Owners Challenge Rent Law Changes

David Goldsmith

All Powerful Moderator
Staff member
Tenants get seat at table for legal challenges to rent law
Lawyers representing tenants will be a party to all 5 cases, although landlords had argued for their exclusion

To the dismay of landlords, tenants now have a seat at the table in the legal challenges to New York’s rent law.
In two of the five cases that challenge last year’s law — one brought by the Building and Realty Institute of Westchester, and the other brought by G-Max management — U.S. District Judge Kenneth Karas granted a motion to intervene from attorneys representing tenant groups Community Voices Heard and Tenants & Neighbors.

The latest decision means tenant attorneys will now be a party to each of the five separate legal challenges, giving them the power to file motions and make arguments on the tenants’ behalf.

“Not only have they represented that their members, who are rent-stabilized tenants, and their own allocation of resources could be affected by revocation of the [rent law], but both CVH and T&N played an active role in the formation and passage of the [rent law],” the decision reads.

Attorneys for landlords in both cases had argued that tenant groups should be excluded.
“Landlords fought hard to make sure that we weren’t part of the case, arguing that our clients brought nothing to the table, and that their knowledge and understanding of the law shouldn’t be part of the case,” said Ellen Davidson, staff attorney at the Legal Aid Society, which represents low-income tenants. “Now, when they talk about the harm the law does to tenants, the tenants can be there to explain why there was a need for the legislature to make the changes it did.”

Five challenges to the constitutionality of the new rent laws have been filed since the Housing Stability and Tenant Protection Act was signed into law last year. The first, a lawsuit filed last July by the Community Housing Improvement Program and the Rent Stabilization Association, argued that the new law amounted to an unjust taking. The BRI’s lawsuit, filed in December, claimed that the law was arbitrary and irrational, and subjected its members, 300 landlords and managers of 17,000 rental units in Westchester County, to a “web of restrictions.”

The challenge submitted by Randy Mastro, a former deputy mayor under Rudy Giuliani, on behalf of G-Max Management, argued that the new law violated fair housing laws and harmed not only property owners but minority tenants, by expanding the rights of affluent tenants.

Plaintiffs in the other three cases did not oppose participation by tenant advocates.
A date for oral arguments has not been set, but Legal Aid said it expects it to be scheduled within the next few weeks.
 

David Goldsmith

All Powerful Moderator
Staff member
Rent law challenge dismissed; battle may go to higher court
Landlord groups CHIP and RSA plan to appeal the decision, which upholds New York’s rent laws

A judge ruled that the government has the power to make laws that hurt real estate values, in a decision that dismissed challenges to last year’s rent reforms and paves the way for the fight to head to a higher court.
In a decision filed Wednesday in New York’s Eastern District Court, Judge Eric Komitee wrote that legal precedence supports the government’s right to pass rent regulations — even if those regulations lead to a fall in real estate values.

“Rent regulations have now been the subject of almost a hundred years of case law,” Komitee’s wrote. “That case law supports a broad conception of government power to regulate rents, including in ways that may diminish — even significantly — the value of landlords’ property.”

Komitee’s decision wiped out each of the claims brought forth by the Community Housing Improvement Program (CHIP) and the Rent Stabilization Association (RSA). It did not dismiss all the claims brought by 74 Pinehurst and a number of LLCs owned by landlords including Michael Vinocor and Dino, Dimos and Vasiliki Panagoulias.

“We recognized when we began this case that the district court might interpret prior decisions by the Court of Appeals, and even older rulings by the Supreme Court, to preclude our claims,” said a spokesperson for CHIP and RSA. “As the opinion states, it’s not for a lower court to reverse this tide — so while we respectfully disagree with the decision — we aren’t surprised by it.”
Those involved in the push for last year’s changes were not fazed by the plaintiffs’ plans to appeal. “We’re confident that the laws we passed are legally sound,” said Cea Weaver, who coordinated the tenant-led changes to the rent law.

Ellen Davidson, a staff attorney at the Legal Aid Society, which is a party to both cases, said that the judge “quickly and easily” dismissed the claims, and that even conservative justices at the Supreme Court, where the plaintiffs hope to eventually argue their case, have found rent regulations to be constitutional.
“I wasn’t worried when the case was filed and I continue to not be worried,” Davidson said.
Although Komitee’s decision reiterated the government’s power to pass rent laws regardless of their impact on property values, it dismissed the claim that the Housing Stability and Tenant Protection Act, signed into law last year, interfered with investor expectations. Those can change, the decision reads, based on when investors buy properties and what business plan they execute.

The ruling cites a previous decision, which found that the changes to the rent law did not amount to a “physical invasion by government,” and instead adjusted the “benefits and burdens of economic life to promote the common good.”
The landlord groups’ challenges to the rent law have another chance at success with a planned appeal to the Second Circuit.
“We look forward to pursuing our claims on appeal, followed by a briefing process in the Second Circuit and then oral arguments,” said a spokesperson for CHIP and RSA. “We think the appeals process will bring about success for the case — and at a time where fundamental questions about the future of housing in New York are being driven by current events, that success can’t come soon enough.”

After they appeal the decision to the Second Circuit, the plaintiffs expect oral arguments to begin as soon as next spring.
 

David Goldsmith

All Powerful Moderator
Staff member
Control freaks: Institutional players take over landlords' war on rent caps
As small landlords flounder, institutional owners are taking over efforts to beat back rent caps

When Steve Kessner began buying East Harlem rental buildings in the 1980s, like most landlords of rent-stabilized apartments, he played the long game. Keeping maintenance and renovation costs to a minimum, Kessner made modest but steady returns on his 47 properties, many of them run-down and rat-infested, and one of which he bought for just $5.
But when New York state lawmakers added ways to boost rents on stabilized housing in the 1990s and 2000s, it drew global pools of capital seeking higher returns. Three different buyers have since tried their hand at Kessner’s portfolio.
Hedge fund Dawnay Day bought the properties for $225 million in 2007, but the firm collapsed during the financial crisis. Next came Irving Langer’s E&M, notorious for evicting rent-stabilized tenants — a practice rewarded by a 1994 state law. Then Emerald Equity Group acquired the portfolio in 2016 for $357 million, financed with a $300 million acquisition loan from Canada-based Brookfield Asset Management, only to see state politics shift and the rent law swing back in favor of tenants this year.
Defeated in New York, big apartment building owners have been pouring money into politics to avoid a similar fate in California, Illinois and other states where rent control battles are raging.
National real estate investment trusts and global private equity giants have spent tens of millions of dollars lobbying in New York and California in the past year, according to an analysis of campaign finance records by The Real Deal.
The large institutional players are taking charge of efforts to fend off tenant gains as presidential candidates side with tenants and local landlord groups are bogged down by disagreements and disorganization.
Institutional investors control more rental housing nationwide than ever. Private equity firms and real estate investment trusts now own at least 200,000 multifamily rental units, according to an analysis of public financial filings.
Losing statehouse rent control fights can be costly. Just three months after New York’s sweeping reform in June severely limited increases of regulated rents for the foreseeable future, Emerald defaulted on loans for two buildings in its Dawnay Day portfolio. The firm, which had circulated a prospectus to investors in 2018 outlining plans to deregulate even more apartments and renovate a substantial portion of the Dawnay Day portfolio, began to miss payments in September.

Meridian broker Marvin Jeremias, who arranged the original financing, said that Brookfield was refinanced out of the investment long before the loans went into default. But Brookfield remains heavily invested in multifamily properties that politicians could rope into regulation, disrupting its plan to “redevelop well-located, older assets and earn an attractive return [for its investors] by raising rents.”
Brookfield acknowledges that the strategy is at risk, noting in its latest SEC filing that “the imposition of rent control on our multifamily residential units could have a materially adverse effect on our results of operations.” The company, which manages assets worth $350 billion, declined to comment for this story.
The California lobbying rush
California’s largest real estate investors and trade groups, including the California Apartment Association (CAA), have pumped more than $110 million into lobbying in the state since 2008. Some $72 million of that was spent last year alone to preserve a statewide ban on new rent control measures, with almost 30 percent coming from just five institutional firms: Blackstone, Equity Residential, AvalonBay, Essex Property Trust and Invitation Homes.
On Equity Residential’s most recent earnings call, the firm, part of billionaire Sam Zell’s real estate empire, decried the “chilling effect” of rent regulation in New York City and told investors the new law had cost it $400,000 in application and late fees — roughly $40 for each of its nearly 10,000 rental apartments in the five boroughs.
But the revenue hit from fee caps pales in comparison to that from the new limits on increasing rent through renovations, vacancy and deregulation of units, which is now exceedingly difficult to do.
Equity Residential and Invitation Homes did not return requests for comment. Blackstone did not comment, and AvalonBay Vice President Jason Reilly said, “We do not publicly speculate on potential legislative matters.”
Jim Markel, a California regional manager at the commercial brokerage Marcus & Millichap, said Essex had “taken a leadership role” in last year’s fight against Proposition 10, a referendum that would have undone the state’s restrictions on rent control by local governments, and against a similar ballot measure now being pushed by tenant groups.
“Most of the major owners, as well as the private equity owners, are very up in arms about the prospect of rent control,” Markel said.
Michael Weinstein, president of the AIDS Healthcare Foundation, one of the main groups seeking greater tenant protections in California, told TRD that before voters rejected Proposition 10, there were high-level negotiations between his organization and the CAA, which represents larger firms and institutional investors.
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At a meeting convened by state Sen. Bob Hertzberg, it appeared a compromise had been reached. But according to Weinstein, it was rejected — not by CAA, but by two of the top institutional investors in California.
“The big interests said they wanted to go for broke,” Weinstein said. “We hammered out a deal, and then it was rejected by Blackstone and Essex, who were in the room.” (A source familiar with the meeting claimed that Blackstone was not present.)
“I think Blackstone cares so much about rent control because … like any public company, you have a commitment to your investors, to make certain you’re responsible and there’s an adequate return on your investment,” said Tom Bannon, the chief executive of CAA.
Essex CEO Michael Schall signaled on the firm’s most recent earnings call that the top firms have not let their guard down since defeating Proposition 10 and winning concessions on a rent control bill, AB 1482, that California passed this summer.
“We obviously track [rent control initiatives] pretty carefully and we kept our [campaign] entity, Californians for Responsible Housing, alive and well and organized in case of this,” Schall said about other rent control initiatives in the Golden State. “So we’ll wait and see what happens.”
Trade groups in disarray
Until recently, rent control was a local issue limited to city-based landlord and tenant groups battling in isolated jurisdictions. But in the past year it has been amplified with the help of Sen. Bernie Sanders and Rep. Alexandria Ocasio-Cortez. Both have called for a cap on annual rent increases and for making it harder to evict tenants. The two politicians have ardent followings and immense media platforms, so their advocacy — along with an increasing number of rent-burdened tenants — could make rent control a lasting element of the nation’s political narrative.
Another factor that is motivating stepped-up political efforts by national investors in multifamily housing is the failure of New York landlord groups this spring in Albany.
The Real Estate Board of New York, Rent Stabilization Association and Community Housing Improvement Program spent $2.8 million on advertising to soften the blow of the state’s pending rent-law reform, to little effect.
The campaign, which sought to highlight mom-and-pop landlords, instead featured one who had poorly maintained her Upper West Side building, leaving tenants without cooking gas for 18 months. A ramen shop in her building, its gas burners rendered inoperable, had to close.
At least the trade associations collaborated on the ad buy. Since then, their efforts have been scattered.
Another industry group, the New York Capital Region Apartment Association, is organizing its roughly 400 members to sway lawmakers, but has rejected the idea of working with the other real estate lobbying organizations.
RSA and CHIP filed a federal lawsuit in July challenging the constitutionality of the rent law — a process that could bear fruit in three or four years. But the Real Estate Board of New York did not join the suit.
“We asked them whether they would be interested, and they declined,” said RSA’s longtime leader Joe Strasburg, who noted that REBNY “makes their own decisions, whether it’s right or wrong.”
A spokesperson for REBNY declined to comment.
Strasburg acknowledged that he did not even visit Albany during the legislative session, instead conducting meetings via phone. REBNY and RSA did meet with Democratic state Sen. Julia Salazar early in the year, but both parties said the meetings were not productive. No surprise there: The groups had for years supported Senate Republicans, who reliably defended landlords’ interests when the rent stabilization law came up for renewal every few years. When the GOP was swept out of power in the 2018 elections, landlords were left with little influence in the upper chamber.
Some REBNY members, including Brookfield and Blackstone, took their own lobbyists to Albany during the session. But REBNY, CHIP and RSA were not included in a March meeting between real estate interests and backers of a platform of nine state bills. Instead, Blackstone, A&E Real Estate Holdings and Taconic Investment Partners negotiated with the tenant advocates in the closed-door meeting, which was organized by Kathryn Wylde, president and CEO of the Partnership for New York City, a leading business group.
Although Blackstone is the largest owner of rent-regulated units in New York City, Wylde said she invited the global asset manager to the meeting as a potential source of capital for solutions to affordable housing and as a trusted expert on finance. “[Blackstone] just has some very smart people in residential finance,” Wylde told TRD.
The meeting was unusual, according to Wylde, but she said she expects to facilitate more gatherings about rent-stabilized housing in the future. Wylde said Blackstone, A&E and Taconic are “in it for the long haul.”
They are spending accordingly. Blackstone has put at least $595,000 into New York lobbying since 2015, while Brookfield has spent $2.2 million on state lobbying and given at least $619,000 to Gov. Andrew Cuomo’s re-election campaign in the same period.
Brookfield also lobbied against the changes to New York’s rent regulations — specifically, state Sen. Neil Breslin’s bill to allow municipalities outside of the city to opt in to rent stabilization.
Like other firms that have bet on multifamily housing, Brookfield may be looking to make such investments in upstate New York as an alternative to the five boroughs, given how regulations have tightened in the city, sources say. But Breslin’s bill, which passed, represents a threat.
According to Breslin, the Canadian asset manager came to his office to discuss the potential rent law but failed to win him over.
“Brookfield didn’t change my mind,” Breslin said. “I’m very proud of the legislation, and I’d do it again.”
 

David Goldsmith

All Powerful Moderator
Staff member

Manhattan judge dismisses New York City landlords’ suit, upholding constitutionality of 2019 rent laws​

A Manhattan judge dismissed a lawsuit brought by five New York City landlords in the latest ruling upholding the constitutionality of sweeping rent reforms passed by the state Legislature in 2019.
Manhattan Federal Court Judge Edgardo Ramos in his March 8 decision found the landlords’ case to overturn the Housing Stability and Tenant Protection Act couldn’t continue even if their financial woes will.

“Plaintiffs … cannot argue that the 2019 Amendments interfered with their reasonable investment-backed expectations. Rent regulation has existed in some form in the city for over seventy years, and rent stabilization in particular has existed for over fifty years,” Judge Ramos wrote.
The judge added the landlords “knowingly entered a highly regulated industry.”

The sweeping consumer protection laws, which apply to one million rent-stabilized New York City apartments, made it unlawful for landlords to reject tenants based on their history in court with previous landlords, lengthened the time they have to evict renters, and made it harder to convert rent-stabilized units to condos or co-ops.
The package also made the rent regulation system in the five boroughs permanent and allowed municipalities outside of the city to opt into rent regulation.

Three of the landlords who brought the suit manage buildings with a mix of rent-stabilized and unregulated apartments at 335 and 337 W. 14th St. in the Meatpacking District; 226 W. 16th St. in Chelsea; and 172 Prince St. in the West Village.
The two other plaintiffs in the suit are no longer landlords — one managed a rent-stabilized apartment building in the Bronx, 699 E. 137th St., and the other owned a rent-stabilized building in East Harlem, 309 E. 110th St.
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All claimed they’d suffered enormous financial damage from the 2019 regulations, which the landlords claimed prevented them from profiting from their property, using their units how they want, and exiting the market if they wish to do so.
Judge Ramos accepted the landlords’ litany of complaints as true in his ruling — including their assertion that the sweeping reforms had “an enormous negative economic impact” on their lives — but dismissed all of the lawsuit’s points as moot.
“Loss of profit alone” does not count as a regulatory taking of their property, Judge Ramos wrote in his decision, adding that landlords “have no constitutional right to an unregulated market.”
New York City launched a campaign to educate renters of their rights Monday, Oct. 21, 2019, five months after Albany lawmakers enacted some of the strongest tenant protections in years.

New York City launched a campaign to educate renters of their rights Monday, Oct. 21, 2019, five months after Albany lawmakers enacted some of the strongest tenant protections in years.
The landlords filed the now-tossed suit against the city, the Rent Guidelines Board, and RuthAnne Visnauskas, who heads the Division of Housing and Community Renewal, a state agency that monitors New York’s rent regulation rules.

It’s the fifth lawsuit brought by landlords since state Democrats, in control of the state Senate and Assembly for the first time in years, passed the comprehensive reforms that radically strengthened New York’s tenant protections.
“We understand that part of the reason for bringing these cases — part of the reason there are five cases — is that there’s a well-financed plan to try to get one of these five cases before the Supreme Court with the new justices,” Ellen Davidson, an attorney with the Legal Aid Society who represented several tenant advocacy groups in the suit, said Monday.

“An immense amount of money is being spent on this effort,” said Davidson. “Not because there’s a belief that so much has changed constitutionally with the new law. There’s a belief that they can buy their way up to the Supreme Court, and then bring property law back to 19th century jurisprudence.”
 

Noah Rosenblatt

Talking Manhattan on UrbanDigs.com
Staff member
hm, this line for some reason stands out to me: " Judge Ramos wrote. The judge added the landlords “knowingly entered a highly regulated industry.”
 

David Goldsmith

All Powerful Moderator
Staff member


Tenants freak over rent board appointee. Landlords? Meh​

Mayor names rent control skeptic, which critics call “extremely problematic”​

Tenant advocates say the mayor’s appointment of NYU finance professor Arpit Gupta to the Rent Guidelines Board shifts power on the panel to landlords.
Landlords’ response: If only.
In a December Vox article, Gupta, a fellow at the free-market think tank Manhattan Institute, said he was a “little skeptical of rent control” because it only helps tenants in affected units, not renters overall.
For tenant advocates, Mayor Eric Adams’ move was like putting the Grinch in charge of Christmas.
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Sheila Garcia, the board’s lone tenant representative, told City Limits that Gupta’s outlook is “extremely problematic” because board members must “manage what rent stabilization looks like and they can’t be skeptics.”
Gupta is one of the five at-large members, who largely determine board votes because the other four seats are evenly split between landlord and tenant representatives. But landlords say the assumption that he could sway the board toward them is overbaked.

“Arpit, he’s an economist,” said Jay Martin, executive director of the owner group Community Housing Improvement Program. “Who better than an economist to look at economic figures coming out of rent-stabilized buildings to determine whether or not the buildings warrant a rent increase?”
Tenant advocates prefer board members to base their votes on tenants’ ability to pay. The Rent Guidelines Board votes annually on how much landlords can raise rents on the city’s 900,000-plus rent-stabilized apartments.

Adams also picked real estate attorney Christina Smyth to replace an outgoing owner representative. One tenant seat was left vacant after Adams’ unnamed selection withdrew at the 11th hour.

Martin said he sees the backlash as tenant-side anxiety that after years of favorable votes for renters, Gupta could create “some sort of moderation.” The appointee did not respond to a request for comment.

Gupta replaces Cecilia Joza, a program director at the Mutual Housing Association of NYC, a nonprofit that works to create more affordable housing. During last year’s meeting, Joza voted no on all proposals, including an increase requested by owners, a freeze sought by tenants and the final resolution: zero increase for six months, then a 1.5 percent hike.

Throughout the last administration, owners criticized then-Mayor Bill de Blasio for influencing the board to favor tenants. In 2020, the panel froze rents for one year-leases, the third freeze in de Blasio’s tenure, after the mayor had repeatedly called for one.
“What he did, unlike any other mayor, is he came out publicly and said the results he wanted,” Martin said. “That was precedent-setting.”

However, Martin said he doesn’t see Gupta’s appointment as evidence that the new mayor is stacking the board for owners.
“I don’t think there’s anybody who would say that we, the small- to medium-sized operators, have this outsize political influence on the mayor’s agenda,” Martin said. “I would love to say that’s the case. I just don’t think it is.”

Rather, Martin said, it’s likely that there are fewer tenant attorneys and advocates available to take on a new role. Last month, legal service providers said they were “overwhelmed” by an influx of housing court cases after the eviction moratorium expired in January.
Regarding who would be named to the unfilled seat, a spokesperson for the mayor declined to comment to City Limits.

Last year, an open owner member was not chosen until the day of the preliminary vote, which establishes a range of rent increases from which the board chooses in June. The delay enraged landlords. Scott Walsh, whose seat Smyth fills, said the incoming member would be set up “for failure.”
The appointee, Robert Ehrlich, an attorney at Lazarus Karp, said he wasn’t familiar with owner-member proposals ahead of the meeting.

Adams, like de Blasio, has been vocal but not consistent on rent hikes. In February the mayor said he would back a new freeze on regulated leases, a 180-degree swing from his statement last summer that he would not support a freeze because of the impact it would have on small property owners, particularly Black and Brown ones, the New York Post reported.

Still, the mayor said he would only support a freeze if it jibes with the board’s data.
That could spell tough luck for owners. The board often diverges from its data-backed recommendations. Last year, it called for a 2 percent hike on one-year leases to keep pace with operating costs, then approved the half-year freeze.

Although this year’s recommendations are pending, the board released a report last week showing landlords’ profits had plummeted nearly 8 percent in 2020, the most in 17 years.
A separate report by the state’s Division of Homes and Community Renewal estimated owners would need to raise rents by 11.4 percent for the 2022-2023 leasing cycle to keep pace with costs. The board’s last double-digit increase was in 1981.

Amid the growing support for a rent hike, owners have called on the board to follow the numbers.
“The RGB must tune out the background noise and interference from the anti-owner politicians and, instead, base deliberations on their own data,” Joseph Strasburg, president of the Rent Stabilization Association, said in response to its latest report.
 

David Goldsmith

All Powerful Moderator
Staff member
New York housing agency to crack down on rent-regulated, 'Frankenstein' loophole

A state agency is looking to crack down on a loophole in New York state law that has allowed landlords of rent-regulated apartments to combine units and dramatically increase the rent — a legal workaround that regulators have been aware of for more than two years.
The Division of Housing and Community Renewal, the state agency that oversees roughly one million rent-regulated units in New York, issued a proposed rule change last week that would curb a landlord’s ability to merge regulated units, a move the real estate industry is already decrying.
Landlord groups say the proposed changes would hurt them financially and questioned whether the state agency has the authority to make such a change to state law.
“They're basically legislating by regulation,” said Jay Martin, executive director of the Community Housing Improvement Program, which represents about 4,000 owners of mostly rent-regulated apartments.
Martin predicts that the proposed rules, if implemented, would lead to potential lawsuits.
“It's just a catastrophe,” said Martin.
The agency’s proposed rule change, which is subject to public input, comes just days after Gothamist reported on the agency’s lack of movement on the loophole. DHCR was first made aware of the issue as early as February 2020 and said it would address it then.
The Real Estate Board of New York, the powerful trade group representing developers and landlords, is also voicing its objections.
“It is disappointing that at a time when New York City is experiencing a worsening housing crisis, the Governor and her team are putting forward ideas that further discourage investment in rental housing,” James Whelan, president of the Real Estate Board of New York or REBNY, said in a statement.
The 2019 overhaul of New York’s rent laws strictly limited the ways landlords can raise rents on regulated apartments.
However, the law did not say how much rent landlords can charge after they combine two or more rent-regulated units or merge a rent-regulated unit with a market-rate apartment.
In the years since the rent laws passed, the real estate industry waited for clarity from DHCR. In the meantime, landlords went ahead and combined units, setting the initial rent to what they wanted.
The proposed changes would require that the rent of a new combined apartment be no more than the sum of two previous rents.
As Gothamist previously reported, an East Village landlord combined two rent-stabilized apartments that residents dubbed a “Frankenstein” unit, and listed the new four-bedroom two-bath unit on StreetEasy for $9,000 a month, nearly three times higher than what it would have cost to rent the regulated units separately.
Before they were combined, the 2020 rents for the one-bedroom apartments were about $1,300 and $1,800 a month, according to the rent roll obtained by Gothamist.
The rent for the East Village apartment would be roughly $3,100 under the rule changes being floated by DHCR.
I'm very pleased that they finally came out with their rules, even though it took them several years to get them done
State Sen. Liz Krueger (D-Manhattan)
“I'm very pleased that they finally came out with their rules, even though it took them several years to get them done,” said state Sen. Liz Krueger (D-Manhattan).
Krueger said the proposed changes would increase the supply of affordable housing because landlords who have been leaving regulated apartments vacant with the hope of combining them would put them back on the market.
“So that should be good for affordability,” she said.
Among the other changes being sought by DHCR:
  • If an owner takes space from a regulated apartment to increase the size of an unregulated apartment, the new enlarged apartment becomes rent regulated.
  • If an owner increases or decreases the size of a regulated apartment, the rent is adjusted by a percentage equal to the percent change in the size of the apartment.
The state housing agency is holding a public hearing in Lower Manhattan on Nov. 15 to get input from the public — one of many steps required before a rule can go into effect. Members of the public can also weigh in virtually, by submitting via email to 2022RentRegulationComments@hcr.ny.gov.




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David Goldsmith

All Powerful Moderator
Staff member
Proposed rent regs lack legal basis: lawyers
Last week, the Hochul administration dropped a bomb on owners of rent-stabilized apartments, proposing four tenant-friendly regulations fill gaps in a three-year-old law.

The headline change would cinch a loophole that allowed landlords to set new first rents on combined apartments. Merging units, coined “Frankenstein-ing” by The Real Deal, was — short of tearing down their buildings — the last route for owners to jack up stabilized rents since passage of the Housing Stability and Tenant Protection Act, or HSTPA.

“HCR obviously went haywire here.”
Zachary Rothken, Rosenberg & Estis

The proposals by the Division of Homes and Community Renewal would limit the rent to the sum of the separate apartments’ rents.

But can the agency even do that? Landlord attorneys are leaning toward no.

As detailed on its website, HCR is acting under New York state’s Administrative Procedure Act, which allows agencies to propose regulations of state law.

Landlords’ lawyers claim the proposals would not implement state law but rather create it out of whole cloth.

“HCR obviously went haywire here,” said Zachary Rothken, head of the administrative law unit at Rosenberg & Estis, a law firm that represents landlords.

Although the agency justified its proposals as the legislature’s intent in passing the 2019 rent law, they cover elements not mentioned in it, Rothken said.

And about those tear-downs: In addition to changing the Frankenstein rule, HCR would nix provisions that allow an owner to set market-rate rents after rehabilitating a building that is 80 percent vacant and would require landlords to complete a total demolition — no shell, no foundation — to charge market price for new units.

“Nowhere in the HSTPA does it even talk about substantial rehabilitation or newly created apartments or making these changes to demolition,” Rothken said.

“To say that limiting first rents in newly created apartments is in the spirit of the HSTPA is just wrong,” he added.

The spirit of the law, however, was clearly to permanently and significantly limit rent increases, as owners of rent-stabilized apartments have been lamenting ever since. Although it did not specifically address the initial rent of a newly combined unit, the state agency reasons that the legislature did not intend to give landlords carte blanche in setting it.

Rothken, though, said a bill introduced last year shows otherwise. The legislation, which did not gain traction in Albany, would have capped first rents on combined vacant apartments at the sum of the separate units’ rents — just as HCR is proposing.

“So if there was a separate bill that sought to do this that never made its way anywhere in the legislature, [that proposal], number one, obviously had nothing to do with the HSTPA and number two, obviously was not the legislature’s intent” in the 2019 law, Rothken said. In other words, if legislators intended to limit the first rent in 2019, it would have passed the 2021 bill to do that.

It is not uncommon, though, for lawmakers to introduce bills to clarify ambiguities in the law and remove the risk of a court doing so in a way they don’t like. At the November hearings on the proposed regulations, supporters will surely say the existence of the 2021 bill does not mean the 2019 law deliberately ignored combined apartments.

The 2019 law was debated for months but hashed out largely behind closed doors as legislators rushed to pass it before its predecessor expired June 15. Then-Gov. Andrew Cuomo threw the process into some disarray by withdrawing from negotiations and daring the legislature to pass something without him, which it did in a frantic final weekend.

Should the courts eventually rule on HCR’s proposal, they could consider whether lawmakers accidentally or deliberately failed to address combined apartments, demolition and other issues now up for debate. If the omission were intentional, as one industry source involved in the negotiations said was the case, judges might reject the agency’s claim that its regulations reflect lawmakers’ intent.

But even if lawmakers meant to specify what should happen with combined apartments and demolitions and simply failed to include those provisions in the 2019 bill, the courts could rule that regulators cannot simply fill in the blanks.

Administrative agencies such as HCR are part of the executive branch, which implements the law, he said. They are not a legislature, which writes and passes laws.

“It’s often said that administrative agencies’ regulations cannot be out of harmony with the statute,” Belkin said. “HCR opted to compose its own song here.”

The real estate industry has been down this road before. Just last year, it notched a win when an Albany judge struck down a ban on broker fees. The Department of State had interpreted the HSTPA to mean landlords must pay the fees but the state Supreme Court called its ban “an unlawful intrusion upon the power of the Legislature” and “an abuse of discretion.”

HCR’s proposed regulations must pass through a public review process before they are amended or adopted. Given the uncertainty of that, Joseph Strasburg, president of the Rent Stabilization Association, a landlord group, said “it is too soon to discuss a potential challenge to the proposed amendments.”

Still, attorneys say there’s no question that should the regulations go through, a lawsuit will follow.

The Hochul administration says it is confident in its position. Prior to announcing the proposals, HCR conducted an extensive legal review to ensure compliance with state rent laws, a spokesperson for the agency said.

Agency actions to enforce the rent law have survived court cases before.

In 2014 it created a Tenant Protection Unit to investigate landlord fraud and harassment. Property owners and trade groups sued, claiming in part that HCR lacked a statutory basis for creating the unit.

HCR won that suit, but its victory was aided by the 2019 rent law. Late last year, the courts found the law acted as a backbone for the 2014 amendments.

That is, by the time a judge ruled on the agency’s changes, legislation existed to back them up.

“I don’t think that decision sets a precedent as to whether HCR is now acting ultra vires,” Rothken said, referring to the legal term for government action that exceeds the scope of its powers.
 
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