Hochul Administration Changes Frankenstein Apartment Rules

The state gave life to new “Frankenstein apartment” rules, meaning the practice of creating these units is all but dead.

The state’s housing regulator on Tuesday certified changes to setting rents for vacant, stabilized apartments that have been combined. Initial rents on the units are now capped at the combined rents of the previous units.

Until now, landlords have been able to set a new first rent for those units — a rare opportunity to exceed the increases permitted by the Rent Guidelines Board. As before, the apartments must remain regulated.

The rules effectively remove landlords’ incentive to combine units, a longtime priority of tenant advocates.

Landlords have warned the changes will further erode the finances of rent-stabilized buildings. Some owners rely on higher rents from combined and deregulated apartments to keep their buildings afloat.

The amendments certified Tuesday also changed the rules for demolishing buildings or deregulating them through substantial rehabilitation.

The changes to combining units mirror those included in a bill approved by the state legislature in June, which also expanded the definition of fraud in rent overcharge cases.

That measure, along with another that allows tenants to consult rent histories beyond the four-year lookback when seeking to calculate their legal rent after June 14, 2019, have not yet been delivered to the governor for her signature.

Landlords view the measures as disastrous and have urged Gov. Kathy Hochul to veto them.

Jay Martin, executive director of the Community Housing Improvement Program, views the bills as far more damaging to the industry than the regulatory changes. He noted that opportunities to combine rent-stabilized units were already relatively limited.

“It was one small tool in an owner’s toolbelt,” he said. “By and large it was not in any way going to improve housing or turn this market around.”

Legal Aid previously called landlords’ ability to set first rents a “dangerous loophole” that encourages them to warehouse apartments in hopes of hiking the rent when an adjacent unit becomes empty.

Assembly member Linda Rosenthal, a prime sponsor of one of the bills and a critic of so-called Frankenstein apartments, is hopeful the bills will still be signed.

“Regulations can always be changed, depending on the stance of the governor,” she said. “It is always better to have important matters like that enshrined in the law.”

The Division of Homes and Community Renewal proposed the changes last year. Much like the pending bills, the guidance changes the rules for substantial rehabilitation — one of the few remaining paths for owners to escape rent stabilization. The new rules will make it harder to qualify a building for major rehabilitation.

The state previously considered an 80 percent vacant building “seriously deteriorated” and thus eligible for a major rehab. The new rules eliminate that provision.

They also change the standard for replacing an entire building. Now, to resent rents to market-rate, owners will have to obliterate the entire building, including its foundation.

The industry might challenge the regulatory changes in court.

Zachary Rothken, an attorney with Rosenberg & Estis, said state lawmakers’ passage of a bill that accomplishes many of regulators’ changes shows that the housing division is overstepping its authority. The agency, he said, is supposed to create guidance for laws already in place.

“I think the biggest issue here is DHCR stepping out of their lane and acting like the legislature when they are not,” he said.

The amendments take effect when they are published in the New York State Register, which is expected to be Nov. 8.