Rent-Controlled Tenants Win! State’s Top Court Protects MBR Formula

In a fabulous victory for tenants, the New York State Court of Appeals, the state’s highest court, ruled in favor of keeping a new Maximum Base Rent formula which has resulted in lower rent increases for rent-controlled apartments. The court decision, on December 20, means that the majority of rent-controlled tenants–who pay the ceiling rents for their apartments, and who have been held in a state of anxious waiting since 1997–can continue paying the lower increases without fear of whopping retroactive charges.

“The decision is a great relief,” says Stephen Dobkin, of Collins, Dobkin and Miller, who represented Met Council and argued the case at the Court of Appeals. “A decision in favor of the landlords in this case would have been a disaster for the many rent-controlled tenants who really would not have been able to afford the increases.” The victory is a testament to the political power of the seniors living in rent-controlled apartments and to the great legal work of Dobkin and other lawyers who worked on the case.

Local Law 70 of 1997

This decision caps a four-year court battle that began when the New York City Council changed the formula used to calculate increases for rent-controlled apartments. Landlord groups sued, claiming that the change was a violation of the Urstadt Law. They argued that the new formula, by cutting into their profits, was more stringent than the previous formula. The Urstadt Law, passed in 1971 as a companion to vacancy decontrol under the guidance of Charles Urstadt, Gov. Nelson Rockefeller’s housing commissioner and a major city landlord, prohibits cities or towns from passing any laws that are more stringent, or regulate more housing, than the state laws.

The DHCR Role

The fight over the seemingly tiny piece of an obscure formula goes back even farther, to 1986, when the state Division of Housing and Community Renewal began using a different section of the state’s Real Estate Property Law to determine the formula it used once every two years to set ceiling rents. The change was done in order to conform to the state tax law, which made the reference in the formula obsolete.

For 10 years, the change made no difference in the rent increases, but in 1996, the old formula would have produced an increase of 32.4%, while the new formula produced an increase of 3%. Landlords had been accustomed to MBR factors so high that they were always guaranteed their 7.5% increases in the Maximum Collectible Rent (the MBR is the ceiling rent; the MCR is the actual rent, which goes up by 7.5% per year unless it reaches the MBR). Once the owners saw that they might not get their automatic 7.5% per year, they quietly went to Albany and sued the DHCR. The DHCR lost the lawsuit and reverted to the old formula.

City Council Saves the Day

1997 was, coincidentally, the year that the rent laws were up for renewal, and politicians, including the mayor and the members of the City Council, were under intense pressure from tenants who had been scarred by the changes in the laws rammed through by pro-landlord Republicans in the state legislature. There had also been attention on the Council for pro-landlord changes it had made to the laws in 1993. At the end of the summer, in one of the few pro-tenant moves of his career, Council Speaker Peter Vallone pushed a bill through the Council (which had enacted the original MBR law in 1970), which changed back to the one which produced the lower increase.

Less than 24 hours after Mayor Giuliani signed the bill, the landlords were back in court to challenge it. Met Council, along with other tenant groups, intervened in the case, along with the city Corporation Counsel, representing the City Council. As the case was appealed up through the courts, Met Council worked to apply political pressure on Governor George Pataki to have the DHCR defend the change. Thousands of seniors called the governor to remind him that he had made a special promise to seniors during the 1997 rent-law renewal fight that they would not be harmed.

Seniors Take Action

About 50,000 apartments are under rent control. The tenants are on average 70 years old, with incomes below $15,000 per year. While a vulnerable population, they are not politically powerless–and in 1997, they were in a rage.

Already organized and active, rent-controlled tenants were alarmed when they received notices from the DHCR in 1997–first in mid-September, telling them that the landlords had won their first lawsuit and the MBR would be 32.4% — not the 3% that they had received originally. That meant that thousands of them who paid rents at the ceiling MBR would have to pay–retroactively–7.5% increases for 1996 and 1997, instead of a 3% increase for ’96 and none for ’97. Then they received a notice telling them that the new revised MBR of 32.4% would be suspended, pending the outcome of a court case.

Rent-controlled tenants by that point had no reason to trust Pataki, after he had promised to protect seniors but had allowed the rent laws to be weakened, and had allowed the state housing agency to weakly defend itself in the first MBR lawsuit. Tenants knew that there was one main motivation behind the landlords’ action and the DHCR’s work: getting rent-controlled tenants out of their apartments, which would then be decontrolled, enabling landlords to raise rents, in many cases by $1,000 or more. But thanks to pressure from these tenants, the Council passed Local Law 70, and the DHCR, in the later rounds of the lawsuit, dropped out of the legal battle (bowing to pressure from both sides).

The decision is a great victory for advocates of pushing the Urstadt envelope. The law, written to corral the pro-tenant City Council of 1971, has put tenants in the hands of the pro-landlord state legislature ever since. But this decision might allow for other changes: “The City Council could make other changes in the rent laws, as long as those changes reflect the original intent of the laws,” says Dobkin.

But for now, tenants can bask in the victory. The decision, written by Chief Judge Judith Kaye, is clear enough for the lay reader, and it explains clearly the history of the issue and of the rent regulations. People who want to read the decision can get it at: http://www.tenant.net/Alerts/MBR/164opn01.txt