Potential changes to rent regulation in N.Y.

Over the past 15 years, a number of laws were passed that amended N.Y.'s laws on rent regulation and strengthened the ability of landlords to bring their rent regulated properties to the open market. The Rent Law of 2003, Rent Regulation Reform Act of 1997 and N.Y.C. Local Law 4 of 1994 provides for the deregulation of apartments under circumstances known as "high-rent vacancy decontrol" and "high-rent, high-income decontrol." High-rent vacancy decontrol allows for the deregulation of a vacant apartment in which the owner makes improvements to qualify for a regulated rent of $2,000 or more per month, or where the apartment already had a regulated rent of $2,000 or more at the time of vacancy. High-rent high-income decontrol, commonly referred to as "luxury decontrol," provides for the deregulation of apartments with legal rents of $2,000 or more per month and which are occupied by tenants whose household income was in excess of $175,000 in each of the two years prior to the filing of the owner's petition. Although the Rent Law of 2003 extended the effect of these rent regulation laws until June 15, 2011, there is a political effort being made to repeal or amend these laws before they expire. A change in party control of the state senate in the upcoming 2008 elections could result in a policy shift in the state legislature towards rent regulation policies supported by tenant interest groups and perhaps the repeal of certain rent regulation laws, including those that support landlord rights and offer them the ability to remove rental properties from regulation. The state assembly currently under democratic control has introduced legislative bills that would undermine what landlords are able to do. Although the republican-controlled state senate has resisted these state assembly-sponsored bills, their control rests on a one-seat majority. The upcoming elections could result in the loss of this two seat majority and, consequently, a transfer of control of the full state legislature to the democrats. A number of elected officials have gone on the record supporting decontrol and affordable housing. Other recent events also suggest a movement towards changes in existing rent regulation laws. Tenant groups are lobbying for a bill in Albany that would give the N.Y.C. council the right to approve all members of the N.Y.C. Rental Guidelines Board (RGB), the governmental body that sets maximum rates for rent increases. This proposed bill would also change the way in which the RGB determines changes to permitted rents from being based on a survey of operating costs to requiring landlords to submit their net incomes to be analyzed in assessing allowable increases. The increasing intensity of demand for changes in rent regulation laws comes at a time when landlord costs are increasing significantly. On May 6, the RGB proposed increases of 3.5% to 7% for one-year leases and 5.5% to 9.5% for two-year leases. While this proposal contemplates greater increases than in prior years, it does not seem to correlate with the price index report which found operating costs for rent-stabilized buildings rose almost 8% last year and fuel and utility costs are likely to continue to escalate. There have been proposals to eliminate the ability of rent regulated landlords to increase rents by making certain major capital improvements. With so many possible changes looming, landlords considering conversions over the next few years, should strategically think about locking in the benefits of current law by initiating the conversion process as soon as possible. Even if they do not intend to convert immediately, it is important to consider the entire process can take more than two years beginning with the initial plan filing with the attorney general, called a "red herring." While Red Herrings are usually accepted within 10-12 months, the law requires the sponsor to declare the plan effective within 15 months of the accepted date. Until 80% of the apartments are sold or the plan is declared effective, the sponsor can withdraw the plan for any reason, thus, by filing a plan in 2008, the sponsor has time to decide whether to proceed with the conversion. Stuart Saft is partner at Dewey & LeBoeuf, LLP, New York, N.Y.