Briefing Book
Appendix B:
The Rent Regulation System in New York City
RENT REGULATION
IN NEW YORK CITY:
A Briefing Book
===============================================================
Appendix B
THE RENT REGULATION SYSTEM IN NEW YORK CITY
This appendix provides a brief history of rent regulation in New
York City and an explanation of the current regulatory system.
A BRIEF HISTORY
Rent regulation in some form has been present in New York City
for most of the 20th century. Rent levels were first administered
by the courts under the Rent Laws of 1920, which were enacted by
the State Legislature in response to the increasing numbers of
evictions in New York City after World War I; there had been some
96,623 evictions in 1919.(1) Under this ineffective system,
tenants could go to court to challenge rent increases as
excessive. The first wave of rent regulation was brief in tenure;
it was completely phased out by 1929.
Prompted by wartime shortages in the 1940's, rent regulation
resurfaced as a federal initiative under the Emergency Price
Control Act.(2) Administration of price controls (including
rents) was left to the U.S. Office of Price Administration. Under
this system, rents were frozen on a community-by-community basis.
New York City rents were frozen at 1943 levels and adjusted as
necessary by the administrator. After the war, Congress gradually
phased out price controls, extending federal rent regulation
until 1950.
New York State Rent Control.
In 1950, New York State took over as regulator of rents for 2.1
million apartments across the state,(3) including New York
City.(4) Only apartments constructed before February 1, 1947,
were controlled. Utilizing March 1, 1950, as a base date, owners
could apply for rent adjustments on the basis of hardship, which
entitled them to increases if they were earning less than the
fair annual net return of 4 percent. Landlords were also allowed
to charge a 15 percent vacancy allowance upon turnover, and they
could obtain rent increases for new equipment, such as stoves,
refrigerators, and kitchen cabinets. Otherwise, rents remained
frozen until 1953, when there was an across-the-board, 15 percent
increase above 1943 rent levels for apartments that had not
previously received such increases.
Also in 1953, the Legislature established vacancy decontrol for
regulated apartments in one- and two-unit buildings, and it
decontrolled owner-occupied apartments. Beginning that same year,
periodic amendments ended rent regulation for most upstate
jurisdictions. By 1972, the only counties still covered by state
rent control were Erie, Albany, Schenectady, Rensselaar,
Westchester, and Nassau.
Rent controlled units are still being phased out under the
vacancy decontrol law enacted in 1971. The New York State
Division of Housing and Community Renewal (DHCR) estimates that
the number of currently rent controlled suburban units in 1992 is
14,000, the majority of them in Westchester and Nassau Counties.
Decontrol of "luxury" units was implemented in 1958, applicable
to apartments renting for more than $416.66 per month or $5,000
per year unfurnished and $500 per month or $6,000 per year
furnished.(5)
City Rent Control.
In 1961, the fair annual return provisions of the state rent
regulation statutes were amended. The use of the 1954
equalization rate was eliminated and in its place the
equalization rate for the then most current year was used to
determine fair return. This seemingly small change resulted in a
large jump in assessed values and opened the door for owners to
file "hardship" applications for rent increases. The subsequent
wave of rent increases lead to a tenant campaign in New York City
for local administration of rents.
In 1962, the Legislature and Governor Nelson Rockefeller enacted
a law ending state rent control in New York City and giving the
city the power to adopt its own rent control laws. The City
Council and Mayor promptly passed local rent control.(6) The
city's housing agency (now the Department of Housing Preservation
and Development) was made responsible for administration.
The 1962 enabling law affected 1.8 million pre-1947 apartments in
New York City. Over time, the city would enact two major changes
to the rent regulation system. In 1969, the City Council passed
the Rent Stabilization Law, placing post-1947 apartments under
regulation for the first time. In 1970 came Local Law 30,
constituting a major overhaul of the rent control system
applicable to pre-1947 buildings.
The Rent Stabilization Law of 1969.
In 1961, New York City enacted a new zoning code, which
significantly reduced the maximum allowable density for newly
constructed residential apartment buildings. Because the new code
was not to take effect until 1964, developers rushed to start
construction projects, thus escaping the downzoning. Thousands of
rental units were added to the city's housing stock between 1961
and 1966. The result was a glut of new "luxury" housing and a
rising vacancy rate, which was measured as 3.2 percent citywide
(8.81 percent for "luxury" apartments renting for more than $250
per month unfurnished and $300 per month furnished) by the 1965
Housing and Vacancy Survey. This glut spurred the decontrol of
some 7,000 luxury apartments in New York City in 1968.(7)
In order to attract tenants, owners of these new apartments were
forced to lower initial rents, which were in the $200 to $300 per
month range ("luxury" housing at the time) and make concessions-
typically, two to four months of free rent.
But by 1967-1968, the real estate market had already begun to
absorb the glut: the 1968 Housing and Vacancy Survey showed a
citywide vacancy rate of 1.23 percent. Landlords began jacking up
rents with increases that began at 40 percent and sometimes
exceeded 100 percent. In a chilling illustration of the lack of
legal protection for tenants in unregulated housing, the
president of the tenant association at the Lincoln Towers complex
on Manhattan's West Side was evicted for leading a protest.
The continuing rent rises in post-1947 housing spurred an
organizing drive by tenants. The campaign led to the 1969
enactment of the Rent Stabilization Law (RSL), which initially
affected 400,000 apartments in New York City.(8)
A compromise worked out by the administration of Mayor John
Lindsay and the real estate industry, the RSL was consciously
designed to be less onerous for landlords than the rent control
system. Landlords of post-1947 units would be required to join an
industry association (this came to be known as the Rent
Stabilization Association, or RSA), which would enforce the law.
Failure to join the RSA and pay annual dues subjected the
landlord to the dreaded rent control system, but landlords soon
learned that this was a hollow threat as the city consistently
failed to impose this penalty. The RSL also established the Rent
Guidelines Board (RGB) -- a nine-member body comprised of four
members to represent real estate interests, four members to
represent the public interest, and a neutral chair -- which was
empowered to determine rent increases. An enforcement arm, the
Conciliation and Appeals Board (CAB), was established to settle
disputes between tenants and landlords.
However, the RSA remained the most influential administrator of
the system. The association used membership dues, earmarked under
the law solely for administration and enforcement, to advocate
against the very system it was charged to enforce. Among the
activities paid for with membership dues were lawsuits against
the city, lobbying against renewal of the RSL, anti-rent
regulation advertising, and studies purporting to prove the
negative impact of rent regulation. In 1980, New York State
Attorney General Robert Abrams sued the RSA, seeking to suspend
its certification under the RSL. This lawsuit was eventually
mooted by legislative action against the RSA.
A major flaw in the RSL was the lack of rent registration. If a
tenant filed a complaint of rent overcharge (few did), the
landlord was required to produce prior leases in order to
establish a rent history. If the landlord refused to produce the
records, the enforcement agency was virtually powerless to act.
The CAB, whose members were appointed by the mayor, was
completely dependent on the RSA for its funding, which was
inadequate.
Because of this flaw and general non-enforcement, overcharging
was rampant. At one point, the RSA chair, who had a large real
estate portfolio, was forced to sign an enforcement agreement
with Attorney General Abrams and return hundreds of thousands of
dollars of overcharges to his stabilized tenants.
This experiment in industry self-regulation, universally
criticized as a failure, lasted from 1969 until 1985, when the
RSA was finally severed by action of the State Legislature from
any administrative or enforcement role under the rent
stabilization system. Since 1985, the RSA has been merely a trade
association representing landlords.(9)
Instead of the statutory tenancy protection against eviction used
under rent control, the RSL instituted "lease control" -whereby
landlords are required to offer tenants a renewal lease and
tenants are obligated to renew if they want to remain in
occupancy. Originally, tenants had a choice of a one-, two-, or
three-year lease renewal; the three-year lease was eliminated in
1983. Upon renewal, the landlord has a right to increase the rent
up to the percentage limitation determined by the RGB, which
votes annually on one-year and two-year "guidelines" for rent
adjustments.
Landlords frequently manipulate this lease renewal process,
taking advantage of the mistaken fear of many tenants that they
will be evicted if the landlord doesn't renew the lease and that
therefore they must agree to illegal conditions. In fact, failure
by the landlord to offer a lease renewal is a complete defense
against eviction under the RSL. Failure to renew also bars the
owner from collecting any rent increase.
Maximum Base Rent System.
The year after passage of rent stabilization, the New York City
Council thoroughly revamped the rent control system with passage
of Local Law 30.(10) This 1970 legislation established the
Maximum Base Rent (MBR) system for pre-1947 buildings, under
which an "economic rent" was established. The economic rent is
defined as an amount sufficient to allow the owner to pay for all
operation and maintenance costs (i.e., taxes, labor, and fuel)
and to earn a net return equivalent to 8.5 percent of the
equalized assessed value of the property. The MBR is adjusted
every two years to establish a new economic rent.
Under this system, which took effect on January 1, 1972, the
landlord can impose increases of 7.5 percent each year until the
tenant's rent (the Maximum Collectible Rent, or MCR) reaches the
MBR. Based on this formula, however, the MCR almost never reaches
the MBR; most rent controlled tenants have paid annual 7.5
percent increases for the past 20 years. As these increases are
compounded, controlled rents increase dramatically, and in some
cases they now exceed stabilized rents in the same building.
Local Law 30 provided that the biennial adjustment of the MBR was
to be done on a building-by-building basis. The theory was that
once the economic data for the building was entered into a
computer data base, it could feasibly be updated every two years.
But administrative and computer problems resulted in enormous
backlogs and delays in issuing MBR orders of eligibility.
Consequently, the city announced in 1974 that an across-the-board
percentage adjustment, based on average citywide changes in
operation-and-maintenance costs, would apply to all MBR orders.
The city later defeated a lawsuit filed by tenant organizations
to compel it to calculate the MBR on a building-by-building
basis.
The MBR system linked the removal of housing code violations to
rent increases. If landlords failed to correct violations, they
would not qualify for MBR orders of eligibility, which were
needed to collect the annual 7.5 percent rent increase. For
several years, this was a useful tool in forcing irresponsible
landlords to make repairs and provide services. However,
following transfer of the city rent control system to state
administration in 1984, DHCR stopped enforcing this provision.
In 1980, the City Council enacted a fuel cost pass-along for rent
controlled apartments. The fuel component was removed from the
MBR and landlords were granted a surcharge for the cost of fuel,
expressed as a dollar amount per room. Thus, most rent controlled
tenants currently pay both a 7.5 percent MCR increase and a
separate fuel surcharge each year. The amount of this monthly
surcharge varies from year to year, depending on the type of fuel
used and the changes in its market price.
Senior Citizen Rent Increase Exemption.
When the City Council enacted the MBR system, it also passed a
bill that for the first time protected low-income, elderly
tenants under rent regulation from additional rent increases.
Known as the Senior Citizen Rent Increase Exemption (SCRIE), the
program spares certain regulated tenants from otherwise allowable
rent increases. To qualify for exemption, a tenant must be 62
years of age or older; have an annual income below a certain
threshold; and be paying one-third or more of his or her income
for rent (or be faced with a pending rent adjustment that would
bring the rent above one-third of income). If the tenant is
already paying more than one-third of income for rent, there is
no rent rollback to one-third; the rent is frozen at its current
level.
Thus, for the first time, a progressive, direct subsidy to some
low-income tenants was built into the rent regulation system. The
landlord does not pay for the subsidy. The City of New York pays
for it by granting reductions in the landlord's real property tax
bill. This program costs the city approximately $50 million per
year in lost tax revenues. Because the State Legislature must
approve all property tax abatements, increases in the maximum
income eligibility must be enacted at the state level.
In 1974, the State Legislature extended SCRIE eligibility to rent
regulated jurisdictions in Nassau, Westchester, and Rockland
Counties. Rent regulated municipalities in the so-called "three
counties" must opt into the program, since they pay for its cost
through lost tax revenues.
The SCRIE income eligibility limit has been increased gradually
by the State Legislature and the City Council to its current
level of $16,500 per household per year. About 18,000 tenants
under rent control and 25,000 under rent stabilization now
benefit from SCRIE. The number of eligible senior citizens is
undoubtedly greater, but many elderly tenants do not apply or
fail to re-apply each year in which case they are dropped and
their rent reverts to the higher, regulated rent. The SCRIE
certification is also revoked if the tenant's household income
exceeds the maximum in any given year.
Over the years, tenant advocates have proposed expanding SCRIE to
include disabled tenants who are not senior citizens and low-
income tenants of any age. Mainly because such an expansion would
increase the cost of the program to the city, these proposals
have never been enacted.
Vacancy Decontrol.
In 1971, Governor Rockefeller pushed a package of bills through
the State Legislature. The bills provided for vacancy decontrol
of all rent regulated apartments throughout in the state,
effective June 30, 1971.(11) One of the bills, known as the
Urstadt Law (named for Charles Urstadt, Rockefeller's housing
commissioner) prohibited the City of New York from adopting any
law or regulatory amendment that would make the rent regulation
system more "stringent" (i.e., more protective of tenants) than
existing law.(12)
The Urstadt Law remains in effect to this day. During the three
years full vacancy decontrol was in effect, some 110,000 rent
stabilized and 400,000 rent controlled apartments were removed
from the rent regulation system.(13)
Emergency Tenant Protection Act of 1974.
By 1974, the effects of vacancy decontrol were apparent, as
documented in a report by the Temporary State Commission on
Living Costs and the Economy. Rents jumped precipitously on
turnover. The volume of eviction proceedings had risen
dramatically -- against both rent regulated tenants and
unprotected tenants who had taken occupancy on or after June 30,
1971. Incidents of landlord harassment of tenants had also
increased. Pledges made publicly by the real estate lobby in 1971
had not materialized: Few landlords upgraded their units on
turnover, and the promised "multi-million dollar construction
boom" did not take place even though the legislature had also
enacted significant tax incentives for new housing development in
1971.
At the same time that New York City tenants were complaining to
the legislature about harassment, evictions, and rising rents,
tenants in post-1947 buildings in the suburban counties around
New York City were pressing for protective legislation. The
result was the Emergency Tenant Protection Act (ETPA) of
1974.(14)
In essence, ETPA rescinded vacancy decontrol for New York City
rent stabilization. Rent controlled units in buildings with six
or more apartments in New York City, Nassau County, and
Westchester County continued to be subject to vacancy decontrol
but, when vacated, were placed under rent stabilization. Rent
controlled units in smaller buildings and upstate remained
subject to full vacancy decontrol. And rent stabilization -- in a
form somewhat different from the New York City system -- was
extended to Nassau, Westchester, and Rockland Counties, whose
municipalities were given the right to opt into the system. The
state Division of Housing and Community Renewal (DHCR) estimates
that there are 70,000 stabilized units in the "three counties."
Omnibus Housing Act of 1983.
The most recent substantial revisions to the rent regulation
system came with the Omnibus Housing Act of 1983.(15) This state
law shifted administrative responsibilities away from the City of
New York (rent control) and away from landlords (rent
stabilization) to DHCR, the state agency that already
administered rent control and ETPA outside of the city. No
substantive changes were made in the rent control system. Annual
rent registration was implemented for rent stabilization. The law
prohibited "lease reopeners" under which tenants had been hit
with surcharges after renewing their leases, and it eliminated
the option of three-year leases for tenants. Otherwise, there was
no change in the RGB rent-setting system.
Rent regulation has remained virtually unchanged since 1983. All
of the rent laws are subject to a periodic "sunset" (expiration)
clause and must be renewed. State rent control and ETPA usually
sunset every two years and are subject to renewal by the State
Legislature. New York City rent control and rent stabilization
must be renewed by the New York City Council and are usually
extended for three years at a time; in order to renew these laws,
the city is required to conduct a survey to establish the
citywide net vacancy rate, which must be no higher than 5
percent. This Housing and Vacancy Survey is conducted by the U.S.
Bureau of the Census.
To summarize, rent regulation in some form has existed
continuously in New York since World War II, following a brief
period of regulation in the 1920's. Responsibility for
administration of regulations has shifted from federal to state
to local and back to state government. There are currently two
forms of rent regulation in New York City. More of the details of
each are described below.
THE CURRENT SYSTEM
Rent Control.
As of 1991, there were 124,411 rent controlled apartments in New
York City. Rent control limits the rent an owner may charge for
an apartment and restricts the right of an owner to evict
tenants. Rent control is in the process of being phased out by
vacancy decontrol, which began in 1971. Controlled units now
represent only 6.4 percent of the renter-occupied housing stock
in New York City. By contrast, in 1970 there were 1.1 million
rent controlled apartments in the city.
In order for an apartment to be under rent control, the building
must have been constructed before February 1, 1947, and the
tenant must have been living there continuously since before June
30, 1971 -- or must have been succeeded by a surviving spouse,
adult life partner, or other family member. When a rent
controlled apartment becomes vacated, it falls under
stabilization if it is in a building with six or more units;
otherwise it becomes unregulated.
Rent control in New York City operates under the MBR system. A
maximum base rent is established for each apartment and is
adjusted every two years to reflect changes in operating costs.
Owners who certify that they are providing essential services and
have removed violations are entitled to raise rents by 7.5
percent each year until they reach the MBR limit. Tenants may
challenge proposed increases on the grounds that the building has
violations or that the owners' expenses do not warrant an
increase.
Rents can also be raised:
(1) if the landlord increases services substantially,
rehabilitates the building, or installs major capital
improvements;
(2) in case of hardship(16)
(3) to cover high labor costs; or
(4) to cover fuel costs (pass-alongs).
The law prohibits harassment of rent regulated tenants. Owners
found guilty of intentional actions to force a tenant to vacate
an apartment can be denied decontrol and lawful rent increases,
and they are subject to civil penalties.
Rents may also be decreased in certain cases. Such cases include
rent overcharges, substantial and uncorrected code violations,
and reduction of services, facilities, space or equipment.
Rent Stabilization.
In New York City, apartments are under rent stabilization if they
are in buildings with six or more units built between February 1,
1947, and January 1, 1974. Tenants who live in buildings with six
or more units built before February 1, 1947 -- and who moved in
after June 30, 1971 -- are also covered by rent stabilization. A
third category of rent stabilized apartments covers buildings
with three or more apartments constructed or extensively
renovated since 1974 with special tax benefits provided by the
421a and J51 programs. These buildings are subject to vacancy
decontrol when the tax benefits end.
While DHCR is responsible for enforcing rent regulation in New
York City and throughout the state, each jurisdiction covered by
rent stabilization -- Nassau, Rockland, and Westchester Counties
and New York City -- has a Rent Guidelines Board (RGB) that is
charged with setting rent guidelines for its jurisdiction. The
RGB is a citywide or county-wide body with a mandate to
investigate the conditions of the residential real estate
industry and establish rent adjustments for rent stabilized
housing units. The RGB sets maximum allowable rates for rent
increases in stabilized apartments. These guideline rates are set
once a year and are effective for leases beginning on or after
October 1 of each year. The New York City RGB consists of nine
members, all of whom are appointed by the mayor. Two members are
appointed to represent tenant interests, and two are appointed to
represent owner interests. The five remaining members are
appointed to represent the general public.
Like rent control, stabilization provides other tenant
protections besides the monitoring of rent levels. Tenants are
entitled to receive required services and have their leases
renewed, and they may not be evicted except upon grounds allowed
by the law. Leases may be renewed at the tenant's choice. Tenants
have an option of selecting one- or two-year leases.
Enforcement.
From April 1, 1984, to the present, both rent control and rent
stabilization have been administered by the state housing agency.
DHCR is now the sole administrator of the state's rent regulation
laws. The Omnibus Housing Act of 1983 required owners to register
initially with DHCR the legal rents and services for all
stabilized apartments by June 30, 1984.
Owners are required to send a copy of the registration to
tenants, who have 90 days to challenge the information. If a
tenant challenges the rent and the challenge is upheld, DHCR may
order a refund of any overcharges, plus interest, for a period of
four years prior to the filing of the challenge. Owners are
required to register initially all apartments within 90 days
after they become subject to rent stabilization. Formerly rent
controlled apartments enter the rent stabilization system upon
vacancy and are then subject to initial registration.
After the initial registration, owners of rent stabilized units
must file annual registration statements giving the rent for each
unit and must provide tenants with a copy. Owners who do not file
initial or annual statements are not eligible for rent increases.
Rent controlled apartments were required to be registered in
1984, but there is no provision for annual registration.
If a tenant's rights are violated, DHCR can reduce rents and levy
civil penalties against owners. Rents may be reduced if services
are not provided. In cases of rent overcharges, DHCR may assess
penalties of interest or treble charges payable to the tenant.
Such complaints must be filed within either two years (rent
control) or four years (rent stabilization). DHCR also processes
rent increase applications (for hardship or Major Capital
Improvements) and some eviction applications by landlords.
Complaints filed with DHCR are administrative (except for some
harassment complaints) and therefore do not require court
appearances and the concomitant drawbacks of missed work. Most,
if not all, of the complaint resolution process takes place by
mail.
Notes to Appendix B
1. Report of the Temporary State Commission on Rental Housing,
Vol. 1, March 1980, pp. 1-42.
2. Public Law 421, 77th Congress; 56 Statute; 50 U.S.C.,
Section 901-916.
3. Ibid, pp. 1-57.
4. Chapter 250 of the Laws of 1950.
5. Report of the Temporary State Commission on Rental Housing,
Vol. 1, March 1980, pp. 1-59.
6. Chapter 21, Laws of 1962 (the Local Emergency Housing Rent
Control Act).
7. Report of the Temporary State Commission on Rental Housing,
Vol. 1, March 1980, pp. 1-67.
8. Ibid, pp. 1-76.
9. See Dennis Keating, 1987, "Landlord Self-Regulation: New
York City's Rent Stabilization System, 1969-1985," Journal
of Urban and Contemporary Law, vol. 31, no. 77.
10. Enacted June 26, 1970, as Local Law 30 of 1970.
11. Chapters 371 and 1012, Laws of 1971.
12. Chapter 372, Laws of 1971.
13. Keating, Dennis, 1987, "Landlord Self-Regulation: New York
City's Rent Stabilization System 1969-1985," Journal of
Urban and Contemporary Law, vol. 31, no. 77, pg. 93.
14. Chapter 576, Laws of 1974 (including the Emergency Tenant
Protection Act).
15. Chapter 403, Laws of 1983.
16. Hardship increases, while still on the books, are seldom if
ever used, since Local Law 30 established the Maximum Base
Rent (MBR) system.