Changes to New York's Housing Laws: What You Need to Know

New York state has enacted changes in the housing laws that will have a significant impact on the development and operation of multifamily housing in New York City and the state, and will also ameliorate the effects of several provisions in the 2019 Housing Security and Tenant Protection Act (HSTPA). 

This Holland & Knight alert summarizes the impact of the changes in the laws. A future alert will contain a detailed discussion of the new 485-x program that replaces the former 421-a program, as well as the new exemption program for the conversion of office buildings to residences. In addition, Holland & Knight will host a webinar in May 2024 to examine the laws and provide practical advice to the industry.

Rent Regulated Units

The following changes were made to the Emergency Tenant Protection Act and the Rent Stabilization Law, which will impact the rents paid on rent stabilized apartments for Individual Apartment Improvements Increases (IAIs).

IAIs enable landlords to recover the costs of restoring, renovating and upgrading individual apartments via permitted rent increases set by applicable amortization schedules.

Under the HSTPA, rent increases for IAIs were 1) limited to $15,000 2) part of the apartment's rent only until the landlord recovered the cost, and 3) to be removed from the rent after 30 years. However, the cost of upgrading an apartment that has been occupied for an extended period of time greatly exceeds the $15,000 cap and, more generally, the $15,000 cap and the amortization schedules imposed by the HSTPA (1/168 of the permitted cost in buildings with 35 or fewer apartments and 1/180 of the permitted cost in buildings with more than 35 apartments in both instances spread over 15 years) did not properly account for construction and renovation costs in New York City. These realities have led to a glut of vacant rent stabilized apartments that are economically infeasible for owners to rent. Accordingly, the following changes were made:

• Rent increases under IAIs are again permanent (reversing the 2019 change) and are limited to vacant apartments.
• The new cap for all units is $30,000, and amortization schedules remain the same, except as below.
• The cap may go to $50,000 under two scenarios: 1) after 25 years of prior occupancy, or 2) for units that were registered as vacant in 2022, 2023 and 2024 only, regardless of prior tenancy length.
• For IAIs at $50,000, the amortization has been adjusted to 1/156 for buildings of more than 35 units and 1/144 for buildings of 35 units or less.
• This provision goes into effect in six months.
• The landlord must submit to the Division of Housing and Community Renewal (DHCR) evidence that the work was done and pay a fee of 1 percent of the IAI.

Tenant Protections (i.e., Good Cause Eviction)

Probably the most contentious issue in the housing package is Good Cause Eviction (GCE), also referred to as rent control for currently unregulated (i.e., market rate) apartments. GCE has been the subject of much press attention and real estate and legal industry discussion, along with numerous articles in the years since its introduction. The Real Property Law and the Real Property Actions and Proceedings Law have now been amended to include a form of GCE that has been modified in many respects from its much-discussed and vigorously debated prior version. GCE is now applicable to many unregulated apartments in New York City and can be applicable to other municipalities in New York state that elect to participate. The premise of GCE is that landlords will be prevented from attempting to evict tenants without a "good cause" specified in the statute.

• Duration: The GCE provisions will expire in 2034.
• Rent Limitations:
  • There is a "rebuttable presumption" that a rent increase of 5 percent plus the Consumer Price Index (CPI), or 10 percent of the existing rent, whichever is less (i.e., the Local Rent Standard), is "unreasonable" and thus impermissible.
  • Rent increases equal to or below the Local Rent Standard are, by definition, not "unreasonable" and are immune from challenge.
  • If challenged by a tenant in court, an owner may overcome the rebuttable presumption that a rent increase above the Local Rent Standard is "unreasonable." In considering whether an apartment's rent can exceed the Local Rent Standard, courts "may consider all relevant facts," including, without limitation:
    • The landlord's costs for fuel and other utilities, insurance and maintenance
    • Property tax expenses and any recent increases thereto, and
    • Whether the landlord seeks in good faith to raise the rent upon a renewal lease to reflect completed significant repairs to the housing accommodation, or to any other part of the building or real property in which the housing accommodation is located (with limitations and exceptions)
  • Lease renewal offers are required except under the following circumstances:
    • When an owner:
      • Seeks to recover a housing accommodation for personal use
      • Seeks to remove the housing accommodation/property from the rental market
      • Plans to demolish the building
    • When a tenant:
      • Fails to pay rent due and owing (subject to exceptions for "unreasonable" rent increases as discussed above)
      • Violates a substantial obligation of its tenancy
      • Fails to execute a reasonable renewal lease
      • Commits a nuisance or causes substantial damage to the housing accommodation or real property
      • Uses the housing accommodation for an illegal purpose
      • Is occupying the housing accommodation in violation of law
      • Refuses access to the owner for certain specified reasons
    • The following types of units are exempt:
      • Rent-stabilized or rent-controlled units
      • Affordable, income-restricted units
      • Condo and co-op units
      • New construction for which a temporary or permanent certificate of occupancy is hereafter issued or was issued on or after Jan. 1, 2009; the exemption lasts for 30 years following issuance of such certificate
      • Units in buildings of 10 units or less if owner occupied
      • Units that are part of small owner portfolios of 10 units or less
      • Subleased units
      • Units occupied solely as incidents of employment
      • Seasonal use dwelling units
      • Housing accommodations in hospitals and assisted living facilities
      • Manufactured homes in manufactured home parks
      • Hotel/transient rooms
      • School dormitories
      • Housing accommodations within and used by religious institutions
      • "Luxury" rent exemption for units renting above 245 percent of the fair market rent set by the U.S. Department of Housing and Urban Development, which presently would be the following monthly rents:

Additional requirements include:

• The definition of tenant is limited to the definition under preexisting law and explicitly excludes squatters and non-paying roommates, among others.
• The definition of rent does not include amenities and other charges besides rent such as storage and parking charges.
• The legislation is ambiguous concerning whether the rent limitations 1) apply only during a tenancy and the rent can be "marked to market" upon a vacancy, or 2) apply across tenancies notwithstanding vacancies. Litigation of this issue may occur in the very near future.
• Litigation is also likely over whether landlords fall under the poorly drafted "small landlord" (10 units owned or less) exemption.
• The legislation creates additional notice requirements applicable to all residential leases, requiring landlords to disclose:
  • Whether the housing accommodation at issue is subject to GCE and if not, the basis for the exemption, and
  • If the housing accommodation is subject to GCE, landlords must send notices to tenants justifying any rent increase above the Local Rent Standard or why the landlord is electing not to renew the lease.

The legislation also requires landlords to disclose the aforesaid information in certain statutory predicate notices, as well as in New York Housing Court petitions.

Housing Production

The New York state legislature also enacted two new tax exemption programs: 1) the Affordable Neighborhoods for New Yorkers Program (485-x program) to replace the expired Affordable New York Housing Program, and 2) a new program to assist conversions of office buildings to residences. Additionally, the state legislature's elimination of housing density limitations will permit the construction of larger residential buildings. The following is a brief summary of the major requirements of these programs. Holland & Knight will publish a more detailed alert that will provide further details on these new programs.

485-x Program Rental Requirements

Additional requirements include:

• No more than three bands, and no band may exceed 100 percent AMI
• Requires permanent affordability
• Market rate units are not stabilized
• A homeownership tax benefit is also available for 100 percent affordable projects where the average assessed value per square foot is no more than $89

Tax benefit terms are also determined by building size and type, and location within a wage zone. Mini tax is paid during construction and then refunded after, consistent with 421a-16. An exception is that buildings with more than 150 units in Zone A and Zone B do not pay the mini tax during construction.

485-x Construction Wage Standard

Projects with more than 150 units in certain geographic areas must comply with a trade-based wage.

• Zone A: All workers within a trade must be paid the lesser of $72.45/hour, or 65 percent of prevailing rate.
• Zone B: All workers within a trade must be paid the lesser of $63/hour, or 60 percent of prevailing rate.
• These rates increase by 2.5 percent annually.

• A citywide elevated minimum wage/benefit is required for projects with more than 100 units.
• An exemption is available for projects using a project labor agreement (PLA) or collective bargaining agreement (CBA).
• Enforcement will be done by the city comptroller via a complaint-based regime.
• The comptroller could revoke benefits for multiple uncured violations of the construction wage provisions.

Office to Residential Conversions

• Conversion projects must deliver 25 percent of units at a weighted average of 80 percent AMI, with a band at 5 percent of units at 40 percent AMI.
• The tax incentive is structured to provide a 90 percent discount off the effective residential tax rate with the following benefit durations:
  • A 35-year benefit is available if filed AND receive a permit by June 30, 2026
  • A 30-year benefit is available if filed AND receive a permit by June 30, 2028
  • A 25-year benefit is available if filed AND receive a permit by June 30, 2031

Lifting of Housing Density Limitations

Eliminates the 12 Floor Area Ratio (FAR) cap (i.e., the ratio of the building's square footage to the size of the lot on which it is built) on new residential developments meeting certain requirements, including, among others:

• Certain minimum percentages of new units are subject to permanent affordability requirements
• Such new buildings cannot be located within a historic district or on the same zoning lot as a building subject to the Loft Law
• Compliance with relocation/compensation requirements for existing tenants in buildings to be demolished for construction of new over-12 FAR buildings
• Compliance with "Certificate of No Harassment" requirements under existing city law

Conclusion

For more information about these changes in the housing laws, contact the authors or another New York attorney in Holland & Knight's Real Estate Practice.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.