DHCR Nightmares; New Deregulation Loophole Created

Rent-controlled apartments that would be worth $2,000 a month or more on the open market can now be deregulated upon vacancy, under a new policy set by the state Division of Housing and Community Renewal.DHCR’s new policy expands a loophole that allowed landlords to deregulate vacant rent-stabilized apartments when the normal renewal and vacancy increases would have raised their rent to $2,000 or more. Under current law, rent-controlled apartments in buildings of six or more units that become vacant are decontrolled and then stabilized at a challengeable “market rent” when re-rented. The new policy allows landlords to deregulate the apartment entirely without even stopping at stabilization if the rent is $2,000 or more. This overcomes an apparent barrier that landlords had in exploiting the 1994 City Council vacancy-deregulation law.

The policy was set forth in an opinion letter from Assistant Commissioner Marcia P. Hirsch. Hirsch, appointed to DHCR by Governor George Pataki, was previously a lawyer for the landlord law firm of Horing Welikson & Bienstock in Queens.

The landlord self-help newsletter Apartment Law Insider reported in its November issue that landlords can deregulate apartments simply by serving the first stabilized tenant with an initial registration on Form RR-1. If the tenant does not file a fair-market-rent appeal within 90 days, challenging the fairness of the amount listed on the form as the initial legal regulated rent, the landlord may treat the apartment as permanently deregulated. If the tenant does file a challenge and DHCR finds the fair-market rent is $2,000 or more, the apartment is still deregulated. Only if the agency finds that the fair-market rent is less than $2,000 does the apartment remain regulated — under stabilization.

Tenant advocates and their lawyers disagree strongly with DHCR’s interpretation of the 1994 City Council deregulation law. They say that the law requires the rent of an apartment to reach the $2,000 or more level and still be stabilized before a vacancy can permit deregulation. The incongruity in the new policy is that it subjects a formerly rent-controlled apartment to stabilization — in order to remove it from stabilization without it becoming vacant again.