UPDATE: Gov. Cuomo Signs Controversial Rent Reform Legislation Over Real Estate Industry’s Objections

ALBANY—Gov. Andrew Cuomo on June 14 signed a controversial rent reform and tenant protection legislative package passed earlier in the day by the State Assembly and Senate that was vehemently opposed by many real estate trade groups across the state.

While the Housing Stability & Tenant Protection Act of 2019 is being hailed as historic by Albany politicians and affordable housing advocates, some of the reforms agreed to by Assembly and Senate leadership in Albany on June 12^thwill prove onerous on the real estate industry in New York State.

Existing state rent regulations were set to expire on June 15.

The legislation includes making the rent regulation laws in New York State permanent and not subject to sunset every four to eight years. A highly controversial provision will expand rent stabilization or rent control statewide by allowing any municipality that has less than 5% vacancy in its housing stock to be regulated to opt into rent stabilization.

The real estate industry did score one victory in lobbying against a provision that would have established a “good cause eviction” standard. The New York State Association of Realtors issued a Call to Action to its membership in opposition to the legislation that would have restricted the ability of a landlord to evict a tenant unless the grounds for eviction met the criteria outlined in the legislation. NYSAR contended that the bill would essentially allow a perpetual lease.

Gov. Cuomo said when announcing he had signed the bill into law, “At the beginning of this legislative session, I called for the most sweeping, aggressive tenant protections in state history. I’m confident the measure passed today is the strongest possible set of reforms that the legislature was able to pass and are a major step forward for tenants across New York.”

He added, “As the former Secretary of Housing and Urban Development under President Clinton, I know full well the importance of affordable housing and with the existing rent laws set to expire tomorrow, I have immediately signed this bill into law—avoiding the chaos and uncertainty that a lapse in these protections would have caused for millions of New Yorkers.”

State Senate Majority Leader Andrea Stewart-Cousins said of the bill’s passage, “We made a commitment that the new Senate Democratic Majority would help pass the strongest tenant protections in history. The legislation we passed today achieves that commitment and will help millions of New Yorkers throughout our state.”

Assembly Speaker Carl Heastie said, “Today we passed historic legislation that will help keep families from being forced out of their homes and priced out of the communities they are a part of. For too long, power has been tilted in favor of landlords. But today we were able to level the playing field and bring stability to tenants across New York State, whether they live in an apartment in the Bronx, a single-family home in Nassau County or a manufactured home upstate.”

HGAR Chief Executive Officer Richard Haggerty said of the agreement, “While there is much to absorb in this proposed legislation, our concern is that several of these proposals will disincentivize landlords from improving and maintaining their properties and prospective purchasers from investing in multi-family housing, thereby exacerbating the affordable housing crisis. There needs to be a balance in protecting tenant rights and maintaining programs that generate investment in multiple family inventory.”

Phil Weiden, HGAR’s Government Affairs Director, said of the reform measures likely to be signed into law, “This rent control legislation will negatively affect the real estate industry. In addition to depressing home values, it could have the added effect of landlords not investing in their properties. It now subjects the entire state to the same rent laws as New York City. Local governments will have the option to opt in if they so choose. If a local government opts in this would subject landlords to a local rent control board similar to what New York City has in the form of the rent guidelines board.”

NYSAR, HGAR and a host of real estate advocacy organizations came out against certain provisions of the rent and affordable housing reform package. The business groups complained particularly on how onerous the regulations would be on small landlords in New York City and throughout the state.

The New York State Association of Realtors released a statement regarding the Housing Stability & Tenant Protection Act of 2019, which noted that NYSAR “is concerned with the potential harm resulting from the rent regulation reform package being considered by the State Legislature this week. We are particularly concerned with the geographic expansion of rent regulations as no widespread rental housing crisis currently exists in areas outside of New York City. We believe these new rent regulations will stifle real estate investment and slow the development of further affordable housing across New York State.”

NYSAR noted that it was pleased that the controversial “good cause” eviction legislation was not included in the rent regulation reform package sent to Gov. Cuomo for approval.

“Developing ways to make homeownership more affordable is one of NYSAR’s top priorities,” NYSAR stated, “We continue to support creative housing solutions such as the NY First Home Program which incentivizes savings for first time homebuyers and we look forward to working with our elected officials to implement further homeownership programs such as this.”

Real estate trade publication the Commercial Observer reported on June 13 that a group of real estate leaders intended to file suit against provisions of the rent regulation reform package if signed by Gov. Cuomo. The article did not identify the organizations that planned to file the litigation.

Highlights of the reform package legislation include:

Extends the Rent Regulation Laws and Makes them Permanent

• Makes the rent regulation system permanent, so they will not sunset at any time in the future without an act of the Legislature to repeal or terminate them.
• Rent regulation laws have been scheduled to expire every four to eight years for decades.

Repeals High Rent Vacancy Deregulation & High Income Deregulation

• Repeals the provisions that allow the removal of units from rent stabilization when the rent crosses a statutory high-rent threshold and the unit becomes vacant or the tenant’s income is $200,000 or higher in the preceding two years.
• Previous provisions led to the deregulation of more than 300,000 units since they were first passed in 1994.

Reforms Owner Use Exception to Rent Regulation

• Limits the use of the “owner use” provision to a single unit, requires that the owner or their immediate family use the unit as their primary residence, and protects long-term tenants from eviction under this exception by reducing the current length of tenancy required to be protected from eviction to 15 years.

Keeps Stabilized Apartments Rented by Nonprofits in the Rent Stabilization System

• Limits the temporary non-profit exception to rent stabilization by requiring units to remain rent-stabilized if they are provided to individuals who are or were homeless or are at risk of homelessness.
• Provides individuals permanently or temporarily housed by nonprofits status as tenants while ensuring that units used for these purposes remain rent stabilized.

Repeals the Vacancy Bonus & Longevity Bonus

• Repeals the “vacancy bonus” provision that allows a property owner to raise rents as much as 20% each time a unit becomes vacant.
• Repeals the “longevity bonus” provision that allows rents to be raised by additional amounts based on the duration of the previous tenancy.
• Prohibits local Rent Guidelines Boards from reinstating vacancy bonus on their own.

Prohibits Rent Guidelines Board from Setting Class-Specific Renewal Increases

• Prohibits Rent Guidelines Boards from setting additional increases based on the current rental cost of a unit or the amount of time since the owner was authorized to take additional rent increases, such as a vacancy bonus.

Makes Preferential Rents the Base Rent for Lease Renewal Increases

• Prohibits owners who have offered tenants a “preferential rent” below the legal regulated rent from raising the rent to the full legal rent upon renewal.
• Once the tenant vacates, the owner can charge any rent up to the full legal regulated rent, so long as the tenant did not vacate due to the owner’s failure to maintain the unit in habitable condition.
• Owners with rent-setting regulatory agreements with federal or state agencies will still be permitted to use preferential rents based on their particular agreements.

Provides Relief from Large Rent Increases for Rent-Controlled Tenants

• Sets Maximum Collectible Rent increases at the average of the five most recent Rent Guidelines Board annual rent increases for one-year renewals.
• This bill also prohibits fuel pass-along charges.

Extends Rent Overcharge Four-Year Look-Back Period to Six Years

• Extends the four-year look-back period to six or more years as reasonably necessary to determine a reliable base rent, extends the period for which an owner can be liable for rent overcharge claims from two to six years, and would no longer allow 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 Housing and Community Renewal (HCR).
• Allows tenants to assert their overcharge claims in court or at HCR and states that while an owner may discard records after six years, they do so at their own risk.

Reforms Rent Increases for Major Capital Improvements (MCIs)

• Lowers the rent increase cap from 6% to 2% in New York City and from 15% to 2% in other counties.
• Provides the same protections of the 2% cap going forward on MCI rent increases attributable to MCIs that became effective within the prior seven years.
• Lowers increases further by lengthening the MCI formula’s amortization period.
• Eliminates MCI increases after 30 years instead of allowing them to remain in effect permanently.
• Significantly tightens the rules governing what spending may qualify for MCI increases and tightens enforcement of those rules by requiring that 25% of MCIs be inspected and audited.

Reforms Rent Increases for Individual Apartment Improvements (IAIs)

• Caps the amount of IAI spending at $15,000 over a 15-year period and allows owners to make up to three IAIs during that time.
• Makes IAI increases temporary for 30 years rather than permanent and requires owners to clear any hazardous violations in the apartment before collecting an increase.

Requires Annual Report From HCR On Rent Administration and Tenant Protection

• HCR to submit an annual report on the programs and activities undertaken by the Office of Rent Administration and the Tenant Protection Unit regarding implementation, administration and enforcement of the rent regulation system.
• The report will also include data points regarding the number of rent stabilized units within each county, application and approvals for major capital improvements, units with preferential rents, rents charged, and overcharge complaints.

Reforms Co-Op/Condo Conversions

• Strengthens and makes permanent the system that protects tenants in buildings that owners seek to convert into co-ops or condos.
• Eliminates the option of “eviction plans” and institutes reforms for non-eviction plans.
• Requires 51% of tenants in residents to agree to purchase apartments before the conversion can be effective. (Currently 15% of apartments must be sold and the purchasers may be outside investors.)
• For market-rate senior citizens and disabled tenants during conversion, evictions are permitted only for good cause, where an unconscionable rent increase does not constitute good cause.

Establishes Rent Stabilization as an Option for Localities Statewide:

• Removes the geographical restrictions on the applicability of the rent stabilization laws, allowing any municipality that otherwise meets the statutory requirements (e.g., less than 5% vacancy in the housing stock to be regulated) to opt into rent stabilization.

Establishes Stronger Housing Security and Tenant Protections Statewide

• Creates transformational protections for all residential tenants throughout the state.
• Bans the use of so-called “tenant blacklists” which protects tenants who enforce their rights.
• Limits security deposits to one month’s rent and provides required procedures to ensure the landlord promptly returns the security deposit.
• Includes a wide variety of protections for tenants during the eviction process, including strengthening protections against retaliatory evictions.
• Creates the crime of unlawful eviction, where a landlord illegally locks out or uses force to evict a tenant, as a Class A Misdemeanor and also punishable by a civil penalty of between $1,000 and $10,000 per violation.
• Requires landlords to provide notice to tenants if they intend to increase the rent more than 5% or do not intend to renew the tenants’ lease.
• Provides tenants more time in eviction proceedings to get a lawyer, fix violations of the lease, or pay rent owed.
• Expands the ability of the court to stay an eviction for up to one year if the tenant cannot find a similar suitable dwelling in the same neighborhood after due and reasonable efforts or the eviction would cause extreme hardship.

Implements Mobile & Manufactured Home (MMH) Tenant Protections

• Limits rent increases to 3% unless the increase is justifiable, in which case the park owner may increase rent up to 6%. Should the park owner need an increase higher than 6%, the owner must apply for a hardship allowance from HCR.
• Establishes new Rent-to-Own protections that would protect MMH tenants attempting to purchase a home from a MMH park owner or operator.
• Adds a Homeowner’s Bill of Rights rider for all leases.
• Strengthens protections against evictions from parks, including for seasonal residents.
• Creates new protections for MMH owners if a park owner or operator decides to change the use of the park by prohibiting a park owner from starting an eviction case against a MMH for two years and provide a stipend up to $15,000 when they are evicted due to the change of use.

John Jordan
Editor, Real Estate In-Depth