NYC Landlords Fight State Plan to Close Rent-Control Loopholes

Landlords and owners of apartment buildings with rent-stabilized units in New York City are gearing up to mount a legal challenge to a state effort to close loopholes in a 2019 rent reform law that permitted them to combine vacant rent-controlled apartments and raise rents.

The state Division of Homes and Community Renewal (HCR) filed public notice earlier this month of its intention to adopt new tenant-friendly regulations amending New York’s Housing Stability and Tenant Protection Act (HSTPA), which was enacted four years ago.

HCR aims to close a loophole that enables landlords to combine adjacent rent-stabilized units when they are vacated—breaking down the walls and creating new, expanded “monster” apartment units no longer covered by the rent-control law.

Currently, there are an estimated 16,400 rent-controlled units in NYC, apartments held by a shrinking group of residents who moved into their units prior to 1971 (or are occupied by their heirs, who can inherit them). These units—including apartments in Manhattan, where average rents surged above $5K this year—can have rents lower than $1,300 per month.

Tenants’ rights advocates and community groups in NYC have accused landlords of holding vacant rent-stabilized units open until a neighboring apartment vacates and they can combine the two.

HCR has proposed to limit the rent in the expanded units to the sum of the separate rent-stabilized units that were merged.

Other rule changes announced by the state agency would eliminate provisions in the 2019 law that allow a building owner to set market-rate rents after rehabilitating—but not completely demolishing—a building that is 80 percent vacant.

Instead, HCR will require them to complete a total demolition—including replacing the building’s foundation and shell—in order to charge market rates for new units.

Law firms representing NYC landlords are arguing that the proposed changes are beyond the scope and “spirit” of the 2019 law and cannot be made by HCR without approval from the state legislature. HCR has countered that its new regulations reflect the legislature’s intent when it passed the 2019 law without addressing the loopholes.

The landlords’ lawyers have noted that a bill introduced during the NY legislature’s 2021 session that would have capped first rents on combined vacant rent-stabilized units—a measure that would have adopted HCR’s new formula of applying the sum of the separate units’ rents—died without coming to a vote during the session.

While skyrocketing rents and a shortage of affordable housing in an economy afflicted with persistent inflation are creating headwinds that may blunt building owners’ efforts to stop the new HCR rules, analysts say the matter ultimately will be resolved by the courts:

If the new rules are adopted, they’ll face a legal challenge by landlords claiming the amendments misinterpret the HSTPA law and exceed the authority of the HCR; if not, tenants’ groups are likely to ask the courts to interpret the 2019 law in their favor and prohibit monster apartments.