State Court Upholds Marvin’s Markup: Rules RGB Can Impose “Poor Tax” on Long-Term Tenants

On March 24, New York’s top court, the Court of Appeals, reversed two lower courts in the case Casado v. Markus and reinstated the New York City Rent Guidelines Board’s imposition of higher renewal increases on long-term tenants. By a 5-2 margin, the court said it was legal for the board to allow minimum increases for tenants paying less than $1,000 a month rent who have lived in their apartments for six or more years.

The decision restores the minimum increases the RGB set in 2008 and 2009. In 2008, it voted a $45 minimum increase for one-year lease renewals and $85 for two years, while tenants who paid more than $1,000 or had been living in their apartment for less than six years got increases of 4.5 percent on a one-year lease and 8.5 percent on a two-year lease. In 2009, the minimums were $30 and $60, while other tenants got 3 and 6 percent. (What does this mean for tenants? See below the article for our guide.)

These extra charges have been described as a “poor tax,” because half of the affected tenants are low-income, and 70 percent are black, Latino, or Asian, according to a 2009 analysis by the Community Service Society.

The majority opinion, written by Justice Robert Smith, refers to “the plight of landlords who are unable for a long time to obtain vacancy increases,” which it calls an “evil.” With no empirical basis, the majority states that annual increases in lower rent apartments “do not come close to covering increased costs,” ignoring the fact that owners’ profit margins are at record levels and rising, and that they do not need further increases to maintain huge profits. The RGB’s own study of owners’ income and expenses in 2010 found that owners were making a whopping 36 percent profit on every rent dollar according to the most recent data available.

“The legislative purpose of the rent-stabilization law is to promote stability and protect tenants from unaffordable rent increases, not to ensure that landlords reap high profits on every apartment,” declares Met Council director Mario Mazzoni. “The RGB has acted to undermine the intent of the statute, and now the Court of Appeals has sanctioned it.”

Justice Smith’s opinion cites the fact that “the median rent-to-income ratio for tenants living in their apartments for six years or more was lower than the same rate for all tenants,” as if that were a problem, rather than proof that rent regulation is accomplishing its purpose. When RGB chair Marvin Markus proposed the surcharge in 2009, he noted that the median rent for the tenants it would apply to was about $200 below the median for all rent-stabilized tenants, while public member Risa Levine said it would help reduce “the imposition that long-term tenancies put on landlords.”

In dissent, Justice Carmen Ciparick pointed out that the discrepancy in rents between long-term and newer tenants is largely the result of the 1997 state law that allowed a 20 percent increase on vacant apartments, thus ensuring that newer tenants will pay more than long-term tenants. Since the legislature created this disparity “by design,” Justice Ciparick reasoned, the RGB action “contravene[d] the will of the legislature” and is “out of harmony” with the statute, and should be overturned based on “a fundamental principle of administrative law.” Rather than acknowledge and accept this legislative design, the majority opinion implies that it is unfair because “tenants paying higher rents must subsidize those paying lower rents.” (See “Rent Controls: Who’s ‘ Subsidizing’ Whom? pg. 8)

The decision in Casado v. Markus will deal a severe blow to New York’s most vulnerable families, and by imposing unaffordable rent increases will lead t o an increase in homelessness and a further loss of affordable units. This case shows clearly why rent and eviction protections need to be strengthened, including restoring New York City’s home rule over these laws.

The ‘Poor-Tax’ Ruling: What It Means for Tenants

How will tenants be affected by the reinstatement of the minimum increase/”poor tax” by the Court of Appeals? It remains unclear. It may come down to how your lease was written.

If you signed a lease containing the minimum increase:
If you have been paying the higher amount all along, you will have to continue doing so. If you paid the lower percentage increase while the case was being litigated, your landlord may demand that you pay the difference, and initiate a nonpayment eviction proceeding if you fail to do so. It will be up to the court to determine if you owe anything and how much time you’ll have to pay it.

If you signed a lease with a rider or provision
Many landlords offered renewal leases to tenants with rents based on the lower percentage-rate increases, but inserted language to preserve their right to collect the higher minimum increases if courts ruled that they could. Some landlords called the percentage-rate increase the “preferential rent” and the minimum increase the “legal rent.” In other cases, landlords charged the lower amount but inserted language saying that they were not waiving the right to collect the higher amount in the future if a court decision permitted it. Each circumstance may play out differently, but if your lease had such a clause, you’ll likely be hit with the higher amount sooner or later.

If you signed a lease with the lower amount only
If you signed a renewal lease based only on the lower percentage-rate increase, and your landlord failed to put anything in to protect their future right to collect the minimum amount, you may be able to argue that they waived their right to do so. There is much debate as to how the courts would handle such an argument. Ron Languedoc, a tenant attorney and former Rent Guidelines Board tenant representative, says that he “can’t see what the legal rationale would be” for the courts awarding a rent higher than what’s indicated on a lease. However, if your landlord seeks such an adjustment in your rent or uses the higher amount when calculating your next renewal, be prepared to face an eviction proceeding if you choose to fight it—and find a lawyer.

It’s unclear whether New York State Homes & Renewal (formerly the Division of Housing and Community Renewal) will issue an opinion on these matters.

One thing that advocates agree on is that the largest implications for tenants are yet to come. The Court of Appeals ruling certainly permits the RGB to issue similar orders with minimum increases. Ellen Davidson of the Legal Aid Society, who argued for tenants in this case, says the ruling does not allow “means testing”—setting different rent levels based on the tenant’s income—but many are afraid that the RGB could go further in ordering different increases for different classes of housing.

The RGB’s order and the court’s ruling are an attack on the rent-regulation system at its core. Tenants should see them as a call to action to reform the laws governing the system.