June 19, 2019
Now that Gov. Andrew Cuomo has signed what he called “the most sweeping, aggressive tenant protections in state history,” apartment landlords whose properties include rent-regulated units are left to deal with the implications. Jeffrey Schwartz, managing partner of law firm Schwartz Sladkus Reich Greenberg Atlas LLP, has spent a great deal of time lately among multifamily owners, and tells Connect Media that the consensus is that the rent-reform regime is “way too restrictive and way too intrusive.”
Gone, for example, are the statutes that allowed units to be deregulated if rents or tenants’ incomes exceeded certain thresholds. The statutory vacancy bonus is gone, too, and the Major Capital Improvements rent increase has been capped at 2% statewide, down from 6% in New York City and 15% in certain other counties. There are numerous other statutes that formerly helped owners of rent-regulated properties meet expenses but have now been repealed.
It’s not only landlords of rent-regulated apartments who will bear the brunt of the changes, Schwartz warns. “You’re going to see contractors adversely affected, because landlords may not do as much work as they did in prior years,” he says. “That’s going to trickle down to suppliers and retailers.
“It could have a whole down-the-chain effect on people who provide any types of services that landlords were using to put money into their assets and make them better for tenants,” he adds. “Now perhaps you’re not going to see that as much.”
In the wake of the legislation being enacted, “I’ve had two deals in the past week that I had worked on and that are now completely dead,” Schwartz says. The client calls me and says, ’I’m out.’ People are surprised that it went this far.”
Another, less-discussed change is the new procedure for converting rental buildings to condominium or co-op structures. Tenants who choose not to buy their apartments can no longer be evicted, and any non-eviction plan for converting the units to for-sale product must be approved by 51% of current tenants, rather than the 15% previously allowed.
“That basically eliminates the possibility of converting occupied residential buildings to co-ops or condos,” says Schwartz. Granted, there aren’t as many such conversions being done today as there once were, but “landlords who were considering these conversions are reconsidering it right now.”
Lenders are also going to be affected, “to the extent that loans were made prior to this being passed on the assumption that rents would be raised as units became vacant, or that operating income would increase,” Schwartz says. Those assumptions may no longer hold true.
Schwartz also sees a disconnect between lawmakers’ current desire to keep rents low and their perennial appetite for more real estate taxes. “Hopefully, there will be some recognition of that fact by the city, in terms of ‘now that you’ve put a limit on their rent increases, you’d better put a limit on their real estate tax, because landlords aren’t going to be able to meet their operating expense obligations.’ “
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