let’s talk: NEW NY RENTAL REGULATIONS, PT II
Coming in hot this week with PT II of this new rental property
legislation in New York. Last week we spoke specifically about the laws
that affect the tenant / landlord relationship (aka the Statewide Housing Security and Tenant Protection Act of 2019). This week we are diving
in further than that to check out more “landlord life changing”
legislation that was recently passed.
So as we do, let’s talk Real Estate, let’s talk THE NEW YORK RENTAL
PROPERTY REGULATION SHAKE UP, PT II…
**Before you read this article, please note that I am not a legal or political professional whatsoever. Everything stated in this post is based on my
personal opinion regarding the new NY legislation and should not
necessarily be deemed as fact. My only intention of this article is to raise awareness and I invite conversation, feedback, etc whether or not it
coincides with my beliefs. Furthermore, my opinion on this specific
legislation does not reflect my personal political views as a whole.**
OKAY NOW LET’S BEGIN!
For all intents and purposes today we will use the term “landlord”
synonymously with “rental property owner”.
Many of the rules you will see below were brought about because some
landlords have essentially been forcing their tenants to either purchase
their rent regulated unit OR get out, and tenants no longer feel
protected. I want to make it perfectly clear that I do not agree with any
sort of harassment whatsoever but I also do not agree with how the state handled this issue. In order to combat this, the state has essentially
handed over ALL power to the tenants, made rent regulated units a
PERMANENT fixture in our market, and changed the art of real estate
investing within the state of NY going forward…you’ll see what I am
talking about as we dive into the details below.
Rental Property Conversion.
Historically in NYC, a landlord could convert their property from a rental to a condominium or co-op, as long as they sold 15% of the units within
their building to buyers who occupied the apartment as their primary
residence. This helped landlords cut some of their operating expenses (i.e. maintenance, taxes, etc) and share the costs with the other owners.
Often times they would encourage the tenants in the “rent regulated”
units to be the purchasers. Anyway, that 15% is now increasing to 51%.
Landlords must sell 51% of their units in order to convert their rental
property into a condominium or co-op. By increasing this number to 51% we will essentially see a stop to any such building conversions going
forward because the landlords would have to essentially hand over their building and any power they had, to their tenants.
Now, I may get in trouble for this, but this, as a general notion, is not
something I necessarily agree with. While I am 100% for tenants rights,
and always try to make sure we are in a mutually beneficial relationship with our tenants, I do believe it is important that the landlords maintain
control of their buildings. Being a landlord is not a hobby (for most), it is a job. When you are a landlord / developer / building owner/ etc, you are
doing so to run a business, and earn an income.
Now, why would we care if landlords can no longer do this?
We care because this conversion process has been a way for landlords to turn non-performing assets into ones that makes money. By converting
these rentals to condominiums / co-ops, the landlords were able to cut down on their real estate taxes and operating costs, which have been on the rise, and in turn use those funds to properly maintain their properties. If landlords are no longer able to capitalize on these benefits, they may be
forced to neglect items such as building and facility maintenance. Not
only could deferred maintenance affect the buildings themselves but it
will also affect the tenants, their quality of living, and the laborers who work on them.
So basically, to sum this all up. With this new conversion rule, more
landlords will be operating at a lower profit rate, or even a loss. This can
lead to serious economic impacts (less work for contractors, lawyers,
realtors, advertising agencies, etc), environmental impacts (less $$ to
make home updates that allow properties to operate more efficiently),
and could ultimately decrease the quality of life for local residents.
I know this may all sound beyond dramatic but the potential trickle down affect this could potentially cause is very real.
Rent Regulations Extended Indefinitely.
In the past, rent regulated apartments expired every 4-8 years. This is no
High Income De-regulation Repealed.
Historically, if a tenant in a rent stabilized apartment hit a certain income threshold ($200,000) for two consecutive years, the landlord was able to
raise rents. That is no longer in affect.
In my opinion, if a tenant is making that high of an income, shouldn’t we
make this rent regulated unit available for someone who makes less than
that threshold? Someone who actually needs the lower rental rate?
Repeal Vacancy De-regulation.
Historically, a unit could be come de-regulated IF the monthly rent hit a
certain threshold ($2,774.76/month) AND had become vacant. This is no
longer in affect. This actually happened with the unit I live in now! My
unit was rent stabilized around $2700/month, until I moved in 3 years
Repeal Vacancy Bonus
Historically, landlords could raise rent up to 20% when the rent regulated unit became vacant. This is no longer in affect. Rent regulations will now stick with the unit, regardless of the tenant.
If a landlord gives a tenant a “preferential” rental rate BELOW the rent
regulated rate for a specific lease, they are not able to raise the rent to the maximum rent regulated rate upon lease renewal. The only way the
landlord could raise the rent to the max rent regulated rate is if that
tenant moves out AND they can prove that the tenant did not move out
because the landlord neglected them or their unit.
Historically, a landlord could raise rent as much as 6% in NYC (& 15% elsewhere in the state) for major capital improvements. That 6% is now 2%.
I think this just discourages landlords from maintaining their facilities, but again, that is just my personal opinion!
Rent Stabilization Expansion.
Historically, rent stabilization was more of an NYC thing, now it is about
to become a state wide thing mandated by any city or town that has a
vacancy rate of less than 5%.
Maximum Rental Increase for Rent Controlled Tenants.
The maximum rent increases will be set at the average of the last five
Rent Guidelines Board annual rent increases for one-year rent-stabilized renewals, or at 7.5 percent, whichever is less.
Update the “Owner Use” Exception.
Historically a landlord could evict a tenant from their rent controlled
unit, if the tenant had been there 15 years + AND the landlord wanted to use that unit for themself or their immediate family member. This is no
longer allowed. If the landlord wants to do this, they must present a
compelling reason for why this unit MUST be used as their own primary
Overcharge Period Extension.
If a tenant believes they were overcharged for rent, they can file a
compliant with the Division of Housing and Community Renewal (HCR). Historically, the court would only look back on the past 4 years to assess whether or not this was true. Now they are looking back on the past 6
years of rental history.
To sum it all up, the game has totally changed. I am already starting
to brainstorm potential exit strategies from our rentals in New York and I am sure I am not alone! I am all about working with tenants,
finding a mutually beneficial relationship, and helping others but I
personally cannot afford to operate a business that is bound to lose
money. Would LOVE to hear from others on how you feel about ALL
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Data Sources for Today’s Content:
Me – this is based on my own personal experience!