New perspective on rent regulation.

The just concluded legislative session was truly unique. The Republican controlled Senate made a clear commitment to dealing with rent regulation beyond a mere extender. As a result, rent controls became the focus of the entire legislative session. Notwithstanding the urgency of numerous unrelated issues being addressed by the legislature (including medical malpractice insurance, banking deregulation, environmental trust fund, mental health, etc.) all other issues were placed on hold while rent regulation was debated. The legislative process came to a virtual halt during the two and one-half weeks during which the debate ensued.

As originally introduced by State Senator Kemp Hannon, a far more expansive regulatory reform bill was envisioned. The Assembly's negotiators made it clear that the sort of sweeping regulatory reform pressed for by the Senate was unacceptable. Ultimately, the deal that was struck did not result in a perfect bill from anyone's perspective.

However, the Rent Regulation Reform Act of 1993 must be examined, in context, as a start to dealing with apartments that do not deserve regulatory protection. The last time that there was any sort of meaningful decontrol was in 1971, when both houses and the governor's office were controlled by the Republicans. That any sort of decontrol could be enacted under a Democratic-controlled Assembly and governor's office proved to be a monumental task. During the debate on both the Assembly and Senate floors, rent regulation was clearly defined as a form of "subsidy." Although the decontrol provisions may not go as far as the Senate had initially intended or as the real estate industry would obviously prefer, both houses recognized that, as a result of this legislative struggle, the debate on rent regulation was unlikely to ever be the same.

The act contains a number of provisions that affect the rights, responsibilities and obligations of both owners and occupiers of rent regulated housing accommodations. Among the principle provisions of this enactment are the following:

Rent Regulation Extended: The New York City and New York State Rent Control and Rent Stabilization Laws have been extended for four years, until June 15, 1997.

Individual Apartment Imrovement and/or Modification: The laws had previously provided, in general terms, that an owner was entitled to a rent adjustment as a result of individual apartment improvements. However, the amount of that adjustment had been a function of administrative regulation, rather than legislative enactment. The administrative agencies had previously permitted 1/40th of the cost of such improvements to be added onto the base rent. DHCR had begun the regulatory process of changing the 1/40th factor to 1/72nd. The Legislature has now removed this rule-making ability from DHCR and has determined that, as a matter of law, an owner shall be entitled to 1/40th of the cost of such improvements and/or modifications being permanently added onto the base rent.

ETPA County Co-op/Condo Vacancy Decontrol: Due to a long-standing oversight in the law, cooperative and condominium housing accommodations located in the ETPA counties (Nassau, Suffolk, Rockland, Westchester) were made subject to rent stabilization if such converted units were rented

The Legislature has now determined that upon vacancy such apartments will be decontrolled.

Limitation on Treble Damages: The Legislature has stated that treble damages shall not be imposed by DHCR against an owner based solely on that owner's failure to file a timely or proper initial or annual rent registration statement

Prior to this enactment, DHCR would utilize the failure of an owner or its predecessor to meet all registration requirements as the trigger event for imposing significant treble damages

Rent Registration Amnesty: In the past, an owner's failure to file either an initial or annual registration created a freeze on the rent, such that all increases taken subsequent to the failure to file the registration statement would be improper and would subject the owner to overcharge penalties and treble damages. Even the filing of a late registration would only prospectively eliminate the freeze on rent, such that all prior rent increases taken would still be excessive.

The Legislature has now determined that if the rent increases would have been lawful but for the non-registration, an owner's filing of the missing registrations (whether initial or annual) shall result in both a prospective and retroactive elimination of any overcharge penalties. If a tenant has already filed a rent overcharge complaint, the elimination of both retroactive and prospective penalties shall apply only to DHCR proceedings docketed on or after July 1, 1991. (This also applies to the treble damage limitation, see above.) In addition, if the late registration was filed subsequent to a tenant's filing of an overcharge complaint, an owner must pay a late registration surcharge of 50 percent of the normal registration fee.

Luxury Decontrol: The Legislature has passed two types of luxury decontrol; (a) high rent vacancy decontrol and (b) high income/high rent decontrol. These two types of decontrol have markedly different procedures.

High Rent Decontrol: Any rent controlled or rent stabilized housing accommodation with a maximum or legal regulated rent of $2,000 or more per month at any time between the effective date of the act and Oct. 1, 1993 will be automatically decontrolled upon vacancy.

High Income/High Rent Decontrol: Rent controlled and rent stabilized units which are (a) occupied by primary residents who have a total annual income in excess of $250,000 per year in each of the two preceding calendar years and (b) have a maximum or legal regulated rent of $2,000 or more per month as of Oct. 1, 1993, shall be subject to an order of decontrol to be issued by DHCR. The order of decontrol may be obtained by using income certification forms to be promulgated by DHCR. However, an owner may not transmit those forms to a tenant until on or after Jan. 1, 1994.

It is crucial to note that for both high rent and high income/high rent decontrol the maximum or legal regulated rent must be $2,000 by Oct. 1, 1993.

Owners who presently enjoy benefits under Section 421 a of the Real Property Tax Law may not make use of the decontrol provisions during the period that the building continues to receive such tax benefits. After the expiration of the benefit period, the owner can make use of the decontrol provisions.

The act itself is both complex and lengthy. The applicability or inapplicability of all or any part of the act is likely to be dependent upon the particular facts and circumstances at issue. Prior to attempting to implement any portions of the act, an owner must carefully analyze the actual language of the act to determine how it may be properly utilized.