[NYtenants-Online] NY Tenants Online 4/25/00

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NYtenants Online                                          4/25/00
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In this issue...

1. Rents Expected to Rise in Biggest Increase in a Decade (NY1)
2. Oil Costs May Fuel Rent Hike (News)
3. Rent Proposals Raise Specter of Big Increase (Times)
4. Getting Rentals Off Regulation (Times)

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RENT GUIDELINES BOARD PUBLIC MEETING
April 25th, 2000
Dept. of City Planning Spector Hall
22 Reade Street from 9 a.m. to 12:30 p.m.

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RENTS EXPECTED TO RISE IN BIGGEST INCREASE IN A DECADE
New York 1, April 25, 2000

It looks like residents of stabilized apartments in New York City will have 
to get ready for the biggest rent increase in more than a decade. New York 
1 has learned the Rent Guidelines Board expects to raise rents for one-year 
leases by approximately five percent and two-year leases by nine-percent.

Board officials say there is one reason for the increases: the meteoric 
rise of heating oil prices this winter. Members of the board are meeting 
Tuesday to discuss the hikes.

The Rent Guidelines Board oversees rents on approximately 900,000 rent 
stabilized apartments.

The board is still considering several alternatives to a rent hike, 
including a possible one-time charge that would be passed along to tenants. 
However, officials tell New York 1 the most possible scenario involves a 
mid-range increase. The Rent Guidelines Board must have a final plan in 
place by May 8th.

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OIL COSTS MAY FUEL RENT HIKE
Daily News, April 25, 2000
By Michael R. Blood

Runaway heating-oil prices helped drive up landlord costs nearly 8% — 
meaning tenants in 1 million rent-regulated apartments could be slapped 
with big rent increases later this year.

A politically explosive report to be released today by the Rent Guidelines 
Board concludes that higher taxes and skyrocketing oil prices combined to 
pump up landlord costs 7.8% — the largest jump in years, officials said.

With the board considering increases that would go into effect in October — 
a month before Election Day — the stage is set for a showdown between 
landlords and tenants that could spill into the Senate race between Mayor 
Giuliani and Hillary Rodham Clinton.

"The real-estate industry is doing better than ever. There is really no 
justification for rent increases," said Kenny Schaeffer, vice chairman of 
the Metropolitan Council on Housing, a citywide tenant group.

"The prices of oil are already starting to go down. There's no reason to 
put a permanent increase on every tenant in the city," Schaeffer said.

The report on landlord costs is one of a series of studies reviewed by the 
board before it votes on preliminary rent increases in May. The final vote 
must take place before July 1.

Those increases will apply to roughly 1 million apartments shielded under 
the city's rent-control laws. Last June, the board approved increases of 2% 
for one-year lease renewals and 4% for two years.

"This is an extraordinary year because of the extraordinary fuel 
increases," said Edward Hochman, who heads the board. "Nobody is going to 
be happy this year."

The board faces the challenge of trying to fairly compensate landlords for 
fuel increases — but without handing them a giveaway if prices move downward.

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RENT PROPOSALS RAISE SPECTER OF BIG INCREASE
New York Times, April 25, 2000
By Bruce Lambert

The agency that decides rent increases for the one million rent-stabilized 
apartments in New York City is considering major changes in its formulas 
that could theoretically raise rents 8.5 percent for a one-year lease and 
12 percent for a two-year lease. Rent increases that size have not been 
seen since the era of double-digit inflation two decades ago.

But the head of the agency, the Rent Guidelines Board, said that the final 
figures this year were unlikely to be that high.

Another option being explored, for example, could raise rents 6 percent for 
a one-year lease and 10 percent for a two-year lease. Even that would far 
exceed the levels authorized in the last three years, which were 2 percent 
for a one-year lease and 4 percent for a two-year lease.

"Don't get hung up on the numbers," the board's chairman, Edward S. 
Hochman, said in an interview. "The odds of it being either of those two 
sets of numbers, 8.5 and 12 or 6 and 10, are quite limited. There will be 
variations."

The board now imposes rent increases based partly on an index of landlords' 
operating costs compiled by the board. One of the proposed changes in the 
formula would expand the index to include the effect inflation has on the 
landlords' operating income.

Another would take into account how their operating income is affected by 
tenants who renew with two-year leases. A third change would exclude from 
the calculations the additional income that landlords collect in accordance 
with a 1997 state law entitling them to charge up to 20 percent more to the 
next tenant after a vacancy.

In an annual rite of spring for New Yorkers, representatives of landlords 
and tenants clash over the rent increases in debates at the board's public 
hearings, with cheering and jeering audiences. One side or the other -- if 
not both -- can be counted on to complain about being shortchanged.

But the debate is likely to intensify this time, with both the rent 
increases and the complex method of calculating them being discussed.

The proposals, which Mr. Hochman outlined in a memorandum to the board, 
will be made public at a board meeting today. No immediate decision is 
expected, however. The board's preliminary vote on the maximum rent 
increases is scheduled for May 8, with a final vote on June 22. The new 
rates will go into effect on Oct. 1.

Spokesmen for the landlords said that the board's methods were long overdue 
for revision. "There were some old rules of thumb that were really 
inappropriate," said Jack Freund, the executive vice president and chief 
economist for the city's largest residential landlord group, the Rent 
Stabilization Association. "They just didn't take into account things like 
two-year leases and inflation. The board's price index doesn't measure 
everything, like the fact that buildings are getting older and need more 
maintenance."

The proposals, however, drew a howl of protest from tenant leaders. 
"Outrageous," said Michael McKee, a co-director of New York State Tenants 
and Neighbors, an advocacy group. Landlords are already benefiting from 
excessive rent increases that are yielding record income, he said. At a 
time of low inflation, "there is certainly no need for any rent increase," 
he said, much less a need for a big one. Mr. McKee speculated that the 
giant increases being threatened would be scaled back to make Mayor Rudolph 
W. Giuliani "look like a hero in an election year."

Mr. Giuliani, who appoints the rent board members and its chairman, is 
running for the United States Senate.

Mr. Hochman denied any political motives, saying, "The numbers are the 
numbers."

Mr. Hochman said he wanted the board to end its practice of debating which 
of three different formulas to follow, "two of which were pretty lousy, 
pretty inaccurate." Instead, he said, "I want to have the best formula and 
then fine-tune that."

Mr. McKee called the proposals "a grotesque change in methodology." He said 
that "all the methods are flawed and are set up to justify a rent increase, 
whether it's really needed or not."

Tenant leaders are also worried that as rents rise, more apartments will 
reach a $2,000-a-month rental threshold that can lead to deregulation of 
those apartments.

Besides reviewing the formula itself, the rent board is dealing with actual 
increases in income and costs. The board's annual price index of operating 
costs to be released today shows a hefty 7.8 percent increase.

Mr. Hochman blamed taxes, which he said rose 5 percent, and fuel oil for 
heat and hot water, which jumped 54 percent. "This created havoc," he said. 
Another element, yet to be factored in, is the recent contract settlement 
for the building workers' union.

"We have to produce rough justice," Mr. Hochman said. "We have to protect 
tenants against aberrational increases and still make the owners whole. 
It's a balancing of the equities."

 From the owners' point of view, Mr. Freund said: "Rent increases are going 
to have to be significantly higher than they have been in the last three 
years.

We had a low inflationary environment, and that has changed. Costs have 
gone up, and they have to be passed along. Someone has to pay for it. A lot 
of people are doing quite well out there. Remember, the median rental 
stabilized apartment is $650, so when we're talking about a percentage 
increase, even if it's high, you're not looking at big dollars. Not a lot 
of people will get excited by that."

But Mr. McKee said that basing permanent rent increases on temporary spikes 
in fuel oil prices was illogical and unfair and had proven costly to 
tenants. "The last time this happened was in 1996," he said. "Fuel prices 
started dropping almost as soon as the decision was made for 5 and 7 
percent rent increases, and prices dropped to lower than they were before, 
but the rents were locked in forever."

A rent board study released two weeks ago showed that in 1998, the latest 
year for which figures are available, landlords recorded the highest net 
operating income and lowest cost increases of any year since the city began 
tracking those numbers nine years ago.

But Mr. Freund said: "Don't forget that owners took a real hit in the late 
70's and early 80's. Only now are they getting back to where things were 
before."

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GETTING RENTALS OFF REGULATION
New York Times, April 23, 2000
by Jay Romano

AS rents and apartment prices in New York City continue to rise, landlords, 
among them investor owners of co-ops and condominiums, have been increasing 
their efforts to deregulate rent-controlled and rent-stabilized apartments, 
many real-estate lawyers say. And while that may be bad news for some 
tenants, it could be good news for co-ops that have many renters living in 
sponsor- or investor-owned apartments.

"With the ever-increasing prices in the rental market, and the out-of-sight 
prices of co-ops, I've noticed a dramatic increase in the number of 
'nonprimary-residence' cases and 'luxury-decontrol' cases being brought 
against tenants," said Errol A. Brett, a Manhattan real estate lawyer who 
represents both tenants and co-op boards.

A tenant in a rent-regulated apartment must use it as a primary residence. 
If a landlord believes a tenant has a primary residence elsewhere, and can 
prove it in court, the apartment can be deregulated. In luxury decontrol, a 
rent-stabilized apartment can be removed from regulation if the rent is 
$2,000 a month or more and the gross annual income of the apartment's 
occupants is $175,000 or more for two years. Using either strategy 
successfully, Mr. Brett said, can provide a landlord with a deregulated 
apartment that can be rented or sold at market-rate prices.

"To tenants, apartments are homes," Mr. Brett said. "But to landlords, 
apartments are investments."

David Ng, a Manhattan landlord-tenant lawyer, said that he, too, had 
noticed an increase in cases being brought by landlords   —   particularly 
by those who are sponsors or investors who own co-op or condominium 
apartments   —   under the luxury-decontrol provision of the 
rent-stabilization law.

For a landlord to deregulate an occupied apartment renting for more than 
$2,000 a month, Mr. Ng said, he must first send a document to the tenant 
asking whether the household income exceeds the $175,000 threshold. If the 
tenant does not respond within 60 days, Mr. Ng said, the landlord can then 
petition the State Division of Housing and Community Renewal for an 
automatic deregulation order. In most cases, he said, the division will 
grant the order if the tenant has not complied with the landlord's request 
for information.

Even if the tenant responds to the landlord's query and says the income 
threshold has not been exceeded, Mr. Ng said, most landlords will exercise 
their right to ask the division to verify the tenant's income against state 
tax records. Such persistence, Mr. Ng said, can provide a significant 
benefit for the landlord.

Once an apartment is deregulated, Mr. Ng said, the landlord must offer it 
to the tenant at a market rate rent. If the tenant declines, the landlord 
can rent it at market rate to anyone. If the apartment is a co-op or a 
condo, the sponsor or investor can either rent out the unit, sell it, or 
even combine it with an adjacent unit he may own in the building.

Colleen F. McGuire, a Manhattan lawyer who represents tenants, said that 
landlords can also decline to renew the lease of a tenant who does not use 
a regulated apartment as a primary residence.

"It's the landlord's burden to prove that a rent-stabilized apartment is 
not being used as a primary residence," Ms. McGuire said. On the other 
hand, a tenant's saying that an apartment is his primary residence is not 
necessarily enough. "The courts will look at a wealth of information to 
determine primary residency," she said.

A landlord first must provide the tenant with written notice that the 
landlord has reason to believe the tenant is not occupying the apartment as 
a primary residence. If the tenant refuses to vacate the apartment when the 
lease expires, Ms. McGuire said, the landlord can start eviction 
proceedings. And at that point, Ms. McGuire said, the landlord is entitled 
to obtain all information in the possession of the tenant that may be 
pertinent to the landlord's claim.

"That means the landlord can get copies of your phone bills, your credit 
card statements, your bank accounts, your driver's license, tax returns, 
voting records and even your magazine subscriptions," she said, adding that 
tenants may black out personal financial information on any of the forms. 
"Then the landlord can use all those documents to create a set of 
footprints to show where you're really spending your time."

While no single document would be considered absolute proof of primary 
residency, Ms. McGuire said, some documents carry greater weight than 
others. Tax returns, driver's licenses and voting records, for example, 
would generally be considered a fairly reliable indication of where one's 
primary residence is. At the same time, however, simply using the address 
of the rent-stabilized apartment on such forms is not, in and of itself, 
enough to protect a tenant who is using another home as a primary residence.

"There are lots of things that can wave a red flag to a landlord," Ms. 
McGuire said, explaining, for example, that if a tenant has credit card 
bills sent to a New York City address, but the charges on the bills 
throughout the year are from merchants and restaurants in, say, Florida, 
then the tenant would have a hard time convincing a judge that he or she 
spent most of the year in New York. And while a tenant who spends 183 days 
or more in an apartment will generally be considered to be using the 
apartment as a primary residence, it is not always just the tenant who is 
counting the days.

"Some landlords will even hire a private investigator to track a tenant's 
movements," Ms. McGuire said.

But why would a landlord go to such expense just to be able to decline to 
renew a rent-stabilized tenant's lease if the apartment itself remains 
under stabilization?

"Because in most cases, the apartments don't remain under stabilization," 
said Mr. Ng, the landlord-tenant lawyer. A regulated apartment in a co-op 
or condo becomes deregulated as soon as the tenant departs. In a rental 
building, once a landlord has been successful in evicting a tenant from a 
rent-stabilized apartment, the landlord can make whatever capital 
improvements are necessary to bring the rent for the vacant apartment above 
$2,000, thereby exempting it from rent stabilization.

Mr. Ng explained that by law, the landlord can increase the monthly rent 
for the apartment by 1/40th of whatever amount has been spent on capital 
improvements. That amount, when combined with the permitted vacancy 
allowance of as much as 20 percent, can easily raise the monthly rent of 
many apartments above the $2,000 threshold.

Alan D. Kucker, a Manhattan lawyer who frequently represents landlords, 
said that the landlords are basically doing what prudence dictates and the 
law allows.

"It's no great secret that landlords make decisions based on sound 
investment analysis," he said. "So when the time is right to rent 
apartments, they rent them. And when conditions are right to make a profit 
by selling, they do what they can within the law to sell them."

Arthur I. Weinstein, vice president of the Council of New York Cooperatives 
and Condominiums, said that he, too, has noticed an increase in the number 
of co-op sponsors and investors using aggressive strategies to remove 
apartments from regulation. But that, he said, is good news for co-ops.

"Co-ops are very desirous of sponsors selling their units," Mr. Weinstein 
said, explaining that buildings with high numbers of rental tenants often 
have difficulty getting financing for share loans and underlying mortgages. 
"A co-op is absolutely delighted to have as many sponsor sales as possible. 
It makes for a much healthier co-op."