Rent law chops at controls.

The Associated Builders and Owners in thinking of honoring Assembly Speaker Sheldon Silver as its Man of the Year, announced the group's president Jerome Belson at its luncheon last week. "They helped the people with existing housing and in Manhattan," said Belson.

After all, it was the Speaker who handed over a minimum 20 percent bonus or $100 bonus for apartments with low rents with no work required upon vacancy; added a longevity bonus for vacancies after long - time tenancies; required the deposit of rent with the court with no discretion after two adjournments at the request of the respondent or upon the 30th day after the first appearance by the parties; obtained rights to move out a small number of holdout tenants in order to build new housing; limited succession rights to one generation without rent hikes and jacked up rents to the next. Each alternate succeeding generation will pay a vacancy increase, with no end to succession rights.

"We're delighted there was a resolution and our prediction that a bomb didn't go off at 12:01 was correct," said William C. Rudin, president of Rudin Management and one of the city's largest rental owners.

Additionally, Silver agreed that tenants making $250,000 had just too high an income level for impoverished building owners to provide them with rent subsidies, and instead, agreed with the Governor that beginning on January 1, 1998, only those poorer tenants with incomes of $175,000 or less should be protected, provided they rent apartments that cost less than $2,000, affording protection to an additional 10,555 households who make more than that and pay less.

Owners also won the ability to add in the 1/40 MCI for improvement costs and vacancy allowances to add up to the $2,000 to get an apartment decontrolled after a vacancy. But they cannot add in the one- or two-year guidelines to get to the vacancy rent. They were able to show that the faster improvement to the housing stock was a good goal, wiping the City Council's April end-run off the books. The City Council notice requirement for newly decontrolled tenants is also repealed.

"It's gone, finished," said a gleeful Joseph Strasburg, president of the Rent Stabilization Association (RSA), of the Council's earlier restriction on getting to $2,000.

A year ago, these items would have been merely wishful thinking on the part of over-paperworked owners, but now, thanks to Silver's quiet forcefulness, Senator Joseph Bruno's zealousness and the Governor's pledge to protect poor tenants, the new six-year rent law will provide a time of stability, albeit with more regulation and paperwork to the real estate industry and metro area tenants.

Those tenants who have a $175,000 income or more and rent apartments for less than $2,000, the politicians probably agreed, must need the additional money to subsidize their automobile garage fees sometimes more than their rents - and second homes in other counties and in Connecticut, where the economies would be severely affected without their presence.

Unfortunately, the politicians gave scant notice to their pledges to protect the disabled and senior citizens, who did not receive any substantial additional benefits or subsidies under this plan, and can be adversely affected, particularly if they have incomes over the $175,000 poverty level. Disabled persons and those 62-years or older do have the ability to succeed to apartments of near relatives after only one year of joint occupancy, rather than the two for other persons.

There were also provisions added that limit the deposit of rent in court requirements for senior citizens and certain public assistance recipients.

Owners are also cheering the deposit of rent in court provisions that are effective in 120 days from the date of signing, which was June 20th.

Rudin said he is glad to see this, as he has tenants that have not paid rent for two to five years.

Tenant groups expect to challenge the deposit of rent as a legal hurdle to justice.

Silver also agreed that after two adjournments requested by the respondent and within 30 days of the first appearance by the parties, the tenant has to deposit rent in court, and five days after a judgement is issued, no orders to show calls to stay the issuance or execution of any warrant of eviction, or stay the re-letting of the premises, can be obtained without depositing rent.

But they also expect judges to prompt tenants into saying the rent is disputed, thereby circumventing the rule that would provide owners with 12 units or less the ability to get their hands on the rent money to keep the oil company and bankers at bay.

Bankers are cheering, however, because DHCR has been ordered to contract with a financial institution that will be in charge of certain deposited rents.

That still won't help owner Dennis Guidons, who owns a 14-unit building with two long-time tenants who haven't paid rent in four months. One is waiting for a tax refund; he gave the other a letter to bring to social services for help.

"The last thing I try to do is bring a tenant to court," he said. "The amount you pay in legal fees isn't worth it. It's a business I am running. The tenants are my customers and without them I have nothing. Just let it be fair."

Small owners also gained no relief from the regulatory system that is crashing them, said Roberta Bernstein, president of the Small Property Owners of New York (SPONY), who said her members "feel like they are in servitude to DHCR," and were hoping for vacancy decontrol to get out from under the trick paperwork.

When you talk about a vacancy increase of 20 percent it sounds great, said R. Bonnie Haber, president of the Community Housing Improvement Program (CHIP), "but 90 percent of my apartments are already at market rents outside of Manhattan. They actually made the system worse because it's adding additional bureaucratic paperwork."

Said another owner who asked not to be quoted by name, "We're calling this 'partial birth vacancy.' This is an abomination."

One relief for those members will be the provision that effective immediately and covering all outstanding bills, the $10 annual registration fee will be merely a lien on the building, and not become an issue for a rollback of rent.

Owners are also expecting the Rent Guidelines Board (RGB) to maintain the 5 percent vacancy allowance as proposed for leases beginning October 1, 1997. Strasburg says the new bonus is on top of whatever the RGB permits.

Said Dan Margulies, executive director of CHIP, founded to chip away at the rent laws, "It's important that the legislature clearly anticipated this as a bonus above existing vacancy allowances and the language refers to the ability to take both." This is critical, he says, because the vacancy allowance is used in determining sub-lease increases.

The legislators, insiders say, were actually confused by the prior complicated laws that they had drafted, and actually believed owners were getting a 16 percent vacancy allowance based on the current 7 percent raise for the two-year lease plus 9 percent vacancy allowance that will end on September 30, 1997, and assumed they were adding on an additional 20 percent to the 16 percent for the duration. Perhaps they were expecting the joy of a $36 raise on an apartment renting for $100 to induce owners to be writing more donation checks to their campaign coffers.

That's when they came up with a very complicated system retroactive to January 15, 1997. There will be a minimum $100 rise or 20 percent on vacancy for two-year leases on apartments renting under $300, although the politicians know it costs more than that to operate a unit without a mortgage. If the previous rent was between $300 and $500, the bonus is 20 percent or $100, whichever is greater. If the lease is for one year, the vacancy bonus is 20 percent, minus the difference between the one- and two-year guidelines increases.

If the tenant was in place without a vacancy increase for more than eight years, an additional .6 percent is added for each year since the last vacancy allowance.

Edward Hochman, the chairman of the Rent Guidelines Board and an attorney, quipped "Why not a flat 25 percent vacancy increase and we could all go home."

The current RGB proposal for a two percent raise on a one-year lease and a four percent raise on a two-year lease with a five percent vacancy rate were to be approved unless the tenant advocates created havoc.

Mayor Rudolph Giuliani, who has always been in favor of keeping small businesses in New York City and reducing paperwork and regulations, hasn't yet replaced the second owner member on the RGB, so they were to be still short a vote this past Monday.

Harold A. Lubell of Robinson Silverman Pearce Aronsohn Berman, the remaining owner member, said the owners had higher expectations sad thought they would get more than they did out of the real negotiations. He noted cheerfully that for a full week, there were no rent stabilization laws in the State for the first time in 50 years.

Attorney Martin J. Heistein, a partner with Belkin Burden Wenig & Goldman, said "We've all heard the broad parameters, but what's critical is to read the actual bill and carefully analyze what has been decided."

Some of the other items that were included in the details include: Language that makes it clear that Major Capital Improvement (MCI) increases can be granted without meeting hardship/fair return standards; and, effective immediately, Division of Housing and Community Renewal (DHCR) rent reductions and court ordered abatements for the same service conditions shall be offset against each other.

On overcharge complaints, effective immediately, the four-year statute of limitations is reinforced in the bill and no rent or service of registration can be challenged four years after the filing of an annual registration.

The legislators also put off for 30 days a provision creating a Class E felony for harassment by an owner who, with the intent to cause a tenant to vacate, intentionally or recklessly causes a tenant or other lawful occupant a physical injury. The owner can also face civil penalties between $1,000 and $5,000 for each offense.

Margulies says the definition is important because many harassment complaints have stemmed simply from tenants receiving a notice that their rent is being raised.

Michael Schill, a Professor of Law and Urban Planning Director at the New York University School of Law Center for Real Estate and Urban Policy, said even with the bonuses, many apartments will not reach market rates.

"There's a little bit of a perverse incentive built into this," he said. The unit goes back under regulation after the bonus, so if the rent is so close to market that the 20 percent bonus takes the rent above the market, the owner may not get it or may not be able to raise the rent again for a while.

"The owner will say to himself, 'I will be stuck with this tenant for a long time, so I want to charge a high enough rent so that in the beginning they will pay a premium,'" Schill explained. Tenants who have the ability to pay, Schill said, will see there is a premium and realize they will be protected from rent increases and amortize that premium into the future. "So people who move a lot will subsidize those who don't," he explained.

When it comes to constructing more affordable housing - another promise the politicians forgot - Belson says builders will be looking to other jurisdictions that have open and inviting arms to make their investments.

Owners will also begin thinking about co-oping or condo-izing rental buildings, both of which need merely 15 percent of the unit owners to agree. Co-ops aren't an option he's looking at, said Francis Greenburger, who still owns 20 rental buildings. He says these buildings have significant retail and he wouldn't want "the tail wagging the dog."

"There is still a stock of housing that would be appropriate," he said of the general city stock. "My feeling is now that it's 10 years later, owners will look up and say, 'Now, what do I do?' And they will see the rent laws are not as favorable, and we're in here now for another six years and say 'Maybe it's time I co-op my building.' That's not going to be 100 percent of the owners, but obviously if the laws were more liberal they would have an ability to realize the value in a rental."

Greenberg said they are "looking a fresh at buying buildings because some people who decided not to coop will decide they want to sell and let someone else do it, so we will consider buying."

"We did cond-op in some buildings, but in most, the retail is so significant we'd just leave it," he said. "I don't think my attitude has changed."

Still, the developer is active in Lower Manhattan, where he is buying former office and loft buildings for conversion to rental units and to condos.

Ironically, Greenburger noted, with no vacancy decontrol, which would have soon leveled off rents, and the lack of an incentive to build, the supply of housing will dwindle, driving rents up in certain locations.

As the impact of the laws on their apartments was being examined, owners were toasting but not roasting the politicians.

"Expectations had been raised, and so in any other year this would be called the most significant change to the rent regulation system ever," said Strasburg. "There were very critical victories."