By: Hellen Zaboulani
Landlords may soon have less loopholes to rely on to deregulate rent-stabilized apartments.
As reported by Crain’s NY, on Wednesday, New York state’s Division of Housing and Community Renewal proposed several amendments that would make it harder for landlords to deregulate units or raise rents using some loopholes. Tenant-protection laws, which were passed by the state in 2019, stopped landlords from deregulating units or raising rents by vacating the apartments or pushing up rents to some degree, still below the threshold. Now, one option still open to landlords is what is known as the ‘Frankenstein’ loophole. The 2019 laws didn’t specify how much rents could go up if two or more apartments were combined, turning them into a larger or “Frankenstein” unit. So, by combining units, landlords can raise prices, in essence deregulating a rent-stabilized unit to create new larger and more expensive units.
The new proposal would eliminate this loophole, specifying how much a unit should be priced at if/when units are combined. The landlord would no longer be able to raise the rent to his liking for rent stabilized units newly combined. Rather, the DHCR is suggesting that the new price should be the sum of the two original stabilized apartment prices combined, plus applicable increases. The new proposal also adds, that if a stabilized unit is combined with a regular unit, the new resulting unit will be subject to stabilization. As per Crain’s, the new proposal states that even if only a part of a market-rate apartment is merged with a stabilized unit, both those units would become regulated.
The new proposal would also make it harder for landlords to deregulate an entire building. Currently, if a landlord significantly rehabilitates up to 75 percent of a building, then the property can be taken out of rent regulation. The new proposal changes the law to say that a property owner must replace ‘at least 75 percent’ of the building in order to allow it to become deregulated.
“Through these regulatory amendments, HCR has put forth proposals that will better protect New York’s approximately two million rent regulated tenants and prevent our current housing stock from unlawful deregulation and disrepair,” agency spokeswoman Charni Sochet said in a statement.
Real estate trade groups, however, severely criticized the proposal. Joseph Strasburg, president of the Rent Stabilization Association, said the proposal is “another example of how building owners are being forced to bear the brunt of a public benefit while also expected to meet their financial obligations.”
“It is disappointing that at a time when New York City is experiencing a worsening housing crisis primarily due to the shortage of rental units, the governor and her team are putting forward ideas that further discourage investment in rental housing,” said James Whelan, president of the Real Estate Board of New York.
The new proposals are still in their initial stages are will be subject to public review before the possibility of being signed into law.
