Creative ways NYC landlords are getting around the new rent rules
Since the law’s passage, RE professionals have found ways to get around the law
Since the passage of the new rent law in June, New York’s real estate industry has searched for ways to cope with the changes.
Landlords have repeatedly warned that the Housing Stability and Tenant Protection Act of 2019 will halt major renovations in rent stabilized properties, since the new measure caps rent hikes achieved through Individual Apartment Improvements and Major Capital Improvements. But other strategies have emerged in the two months since changes to rent rules were signed into law.
Here are five ways landlords are responding to the rent law:
1. Frankenstein apartments, i.e. combining two vacant rent-stabilized units to set first rent
Before the new rent law was signed, landlords would combine two vacant rent-stabilized apartments to set a new first rent — and in cases where that initial rate exceeded a certain threshold (most recently $2,775), the unit would be deregulated. Under the new rules, which no longer permits such deregulation, some landlords are still opting to combine units to secure this one-time rent bump.
Of course, finding two vacant and adjacent stabilized units is easier said than done. In most cases, landlords aren’t going to just idly wait for two apartments to become vacant next to each other— they may offer buyouts to hurry the process along, said Belkin Burden Wenig & Goldman’s Sherwin Belkin.
“It’s stars aligning, but I also think owners are looking for opportunities to facilitate the stars aligning. It may make sense to do a buyout,” Belkin said. “If they have a sense that someone is leaving anyway, they may offer to pay moving expenses.”
The cost of combining units, though, might be a deterrent for some owners, according to Spivak Architect’s Howard Spivak.
“You’ll be rewiring and doing the electrical, refinishing floors and, if it’s an old building, there’s probably lead paint, so you’re looking at replacing the molding,” Spivak said. “It’s going to be tough to justify the cost.”
2. Reidentifying public eviction data
A provision of the new law bars the sale of eviction data to private firms, formerly known as the “tenant blacklist.”
But nothing prevents firms from using public eviction data, which is anonymized. The workaround? It may be computationally trivial to de-anonymize eviction data, especially in small buildings.
Some data privacy practices depend on “k-anonymity,” whereby, in order to protect the identities of people in sensitive datasets, a (hopefully high) number of records cannot be disambiguated. So, even if your name is left off a dataset, there are enough people in your zipcode with a dog named Max who voted for Dennis Kucinich and are Amazon Prime members to throw identity thieves off.
But that principle has its limitations, which were laid bare in 1997 after a Massachusetts governor’s hospitalization was discovered when researchers published an anonymized insurance dataset. Gov. William Weld’s identity was discovered by combining their dataset with publicly available voter registration and demographic data. In New York City, tenant advocates say landlords may be planning to pull off the same sort of feat with publicly available eviction data.
3. Upping other requirements to get around the “tenant blacklist”
Instead of denying an application based on a prior eviction, some landlords are simply upping the other requirements in order to tick a different box. New Jersey-based landlord Daniel Stein, who just bought a Rochester multifamily complex, called the new rules around eviction data “absolutely ridiculous.”
“But there are ways to get around it,” Stein said. “We have very strict income and credit requirements. When looking at a tenant’s application, if they’ve been evicted two to three times in the last year, as long as they’re not meeting the other requirements, we can get rid of them that way.”
4. Collecting application fees
According to the new law, a landlord, lessor, sub-lessor or grantor can only charge up to $20 dollars to conduct a background check — but real estate attorneys say that leaves the door open for brokers and managers.
SSRGA Attorney Jeffrey Schwartz argues that since the law does not specifically mention “managing agents,” they can collect application fees for handling sales and leases of cooperative apartments.
“The [Housing Stability and Tenant Protection Act of 2019] specifies that a coop corporation may not charge an application/processing fee in connection with a new tenancy,” he said in a statement. “But this section of the law does not specifically mention ‘managing agents’ as other sections of the Act do.”
According to The City, Assembly members Linda Rosenthal and Harvey Epstein plan to introduce legislation that would impose hefty fines on landlords and others who act on their behalf if they violate the application fee rules.
5. Closing the door on rent-regulated apartments
With limited means for increasing rents on stabilized apartments, some landlords say they are simply closing vacant apartments and hoping for the rules to change. Last month, the Rent Stabilization Association and the Community Housing Improvement Program filed a lawsuit challenging the constitutionality of the new rent law, alleging that it represented illegal taking of private property and violated due process rights. JLL’s Bob Knakal said some of his clients are prepared to keep apartments closed off for 10 to 15 years to see if the law changes.
“If your last rent from a stabilized tenant was significantly under market, and you get possession of that unit somehow, you are giving, essentially, a life estate to the new tenant,” he said. “So I think the calculus is that, rather than give a life estate to a tenant at a rent well below market, keep the unit vacant and hope that at some point in the not too distant future, either the litigation over the constitutionality of the law prevails or we get some new laws that are more rational and motivate the private sector to invest in the housing stock.”