August 26, 2019

Is Anyone Really Benefiting from the 2019 Rent Regulation Laws? | Real Estate Law Update

NYC-based boutique law firm Pardalis & Nohavicka brings the latest legal updates from the world of real estate to PropertyShark. Pardalis & Nohavicka handles an eclectic array of matters, representing individuals and business owners in civil litigation, criminal cases and business transactions, currently litigating and representing clients throughout the United States and around the world.

According to the New York City Rent Guidelines Board, approximately 1.2 million apartments in New York City alone are regulated – whether under rent control, rent-stabilization or another type of regulation. In the 1940s, these regulations were intended to protect low-income families and veterans returning from war. It allowed them to live in New York City at an affordable rent and with an opportunity to work in a flourishing, wealthy city.

However, the city has changed, the people have changed and now the rent regulation laws have changed. The “Housing Stability and Tenant Protection Act of 2019” (TPA) enacted in July 2019 repealed or limited almost all of the old laws. Since then, there have been many discussions and articles published regarding the tenant reactions, rights and protection. While the TPA was created for rent-regulated and non-regulated tenants, here we’ll consider the other perspective: through the lens of the landlord. How does the current TPA affect landlords as investors and managers?

It’s too early to determine the actual effects of these laws on the landlords, their investment strategies and the buildings themselves. Many “small” landlords of rent-regulated buildings in the boroughs purchased these buildings with “upside” – potential to make more money in the future. The initial motivation in purchasing regulated buildings is to eventually have some units de-regulated according to the law. This would then allow for an increase in the rent a landlord could collect. In the past, landlords were able to increase rents through:

  • vacancy
  • Individual Apartment Improvements (IAIs)
  • Major Capital Improvements (MCIs)
  • decontrolling tenants through rent and income caps previously enforced

However, under the new law, almost all of these methods have been ceased or limited for landlords. For example, under the old laws, a landlord could increase an individual unit’s rent through an IAI by a small percentage of the cost they put into the improvements. There were no monetary caps on the improvements made, and the increase in rent was permanent to that unit. Conversely, today, IAI expenses:

  • are capped at $15,000 over 15 years
  • have drastically reduced ratio increases
  • expire after 30 years

Many of the current changes have discouraged landlords from purchasing rent-regulated buildings because there is no longer an “upside.” Or, if there were opportunities for profit, they wouldn’t occur for several decades. Additionally, landlords have almost no motivation to reinvest, improve or modernize these buildings because of the caps on IAIs and MCIs. Together, this could effectively decrease the value of rent-regulated buildings and cause landlords to neglect such buildings. Smaller landlords could even be forced out of business.

A major concern for tenant advocates was this reduction in the rent-regulated apartment in the boroughs. However, landlords were still developing properties with rent-regulated units to benefit from tax abatements. So, will the TPA effect these (421-a) apartments, as well? The New York City Rent Guidelines Board website currently does not have any information or laws regarding the TPA or its effects on 421-a.

Learn more about the new laws under the TPA, and how it could potentially influence tenants in our previous article.


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