Hochul signs rent bill that landlords call “disaster”

UPDATED, Dec. 23, 2023, 9:23 a.m.: In a major blow to landlords, the governor on Friday signed a bill that expands the definition of fraud in rent overcharge cases.

The legislation enacted by Gov. Kathy Hochul amends the definition of fraud and codifies rules that limit the rent on “Frankenstein” apartments, a term used to describe when vacant, rent-regulated apartments are combined.

After the bill’s passage in June, landlords ramped up their warnings that the measure would lead to a flood of rent overcharge cases, including against property owners who are presumed guilty if they cannot find long-lost records about building renovations.

“Any mistake, the way this bill is written, can possibly be interpreted as fraud,” real estate attorney Zachary Rothken said in an interview this month.

“This is the last thing that the rent-stabilized market needed, and I would go further and say that this is the last thing that tenants needed,” he added, alluding to the argument that large judgments would suck up revenue needed to maintain buildings.

When reached on Friday, Jay Martin, executive director Community Housing Improvement Program, called the law a “disaster.”

“This could very well be the nail in the coffin for rent-stabilized housing,” he said.

Tenant advocates and the bill’s sponsors have said the bill brings much-needed clarity to the 2019 Housing Stability Tenant Protection Act and closes a loophole long exploited by landlords to deregulate housing.

Some aspects of the bill, which was sponsored by Sen. Brian Kavanagh and Assembly member Linda Rosenthal, were approved earlier this year through a separate process.

In October, the state’s housing regulator certified changes to how rents are sent for vacant regulated units when they are combined, and for deregulating stabilized buildings through substantial rehabilitation.

The new rent for combined units can no longer exceed the combined rents of the previous individual apartments, and the newly created apartment remains rent-stabilized. Previously, landlords could choose a new first rent when merging a stabilized apartment with another unit. It was a rare chance for them to set their own price.

The bill also narrows owners’ ability to raise rents by substantially renovating a building. As passed by the legislature, the bill gives owners six months from the bill’s enactment to retroactively apply for deregulated status achieved through the rehab process.

Landlords say buildings rehabbed and deregulated ages ago could be thrown back into rent-stabilization because they cannot document renovations, as preservation of records was not required and buildings might have since changed hands.

They are getting no sympathy from tenant advocates.

“For too long, landlords have employed ‘Frankensteining’ and other fraudulent tactics to raise rents to take advantage of loopholes in the law, worsening the local homelessness crisis and reducing our finite stock of affordable housing,” Judith Goldiner, an attorney with the Legal Aid Society, said in a statement. “With the stroke of a pen, Governor Hochul has corrected this injustice.”

The governor, however, made chapter amendments that will need to be introduced and approved by the legislature early next year. In a memo explaining the reasons for the changes, Hochul noted that the measure required several amendments “to avoid unintended consequences and address technical legal concerns.”

Late Friday the governor vetoed another rent stabilization-related bill. That measure would have allowed tenants to consult rent histories beyond the usual four-year lookback when seeking to calculate their legal rent after June 14, 2019.

Landlord groups argued that the bill defied a landmark 2020 state Court of Appeals decision, which found that the 2019 rent law could not be applied retroactively to rent-overcharge cases. Kavanagh, who sponsored both bills, said the measures aimed to clarify existing law.

Hochul’s decision to leave the bills’ fate to Christmas weekend suggests that she did not want a lot of attention paid to her actions. She announced the signing of the first bill in an email sent at 6 p.m. Friday.

“This legislation will help to protect the 1 million New Yorkers living in rent-stabilized apartments and give our state better, stronger tools to enforce our rent stabilization laws,” Hochul said in a statement.

This story has been updated to include information about a second bill being vetoed and amendments to the measure that was approved.