the prime tenant turned over the apartment to landlord because Altman never moved out, meaning the vacancy rent increase should not have applied. Landlord argued that the prime tenant’s relinquishment of the lease constituted a vacatur, such that the rent to be charged to Altman would include the vacancy increase, thereby putting Altman into market rate territory.

The trial court agreed with the landlord, determining that the vacancy rent increase applied and that Altman properly received a market lease.

Then in April 2015 when the First Department disagreed and held that Altman was, in fact, rent stabilized (and that the landlord was potentially liable for hundreds of thousands of dollars of rent overcharges), landlords of rent stabilized units throughout New York City were left hanging in the balance. Had they been improperly deregulating their apartments, and would they be liable for their unintended acts? Landlords waited 3 years for the answer, when in April 2018, the Court of Appeals agreed with the trial court and found that Altman was not rent stabilized.
Why Altman Matters

In November 2017, before the Court of Appeals confirmed that Altman’s landlord (and all other similarly positioned landlords) complied with the law, our client, the owner of a 50 unit building in Park Slope, Brooklyn who had acquired the building 2 years prior, was sued by its tenant under facts strikingly similar to Altman (let’s call the tenant Jane). Like Altman, Jane moved into the building in the 1990s as a subtenant. In 2002, the prime tenant, who was rent stabilized, turned over the lease to the landlord and landlord gave Jane a direct lease that was not rent stabilized (like Altman), believing that the prime tenant’s departure allowed him to increase Jane’s rent above the deregulation threshold.

The law was unsettled when Jane commenced her lawsuit between the First Department and Court of Appeals decisions. On one hand, if the Court of Appeals affirmed the First Department, Jane would be entitled to a rent stabilized lease and our client would be responsible for refunding 15 years of overcharges unwittingly collected by the prior owner. On the other hand, a decision reversing the First Department would mean that this landlord and all others throughout the city who followed the rules as they understood them could breathe a sigh of relief. Then, before the judge in Jane’s case made a final decision, the Court of Appeals decided Altman in favor of the landlord. With Altman as the legal authority we needed, we were able to advise the judge that Jane’s market rate lease was proper and she was never rent overcharged.

So yes, stay alert and on top of changes in case law, no matter how seemingly minor!

Craig M. Notte is a Partner at Borah, Goldstein, Altschuler, Nahins & Goidel, P.C. who began as an associate in its Supreme Court litigation department in May 2005. His practice currently includes commercial and residential rent disputes, Yellowstone actions, partition actions, foreclosures, proceedings to collect money judgments, as well as real estate matters in Surrogate’s Court. Mr. Notte also represents condominium and cooperative boards in actions and proceedings for unpaid common charges and maintenance and all other issues arising in the coop/condo context, and is versed in Housing Court holdover and non-payment proceedings, rent stabilization and bankruptcy related issues in the landlord-tenant and condominium contexts.

Craig can be reached by phone at (212) 431-1300, or by email at CNotte@borahgoldstein.com. You can visit Craig’s profile at his firm here.

 

 

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