ATTENTION PROPERTY OWNERS OF RESIDENTIAL, MULTIFAMILY, AND INVESTMENT PROPERTIES
Recent changes in landlord tenant-laws in New York have been impactful for property owners of residential, multifamily, and investment properties.
Of particular significance has been the Housing Stability and Tenant Protection Act of 2019 (“HSTPA”), signed into law on June 14, 2019. HSTPA has impacted almost every aspect of the relationship between landlord and tenant, and while the full effects of the law have yet to be realized, here are some important changes to consider.
Ability to recoup costs for maintenance and improvements:
Previously, landlords were permitted to increase rent based on certain capital improvements to the building, known as Major Capital Improvements or MCIs, at rates of 6% in New York City and 15% in other counties. Now, under HSTPA, rent increases are limited to 2% per year across New York State. In addition, any rent increases that are a result of major capital improvements or individual apartment improvements must be retracted after 30 years.
Landlords also previously could increase rent through improvements to individual apartments, by charging 1/40th of the cost of the improvements in buildings with 35 or fewer apartments and 1/60th in buildings with 36 or more apartments. Under the new law, the allowable charges for these unit improvements are reduced to 1/168th and 1/180th, respectively.
Screening potential tenants:
Prior to the enactment of the HSTPA, landlords had no obligation to mitigate damages if a tenant broke the lease by vacating early. If the apartment remained vacant throughout the remaining term of the lease, the landlord could still maintain an action to recover the rent lost during that time. Now, according the HSTPA, landlords must make a “reasonable and customary effort” to rent the apartment after the tenant has broken the lease.
Landlords should also be aware that tenants with a set lease term, or those who have occupied the rental space for more than one year, must be given a greater period of notice in order for the landlord to terminate the lease. Previously, month-to-month tenancies could be terminated with service of a 30-day notice. Now, a 60-day notice is required if the lease term or occupancy is between one and two years, and a 90-day notice is required if the lease term or occupancy is greater than two years.
Financing the purchase of an investment property:
As highlighted above, the sweeping reforms in the HSTPA severely curtailed the amount that landlords can be reimbursed for renovations through rental increases. It also eliminated nearly all pathways to flipping regulated units to market rate, and greatly expanded potential liabilities for rent overcharge. Due to the uncertainty created by the law, most lenders are taking a wait-and-see approach, particularly with respect to loans for multi-family homes.
Maintaining accurate records of rent receipts, major capital improvements, and individual apartment improvements:
Rent stabilized apartments are governed by regulations limiting the amount the property owner may charge for rent. Tenants in a rent stabilized apartment who are given a market-rate lease can likely pursue a rent overcharge claim more easily now. First previously landlords only maintained four years of records, because if a tenant brought a rent overcharge claim, four years was as far as a court could go back to review. Now, the court can examine the entire rent history if “reasonably necessary,” so landlords have a larger burden of maintaining records.
Also under the previous law, landlords had a “safe harbor” period to avoid treble damages for a rent overcharge claim, whereby they could refund any overcharge and adjust the rent. That “safe harbor” provision has also been eliminated.
Finally, the statute of limitations for an overcharge claim has been extended from two to six years.
All of these provisions have increased the risk of liability for landlords who may have slight inconsistencies in their records, or who may not have properly filed a rent registration form. Landlords across the State have expressed concern that these new limits will trigger declining property values and buildings that will be left in despair. Property owners need to be diligent in navigating these new measures, in order to avoid the harsh sanctions which can be imposed for even unintentional mistakes.
At J&G, LLP, we have a group of experienced attorneys who can help you navigate all of these new laws.
This is not intended to be legal advice. You should contact an attorney for advice regarding your specific situation.
Samuel Bergsohn is an associate with the firm and practices Landlord/Tenant and Land Use Law.
He can be reached by phone at 866-303-9595 toll free or 845-764-9656 and by email.
