The recently passed “Housing Stability and Tenant Protection Act,” has drastically overhauled the fundamentals of landlord-tenant law and practice in the State of New York. While we’re still digesting the impact of these changes, here’s a quick overview of just some of the key modifications:
Individual Apartment Improvements (“IAIs”)
Prior to mid-June of 2019, when landlords made Individual Apartment Improvements (or “IAIs”) to a regulated apartment, a percentage of those costs could be tacked onto the tenant’s monthly rent. That number varied depending on how many units were in the building: one-fortieth (1/40) for buildings with thirty-five (35) apartments or less, and, one-sixtieth (1/60) for buildings with over thirty-five (35) units. For example, under the old law, if the rent in a building with thirty-five (35) units was $1,000 per month, and the landlord performed a $4,000 improvement, the monthly rent could be increased by one fortieth (1/40) of $4,000 -- or $100 -- for a total of $1,100. [E.T.P.A. § 6(d)(1); N.Y.C. Admin. Code § 26-405(g)(1)(e)]
Now, that allocable amount has decreased. For buildings with thirty-five (35) units or less, landlords can collect only one-one hundred sixty-eighth (1/168) of improvement costs, and, for buildings with more than thirty-five (35) units, only one-one hundred eightieth (1/180). That means, if the rent in a building with thirty-five (35) units is $1,000 per month, and the landlord expends $4,000 in improvement costs, the rent may only be increased by one-one hundred sixty-eight (1/168) of $4,000 -- or $23.81 -- for a total of $1,023.81. [E.T.P.A. § 6(d)(1); N.Y.C. Admin. Code § 26-405(g)(1)(e)]
The Act also limits how long that adjustment may remain in place. Prior to the new legislation, such costs were permanent. Today, the pertinent charge will remain in place for thirty (30) years. And, a cap has also been imposed: landlords may now only recoup a maximum of $15,000 for a total of three (3) improvements over a fifteen-year period. [E.T.P.A. § (6)(d)(1); N.Y.C. Admin. Code § 26-511(c)(13); N.Y.C. Admin. Code § 26-405(e)(1)(6)]
Property owners also face a number of significant new limitations regarding “IAIs.” They can no longer share common ownership with contractors performing the work, and are also required to resolve certain violations of the Uniform Fire Prevention and Building Code, N.Y.C. Fire Code, and N.Y.C. Building and Housing Maintenance Codes, prior to making the improvements. Additionally, the Act directs D.H.C.R to implement new “IAI” rules, which will include requiring owners to take “before and after” photos documenting any modifications. [N.Y.C. Admin. Code § 26-511(c)(13); N.Y.C. Admin. Code § 26-511.1(11); N.Y.C. Admin. Code § 26-405(g)(1)(e); N.Y.C. Admin. Code § 26-405.1(11); E.T.P.A. § 10-b; E.H.R.C.L. § 8(a)(k)]
Tenants and landlords must also execute a written agreement “demonstrating informed consent” before the improvements are made, and owners are required to list the project’s estimated total cost as well as the anticipated monthly rent increase. [N.Y.C. Admin. Code § 26-405(g)(1)(e)]
Major Capital Improvements (“MCIs”)
Landlords were always able to increase rents when they undertook building-wide upgrades, known as Major Capital Improvements (or “MCIs”). Previously, by performing “MCIs,” landlords could raise the rent up to six (6) percent per year. Now, rent may only be increased by an annual maximum of two (2) percent, which sum can only be added to the rent over the course of a thirty-year period. Before the recent amendments, those surcharges were permanent. [N.Y.C. Admin. Code § 26-511.1(a)(8); N.Y.C. Admin. Code § 26-511(c)(6); N.Y.C. Admin. Code § 26-405(a)(8); N.Y.C. Admin. Code § 26-405(g)(1)(g); E.T.P.A § 4(10-b)(8); E.H.R.C.L § 8-a(h); E.H.C.R.A. § 4(4)(a)(7-8)(3-a)(2)(7); E.T.P.A. § 4(6)(d)(3)]
The Act also gives D.H.C.R. more authority to monitor potential “MCIs.” That agency will now set a cost ceiling, and an owner must establish that the “MCI” is essential for the building’s “preservation, energy efficiency, functionality or infrastructure.” Any approval will be subject to owners establishing that their buildings are not in hazardous condition or violative of the Uniform Fire Prevention and Building Code, N.Y.C. Fire Code, and N.Y.C. Building and Housing Maintenance Codes, and that at least thirty-five (35) percent of the building’s units are occupied by rent-stabilized tenants. [N.Y.C. Admin. Code § 26-511(1); N.Y.C. Admin. Code § 26-405.1; E.T.P.A § 10-b(1); E.H.R.C.L. § 8(a)(a)]
Furthermore, tenants must now be given sixty days’ notice after the D.H.C.R. approves the “MCI.” In that notification, tenants must be able to see the potential dollar uptick as well as an itemized list of the work being performed and the reason or purpose for that improvement. The tenant will then have sixty (60) days to respond. If a tenant objects, D.H.C.R. will conduct a hearing. [N.Y.C. Admin. Code § 26-511(11); N.Y.C. Admin. Code § 26-405(11); E.T.P.A. § 10-b(11); E.H.R.C.L. § 8-a(k)]
The Act mandates that the D.H.C.R. audit the “MCI” process for at least twenty-five (25) percent of all applications. [N.Y.C. Admin. Code § 26-511.1(12)(b); N.Y.C. Admin. Code § 26-405.1(12)(b); E.T.P.A. 1974 § 10-b(12)(b); E.H.R.C.L. Law § 8-a(2)]
Deregulation
Only months ago, once the lawful rent increased above a statutory threshold (the last number was about $2,700 per month) and a rent-stabilized tenant vacated the apartment, the unit could be deregulated, and the next occupant charged “market-rate.” Landlords also had an opportunity to remove units from protection upon vacancy, thanks to a “vacancy bonus”— which allowed landlords to lawfully increase rent by twenty (20) percent upon a regulated tenant’s move-out. Before the Act, tenants were also subject to deregulation if their household income exceeded $200,000, for two consecutive years
Those provisions have all been eliminated, and landlords may not deregulate a unit based on a tenant’s income. Now, apartments remain rent-regulated barring specific circumstances, such as a building’s demolition, or if a tenant fails to actually or “primarily” reside in the unit. [E.T.P.A. § 26-511(c)(5)(a); E.T.P.A. § 26-512(f); E.T.P.A § 10(a-1); E.T.P.A. § 6(g); E.H.R.C.L. § 5(9); N.Y.C. Admin. Code § 26-403.2; E.H.R.C.L. §2(2)(n); E.T.P.A § 5(a)(13); N.Y.C. Admin. Code § 26-403(e)(2)(k); E.T.P.A § 5(a); N.Y.C. Admin. Code § 26-504.2; N.Y.C. Admin. Code § 26-504.3; E.T.P.A. § 5(a)(12); E.T.P.A § 5-a]
Preferential Rent
Before the new laws were passed, landlords could increase rent to the legal maximum amount upon renewal, regardless of what “preferential” or discounted rates they had previously extended to a tenant. For example, if the maximum legal rent was $2,000 per month, and the landlord only charged $1,000, the rent could have been raised back to the $2,000 threshold at the next renewal. Today, if landlords opt to charge a preferential rent, they can only secure such annual increases that are approved by the Rent Guidelines Board. (The higher regulated number will no longer be restorable during that tenancy.) However, once that tenant vacates, the landlord can re-let the apartment at the legal maximum rate. [E.T.P.A. § 10(a-2); N.Y.C. Admin. Code § 26-511(c)(14)]
Co-operative and Condominium Conversion
In the not too distant past, to convert a rent-regulated building into co-operative or condominium, fifteen (15) percent of tenants had to sign purchase agreements. The Act now requires fifty-one (51) percent of tenants must agree to buy. [General Business Law § 352-eeee(c)]
“Owner’s Use” Standard Significantly Tightened
For decades, New York City landlords, or their immediate family members, had the right to recover a rent-stabilized apartment to use as their primary residence. Now, landlords must demonstrate an “immediate and compelling necessity,” and may only obtain one (1) unit, whereas before June 2019, there was no limit, and no such standard. Additionally, tenants who are evicted on this ground may now file suit if they believe their landlord fraudulently misrepresented the facts or otherwise acted wrongfully. And actual damages and reasonable attorneys’ fees may be awarded if a tenant prevails.
Previously, landlords were not permitted to evict tenants for “owner’s use” if the occupants were sixty-two (62) years of age (or older) and had occupied their unit for twenty (20) years. The new laws have expanded that protection. Now, any tenant who has lived in a regulated apartment for fifteen (15) years, or more, may not be removed on “owner’s use” grounds. [N.Y.C. Admin. Code § 26-408(b)(1); N.Y.C. Admin. Code § 26-511(c)(9)(b); E.T.P.A. § 10(a); E.H.R.C.L. § 5(2)(a)]
Conclusion
The outline of changes we’ve provided above is only a summary of just a few of the vast and complex modifications that were made to the law.
Should you have any questions about how these new laws impact you, please feel free to reach out to any one of our capable real-estate attorneys, at 212-619-5400.
In the interim, stay tuned for additional analysis and further developments.
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To view Part I of our series, please use this link: https://www.nyrealestatelawblog.com/manhattan-litigation-blog/2019/july/the-2019-changes-to-new-york-s-landlord-tenant-l/