The bill that won’t die: Will commercial rent control finally pass?

City Council measure would limit rent increases on retail space

Stephen Levin, REBNY's Jim Whelan and Brad Lander (Credit: Getty Images)
Stephen Levin, James Whelan and Brad Lander (Credit: Getty Images)

For decades, city officials have periodically floated the idea of controlling commercial rents. Now, a new bill seeks to model such regulations after residential rent stabilization.

City Council member Stephen Levin recently introduced the Commercial Rent Stabilization Act, which would create a board to determine annual rent increases for small retail spaces, along with certain offices and manufacturing sites. The legislation has already drawn the ire of the real estate industry and skepticism from City Hall.

“The city has unsuccessfully tried to push initiatives like this through before, so I’m not sure if enough has changed this time around,” said Queens developer Carl Mattone. “The Council has good intentions. Empty storefronts benefit no one, but I think their efforts are just a little misguided.”

As a concept, commercial rent control in New York dates back more than 70 years. In 1945 the state legislature passed measures that applied to small and large commercial landlords. Those laws, which authorized the state to set allowable rent increases, expired in 1963.

In 1986, a proposal surfaced in the City Council that would have applied mainly to small businesses. Rent increases would have been limited to the lesser of 10 percent of the adjusted rent or the prime mortgage interest rate plus 3 percent. The measure also required landlords to offer tenants lease renewals for a minimum of seven years, though it allowed tenants to pick a shorter term.

A version of that bill, the Small Business Survival Act, was discussed in 2009 but was not heard by the Council until 2018. That bill required landlords to offer tenants a 10-year renewal and mandated arbitration if a landlord and tenant could not agree on terms.

“Some bad ideas never die,” said James Whelan, president of the Real Estate Board of New York, in a recent interview. “There isn’t a retail crisis in New York City. The retail vacancy rate nationally is 10 percent, and the retail vacancy rate in New York City is a little over 5 percent.”

A report released by the city comptroller’s office in September found that the citywide retail vacancy rate was 5.8 percent in 2017, up from 4 percent in 2007. During that decade, vacant retail space in the city jumped by 5.2 million square feet, with neighborhoods in the outer boroughs being hit the hardest.

Opponents have advanced many arguments against commercial rent control, including that some landlords will keep storefronts vacant longer in search of high-paying tenants, such as chain stores, and be less likely to take a chance on a tenant that they could be stuck with forever. They also call retail turnover necessary to keep commercial strips vibrant because it makes way for new businesses.

Sign Up for the undefined Newsletter

Seven of the eight leading candidates for City Council speaker in 2013, including the eventual winner, Corey Johnson, endorsed the goal of the Small Business Jobs Survival Act if not the bill itself. But the bill has never come to a vote, a possible indication that politicians who cheer it in public have private reservations about passing it. Johnson himself voiced concerns after last year’s hearing.

Brooklyn Council member Brad Lander, who is co-sponsoring the bill, noted that he wasn’t a sponsor of its predecessor, largely because he thought mandatory arbitration would create “a lot of burden without a lot of benefit.” He also had concerns over the constitutionality of the legislation, given its intrusion on private contracts.

“You don’t wind up in the thick of a contract between two people. We’re not constraining contracts, but we’re providing a baseline maximum standard, which we believe we have the police power to do,” he said.

Last week Mayor Bill de Blasio said he was “sympathetic to the idea” of commercial rent control but expressed doubt about its feasibility.

“Every time that I’ve been in a conversation over [the] years on commercial rent control, I can’t find a legal way to do it,” he said during a press conference. Politically influential business improvement districts have also been strong opponents of commercial rent control.

But the bill’s sponsors remain optimistic that they can win over the mayor and their colleagues.

“There were plenty of things we’ve had to push the mayor on before,” Lander said. “I happen to represent the district that the mayor represented before me. It’s no secret that he loves Bar Toto.”

Lander cited de Blasio’s favorite coffee shop and Brooke’s Appliance Brothers, a fixture in Park Slope since 1987, as “the kinds of small businesses that make our neighborhood great. And I believe it’s that impulse and love of our city that motivate this bill, and that will persuade the mayor and many others that we should do it.”