Change in Wording Tightens Deregulation Loophole

When Governor Andrew Cuomo and the state legislature renewed the rent-regulation laws last June, they raised the threshold for vacancy deregulation from $2,500 a month to $2,700, a meaningless change that will do next to nothing to stop the loss of affordable housing in New York City and suburban counties. But a significant change in the wording of the law, little noticed at the time, will at least slow down the loss. 

The change means that landlords can deregulate vacant apartments only if the rent was already at least $2,700 a month when the previous tenant moved out. Under the old law, they could deregulate vacant apartments if they could get the legal rent up to the threshold by a combination of the statutory vacancy bonus (usually 20 percent) and spending money upgrading the apartment.

Since the state enacted vacancy decontrol in 1997, explains Judith Goldiner of the Legal Aid Society, the law allowed deregulating “any housing accommodation which is or becomes vacant on or after the effective date of the [1997 law] and before the effective date of the [2011 law] with a legal regulated rent of $2,000 or more a month.” That was generally understood to mean “landlords could reach the decontrol threshold during vacancy through individual apartment improvements and the vacancy bonus.” But the 2015 renewal allows deregulation for “any housing accommodation that becomes vacant on or after the effective date of the Rent Act of 2015 where such legal regulated rent was $2,700 or more.” 

The Legal Aid Society interprets that to mean that the rent must have already reached $2,700 before the apartment becomes vacant in order to allow deregulation, Goldiner says. The Rent Stabilization Association, one of the two main landlord lobbyist organizations, took a similar view, although that interpretation has been removed from the group’s Web site, she adds.  

So, for example, if the legal rent was $1,000 when the apartment became vacant, and the landlord takes a 20 percent vacancy bonus to raise the rent by $200, and then claims a $1,500 increase from spending $60,000 to $90,000 refurbishing the flat (new stove, refrigerator, granite countertops, new bathroom fixtures, etc.), that would bring the legal rent up to $2,700. The new tenant would pay the higher rent, but the unit would still be rent-stabilized until they move out.

Landlords are screaming bloody murder about this change and have asked Governor Cuomo to call the legislature back into session to “fix” it, or to instruct New York State Homes and Community Renewal, the state housing agency, to issue regulations to undo it. Both these options seem to be nonstarters, The Assembly has indicated it will not agree to such a change, and any regulatory interpretation that conflicted with the clear meaning of the new law would not survive a court challenge by tenants. It is unclear what HCR will do. The 2015 law instructs the agency to draft new regulations, something it has never been quick to do. One thing is clear: HCR will not do anything until Andrew Cuomo gives them instructions.

Sooner or later, this issue will be litigated. If tenants are successful in court, many fewer units will be lost to vacancy deregulation over the next four years. A rough estimate is that under the old language, up to 100,000 more apartments would have lost their rent and eviction protections by 2019, but under the new language, around 30,000 units will.

The new $2,700 threshold also applies to high-income deregulation. Only if the regulated rent is at or above that level can the landlord require the tenant to fill out an annual income certification. If the household income exceeds $200,000 for two consecutive calendar years—the new law did not change that income level—the apartment is subject to deregulation.

Another twist in the 2015 law is an annual uptick in the $2,700 threshold based on the one-year rent adjustment adopted by the local Rent Guidelines Board. In New York City, where the RGB froze rents for one-year lease renewals, the deregulation threshold next year will remain $2,700. In Westchester County, a one-year rent adjustment of 1.75 percent will raise the deregulation threshold for 2016 to $2,747.25 In Nassau and Rockland counties, the one-year rent adjustment was 1.25 percent, producing a deregulation threshold of $2,733.75. Nice round figures would be easier to understand and implement, but such is the result of Albany’s sausage-making.

While this statutory change will help some tenants, it is not a substitute for the outright repeal of vacancy deregulation. Gov. Cuomo has consistently refused to support such repeal, thus allowing the continued phaseout of rent-regulated housing in New York City and its inner suburbs. He has also actively collaborated with his Republican allies to keep the state Senate under their control, thus making it harder to win any pro-tenant changes in the legislature. Tenants must keep the pressure on our supposedly Democratic governor.