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New York Lawmakers Agree on Rent Protections for Tenants

Governor to Sign Bills That Real Estate Industry Says May Curb Property Investment

New York state lawmakers agreed on a package of bills to overhaul the state’s rent-regulation system that are designed to broaden protections for tenants, a move predicted to have a negative effect on apartment building values in the nation’s most populous city.

The bills, awaiting final passage and signing by Gov. Andrew Cuomo, are expected to become law before current rules expire Saturday and the New York state legislative session ends June 19.

“There is no negotiation. I will sign whatever bill the Assembly passes. I will sign whatever bill the Senate passes. I will sign whatever bill the two houses together pass. Can’t be more clear to you. There is no negotiation. I will sign the best bill they can pass,” Cuomo said at a news conference Tuesday.

Most significantly, the new rules are set to permanently repeal landlords’ avenues for increasing rents and taking controlled apartments to the free market, a key issue in New York City. One of those is vacancy decontrol, which allows landlords to remove an apartment from rent-regulated status once its monthly rent hits $2,733 and the tenant vacates. The rules also ban what’s called a “vacancy bonus,” where landlords can raise rents up to 20% every time a rent-regulated apartment is vacant.

The rules establish a maximum collectible rent for one-year renewals at the average of the five most recent Rent Guidelines Board annual rent increases. Fuel pass-along charges, which tenants pay based on how much heating oil is used in their building, have been prohibited.

Changes have been agreed upon concerning major capital improvements, known as MCIs. Following such projects at buildings, rent increases have been capped at 2% in New York City, previously set at 6%. The MCI amortization period has been lengthened, reducing the amount of costs that can be added to a tenant’s monthly bill. Rules regarding what spending qualifies as an MCI have been tightened, and 25% of MCIs must be inspected and audited. The rules also eliminate MCI increases after 30 years instead of being indefinite.

The proposed rules hinder the ability for landlords to raise rents following individual apartment improvements, or IAIs. Spending on IAIs has been capped to $15,000 over a 15-year period, during which time a landlord may make use of IAIs three times. The rules also make IAI increases temporary, for up to 30 years, rather than permanent.

New York City apartment landlords and investors have been especially wary of changes to MCI and IAI rules, saying the lawmakers’ proposals would make it more difficult to operate apartment buildings effectively, and that a lack of incentives to improve properties would lead to a deterioration in the quality of housing stock. Some market experts have predicted a spike in sales later this year as some operators believe they won’t be able to meet the burden of the stricter rules and the effect on their bottom lines.

“While the goal of tenant protections is a laudable one, this bill imposes the strictest limitations on rents since rent regulation began 70 years ago. The consequences will be very harmful to the industry, the city and the very housing the bill is meant to protect,” said Blaine Schwadel, a member of Rosenberg & Estis, the largest real estate law firm in New York City.

Victor Sozio, executive vice president and founding member of commercial real estate services firm Ariel Property Advisors, said he was surprised there was not more of a compromise in Albany, the state capital.

“If signed into law, several of these bills may have repercussions that will be felt both near-term and long-term. One of the fears is that such severe changes to existing incentives to invest into and improve properties will have a long-term detrimental effect on both landlords and tenants. These laws also significantly alter the dynamics of the multifamily value-add asset class, which will lead to capital sources revisiting their strategies on investing into these assets,” he said.

Proponents of the legislation hailed the agreement a major win for tenants in a city marked by income disparities and a dearth in affordable housing.

In a joint statement, Senate Majority Leader Andrea Stewart-Cousins and Assembly Speaker Carl Heastie, both Democrats, called the reforms “the strongest tenant protections in history.”

They added, “For too long, power has been tilted in favor of landlords, and these measures finally restore equity and extend protections to tenants across the state.”

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