Rent-controlled landlords face too much space, too few tenants.
This "magic date" was established by the 1971 Vacancy Decontrol Law, which provides that a Rent Controlled apartment that is vacated on or after July 1, 1971 is decontrolled. Of course, as a result of the 1974 Emergency Tenant Protection Act, most vacancy decontrolled apartments subsequently were re-regulated under the Rent Stabilization system.
These factors (pre-war building coupled with pre-1971 occupancy) result in owners of rent controlled units frequently being confronted with the following conundrum: large apartments occupied by few tenants. This conflict in space and need is often accepted as constituting a problem without remedy. However, a rarely utilized provision of the New York City Rent and Eviction Regulations (which applies to Rent Controlled apartments) directly addresses this situation and provides a potential remedy.
Section 2204.7 of the Regulations provides that an owner may apply to the Rent Administrator for a Certificate of Eviction based upon an apartment being under utilized, coupled with the owner's intention to substantially alter or remodel the apartment. In general, the apartment must be at least six rooms (exclusive of kitchen and bathroom) and the proposed new apartments must result in "self-contained units." A selfcontained family unit requires private access, two or more rooms and at least one bedroom and living room/dining room space, plus kitchen, bath and one closet. In addition, exclusive of the bath and closet area, a self-contained family unit must contain at least 395 square feet (except if there is some unique and peculiar circumstance which makes providing this amount of square footage an impossibility.)
What is an under utilized apartment? An apartment is under occupied where there is less than one occupant per room (exclusive of bathroom and kitchen), plus three additional rooms. Many owners of pre-war rent controlled units would seem to qualify under this definition of under utilization.
The application for the Certificate of Eviction can only be filed after plans have been approved by the Department of Buildings. If practicable, once construction is underway, the owner is required to work with the tenant to enable the tenant to move into a portion of the apartment. However, if that would be unsafe, then the owner must provide temporary housing, unless the tenant requests permanent relocation. Except in the case of permanent relocation, the regulations provide that the rent controlled tenant must be provided with a right of first refusal in one of the newly-created housing accommodations. If the tenant cannot be adequately housed in the new apartment, then the tenant is entitled to receive stipends (under a modest stipend schedule recited in the Regulations), plus relocation. The administrator will determine the suitability of the relocation apartment based upon various factors, including the habitability and affordability of the apartment.
If the tenant does move into one of the newly constructed units, that unit will remain subject to rent control so long as that tenant remains in occupancy. The Administrator will establish a new rent controlled maximum rent for this new unit. As to that portion of the former apartment which is now a new self-contained family unit not occupied by the tenant, the owner applies for an Order of Decontrol.
When this concept is examined against the backdrop of luxury decontrol (pertaining to apartments renting for more than $2,000), there is a significant prospect of being able to create a vacant apartment that is exempt from both Rent Control and Rent Stabilization.
One caveat: my reading of the Regulations is that the under-occupancy decontrol mechanism will not apply to non-purchasing rent controlled tenants in buildings converted under non-eviction cooperative or condominium plans.
This decontrol provision has not been used with great frequency. However, the confluence of factors that results in many valuable apartments being under occupied, when coupled with the prospect of permanent exemption from all forms of rent regulation due to luxury decontrol, would seem to warrant some further examination and analysis by owners of huge rent controlled apartments occupied by a few rent controlled tenants.
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|Title Annotation:||Real Estate Review; New York|
|Publication:||Real Estate Weekly|
|Date:||Dec 27, 1995|
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