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Market rate tenants could become rent stabilized!

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Market rate tenants could become rent stabilized!

Postby TenantNet » Mon Sep 14, 2015 4:06 pm

If you're a market rate tenant, there's a chance you could become rent stabilized.

There are two similar things going on here. The 2015 renewal of the rent laws (AKA the "Big Ugly") inserted a new provision that would have a similar effect as the Altman case discussed below.

If an apartment becomes vacant with a rent of $1,800, what landlords have been doing for years is add the vacancy increase plus with a lot of apartment renovations (also called Individual Apartment Improvements or IAIs) where he can add 1/40th of the cost to the rent. In many cases, the landlord claimed he did the improvements, but actually hadn't.

He would claim the rent was above the $2000 threshold for high rent deregulation. I've seen units going for as low as $1,300 magically become deregulated with the next tenant.

While the threshold was increased to $2,500 in 2011 and now $2,700 in 2015, the ongoing practice of deregulation before it actually hit the threshold has left huge numbers of rent stab units being claimed as market rate.

Of course when a tenant vacates, the rent is still below the threshold. It's not until there's a new tenant that the rent from any legitimate IAI's or vacancy increases can be applied. In other words, the rent is not really above the threshold. But up until Altman, the courts ignored that little fact with a wink.

What Altman does - and the new language in the rent laws - is say that the rent for the departing tenant must actually reach the threshold before it can be deregulated. So if a new tenant comes in, even if the rent is above the threshold, the unit can't be deregulated until the next tenant after that comes in.

This can save many units from deregulation, keep rents lower, provide protections for services and against evictions. It can also give all the hipsters coming into NYC a reason not to hate RS tenants, if they can become one too.

The problem is whether Altman (which still might have to go to the Court of Appeals) is retroactive or not. The article below suggests that it might be. The language in the new rent laws appears not to be retroactive. And as court go, that question might not be answered by the Altman decision, but by a subsequent case not yet filed.

The author below suggests that Altman might be retroactive, but I've heard from other attorneys who think it is not.

We can all hope that it will be as perhaps a few hundred thousand formerly rent stabilized units could come back under the umbrella of rent regulation.

For another explanation, see the 1997 case Central Park South Associates v. Haynes on the page at http://tenant.net/Court/Hcourt/archive/1997/jan97.html.


Thanks to a New Ruling, Your Apartment might be Rent-stabilized after all
http://www.brickunderground.com/blog/2015/09/rent_stabilization_ruling
9/14/15 - 2:49 PM

Huge news in the world of affordable housing: thanks to a recent ruling, scores of New Yorkers may soon find that their market-rate apartments should legally be rent-stabilized, says Sam Himmelstein, a lawyer who represents residential and commercial tenants and tenant associations.

There was some controversy back in July surrounding Albany's new rent regulation deal, and its language specifying that an apartment had to actually be rented by the departing stabilized tenant before a vacancy at the de-regulation limit—which is currently $2,700—in order for a landlord to legally take it market-rate. A denial of a landlord’s leave to appeal in a recent court case—Altman v. 285 West Fourth, LLC—has solidified and expanded this policy, and sources in the landlord community have told Himmelstein's firm they're waiting for the "floodgates to open" of market-rate tenants seeking to get their apartments brought back under rent-stabilization.

Why is this such a big change? Previously, if a landlord could raise an apartment's rent up to $2,700 (or up to $2,500 on or after June 15, 2015; or up to $2,000 on or after June 24, 2011) in between tenants—usually through a combination of vacancy increases and renovations to the apartment, known as Individual Apartment Improvements (IAIs)—they'd be able to legally take the apartment market-rate, and charge the next tenant whatever they liked. Now, an apartment has to hit that limit while a tenant is still in place, which is much more difficult to do (especially given the current freeze on raising stabilized rents). This means that thousands of rent-stabilized apartments will stay regulated for longer, and that de-regulated ones can potentially become stabilized once again. "The Altman case and the new law are very important in terms of trying to preserve and return apartments to rent stabilization," says David Hershey-Webb, a partner at the firm.

"If you’re in a market rate apartment in a building with six or more apartments, you should question whether you are actually a market tenant," adds Himmelstein's colleague Ronald Languedoc. (This is particularly true in neighborhoods like Williamsburg, Bushwick, and Harlem, where prices have gone up rapidly, and landlords are eager to take apartments market-rate and cash in on the boom.)

How to check: first go to your nearest DHCR office and request your apartment's rent history. (Note: you'll need to have proof on hand that you actually live there, like an ID and utility bill.) Landlords generally stop filing an apartment's rent history after it goes market-rate, so if its history suddenly stops and the apartment's rent was under $2,700 before that time (or $2,500 or $2,000 depending on the date), there's a good chance that, under the new rules, it shouldn't have been de-stabilized. At that point, it may be worth your while to consult an attorney to see if you have a case to bring your apartment back under rent-stabilization. (Remember, even if you pay a relatively high rent, rent-stabilization offers a host of other protections, including a limit on how much your rent can be raised every year, and the requirement for your landlord to offer you a lease renewal.) But one word to the wise: do all your research before you talk to your landlord, as market-rate tenants are vulnerable to eviction, and most landlords aren't too keen on being told you're about to bring legal action against them.
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Re: Market rate tenants could become rent stabilized!

Postby BubbaJoe123 » Tue Sep 15, 2015 3:17 pm

So, to make sure I understand this:

Under the old rules: Tenant A is currently paying $1700/month, and leaves. The landlord does $40k in improvements to the apartment (assume he really does the $40k in work), generating an IAI of $1000/month (1/40th of $20k), and taking the rent to $2700. This meets the deregulation threshold, so the apartment is now deregulated, and can charge the new tenant (Tenant B) whatever the market will bear.

Under the new rules: Tenant A is currently paying $1700/month, and leaves. The landlord does $40k in improvements to the apartment (assume he really does the $40k in work), generating an IAI of $1000/month (1/40th of $20k), and taking the rent to $2700. The apartment is NOT deregulated, however, and Tenant B moves in as a rent-stabilized tenant, with a $2700 rent. The apartment only goes market rate if either (a) Tenant B moves out, or (b) the landlord successfully carries out a high-income deregulation proceeding.

Do I have that correct?
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Re: Market rate tenants could become rent stabilized!

Postby TenantNet » Tue Sep 15, 2015 4:37 pm

Essentially correct. (You actually got one right, surprise!)

Regarding Altman, I'd be careful to describe it as "old rules." They can be the rules that were in effect all along, but ignored by DHCR and the courts.

Also, remember that after 2011, the IAI formula changed. See http://www.nyshcr.org/Rent/factsheets/orafac26.htm and item No. 4 on IAI's.

After 2011, if the building has 35+ units, the IAI increase is 1/60th the cost; if less then still 1/40th the cost.

As most of us know, in many cases the IAIs are often not done at all, or shoddily done. And in some cases some IAIs are claimed that really aren't IAIs. For example a new stove can be an IAI, but venetian blinds are not (I saw that one recently).

In many regular NYC apartments - studios and 1-bedrooms, and not luxury units going for $5,000 per month - it would be difficult to spend $40,000 on improvements.

But lets say the IAI's are all done properly and documented, and there are hefty vacancy and longevity increases, then the rent can be increased to whatever that would be. Do the math.

The Altman case and the new language in the rent laws don't change any of that. What is changed is the ability to deregulate. The rent can be $2,700 or higher and the unit can still be rent regulated.The LL has to wait until the next tenant takes occupancy before the unit is deregulated due to high rent.

The language is clear this is the chicken and the egg situation, i.e., which comes first. If the tenant vacates and has been paying $1,700, the rent doesn't increase the day he leaves. There's no new lease to figure out a new rent. No IAI's have been done yet. So on day two, the rent is not at $2,700. It's only when a new tenant signs a new lease, takes occupancy and the IAI's are all done that the new rent is calculated. At that time the rent is $2,700, but by then there's someone in occupancy, the new tenant. So the LL must wait until that new tenant leaves before the unit can be deregulated.

This is nothing new. There have been cases on this before, but they haven't risen to the appeals courts.

BTW, I made a mistake in the original article above. Can you figure out what it is?
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Re: Market rate tenants could become rent stabilized!

Postby BubbaJoe123 » Tue Sep 15, 2015 7:30 pm

Glad I got it essentially right - blind squirrels and all that. :)

Not to go too far off topic, but do I read the new law correctly that the high-income dereg rent will now increase in line with the 1-year RGB rate? Based on that, no apartment could ever become eligible for high-income deregulation, absent MCIs or IAIs, correct?
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Re: Market rate tenants could become rent stabilized!

Postby TenantNet » Tue Sep 15, 2015 8:34 pm

What DHCR calls "High-Rent High-Income Deregulation" is different than High Rent deregulation. A tenant's income must be above the income threshhold (now $200,000) AND the rent must be above the high-rent threshhold (as of June 2015, that is now $2,700 per month). Both of these tests must be satisfied.

The difference is that under regular high-rent deregulation, if can only happen on a vacancy.

Under High-Rent High-Income Deregulation, the deregulation can occur at any time.

The rent threshold (now $2,700) will be indexed by the RGB increases for one year. So if next year a one-year lease renewal increase is 2%, the rent threshold for deregulation will increase to $2,754.

Rents can go up through a variety of ways, i.e. vacancy and longevity increases, MCIs and IAIs. Most I've seen do get the rent up there with the help of MCIs and IAIs. But it could happen without those.
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Re: Market rate tenants could become rent stabilized!

Postby BubbaJoe123 » Tue Sep 15, 2015 9:59 pm

But, absent MCIs or IAIs, under the new system, an existing tenant could never be subject to High-Rent High-Income Deregulation, since they threshold would always be rising at least as fast at their rent. Under the old rules, if you were making $200k/year, and the rent was $2495, a 1% RGB increase would put the rent over $2500, and make you subject to High Rent High Income Deregulation. Now, the threshold will go up by as much if not more as the rent, meaning you'll never go over that threshold, absent a vacancy. That's a pretty huge change, I would think.
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Re: Market rate tenants could become rent stabilized!

Postby TenantNet » Wed Sep 16, 2015 1:01 am

If that's the case, that burns you real hard, doesn't it?

BTW, high income deregulations are less than 10% of all deregulations, and 70% are from just high rent.

So you can still be optimistic.
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Re: Market rate tenants could become rent stabilized!

Postby bartleby1 » Thu Nov 19, 2015 1:17 pm

I'm a stabilized tenant in a bldg in Union Sq. area of Manhattan that recently had an ownership change. Several apts have been gut rehabbed and significantly upgraded in terms of amenities etc. Some of those units were market rate before being vacated and some were rent stabilized. Once renovations were completed a few months back, ALL of them were rented out at very high market-rate rents (multiples of what the stabilized rent was for the vacated stabilized units among them). If I'm understanding what's being said here, the new tenants in the formerly stabilized units would have the ability to get a stabilized lease (at rent rolled back to the luxury decontrol threshold level - either $2500/mo. or $2700 depending on the timing). How would these tenants go about accomplishing that?? Do they have to start some type of case in housing court or the supreme court or the DHCR?? Selfishly, as a member of the tenants' assoc. in the bldg we would like to claw back some of these units to rent stabilization if possible as it is very difficult for market rate tenants to stick their necks out when the TA needs help going up against landlord on this or that issue in the bldg (as we often have to do). Thanks for any light you may be able to shed on this. Bartleby
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Re: Market rate tenants could become rent stabilized!

Postby TenantNet » Thu Nov 19, 2015 1:33 pm

If the new tenants rented their units after July 1*, the new language in the law should apply to them.

If they rented before the rent law renewal took place, then they will have to wait the outcome of the Altman case, which might he heading to the Court of Appeals. Technically Altman is law now (for retroactivity) as it was a decision of the Appellae Division 1st Dept. (which covers Manhattan). But I don't know if DHCR or any court will jump the gun on that.

You are best served if you consult with a good tenant attorney who might be following this case. As you say you have a TA, perhaps you have a contact with a tenant atty.

* assuming the effective date is around July 1, but one should check.

See http://assembly.state.ny.us/leg/?defaul ... o=Y&Text=Y
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