B. Rent Regulation Rent Regulation

• Jurisdiction: New York

B. Rent Regulation

The purpose of rent control and rent stabilization is to prevent unwarranted increases in rents and "uncertainty, hardship, and dislocation."¹⁹⁹ Because of the legislation's remedial nature, the Court of Appeals has interpreted rent-control and rent-stabilization laws broadly and liberally.²⁰⁰ Although rent regulation has met with constitutional challenges, federal courts have found the rent-regulation laws constitutional, holding that they do not constitute a regulatory taking or violate the Contracts Clause of the U.S. Constitution.²⁰¹

The Division of Housing and Community Renewal (DHCR) is the agency responsible for administering New York's rent regulations and protecting rent-regulated tenants. The Tenant Protection Unit (TPU) was created in 2012 as proactive law-enforcement office within the DHCR. The Rent Code Amendments of 2014 established the TPU as a distinct unit under the DHCR.²⁰² Notably, unlike the DHCR, to which a decision can be appealed by a Petition for Administrative Review (PAR), the law does not provide for a mechanism to appeal a decision by the TPU.

Any contract or other agreement that thwarts the legislative intent behind rent regulation by waiving the benefit or the rent-regulation regimes is void as a matter of public policy,²⁰³ although agreements to surrender possession and resolve incidental differences are not prohibited.²⁰⁴ This policy extends to stipulations of settlement between parties to a summary proceeding and other settlement agreements. Although agreements providing for the surrender of a regulated unit are permitted, agreements waiving any right or protection of rent regulation, even where so-ordered by the court, are void.²⁰⁵

However, since the existence of a surrender agreement is not itself a permissible ground for eviction under a rent regulated tenancy,²⁰⁶ unless the agreement is in the context of an extant proceeding based upon the tenant's default in a lease obligation,²⁰⁷ the agreement will not give rise to an enforceable right of eviction, even if the tenant has received the full consideration of the agreement. As a practical matter, these surrender agreements frequently provide for the termination of the tenancy and the commencement of a proceeding based on the expiration of the term simultaneously with the execution of the surrender agreement, and the vacating tenant consents to a judgment of possession and warrant of eviction as an enforcement mechanism. A substantial portion of the consideration will also often be held back until the tenant surrenders possessions to incentivize compliance with the terms of the surrender agreement.

Also void are lease provisions that purport to exempt an apartment from rent regulation by providing that tenants will not use the apartment as their primary residence.²⁰⁸ A notable exception to this prohibition is an agreement to withdraw a complaint or proceeding before the DHCR.²⁰⁹ However, the rent regulations do not prohibit the renting of an apartment to a corporation (or foreign nation) where there is no human primary resident.²¹⁰ If a lease does not designate an individual occupant, the apartment is not subject to rent regulation.²¹¹ If there is such a designation, then the tenant is entitled to a renewal lease provided that the tenant satisfies the primary-residence criteria.²¹²

Rent-regulatory status is a statutory right that cannot be created by waiver or estoppel.²¹³ In one case, a landlord that erroneously treated an apartment as rent-stabilized for decades was held not to have created rent-stabilized status by waiver.²¹⁴ But a landlord may confer on a tenant by express contract the equivalent benefits and rights of this status, and, if the contract provides for same, this conveyance of rights will be binding on the landlord's and the tenant's successors,²¹⁵ unless the effect of the contract is to evade or circumvent a mandatory rent-regulation scheme.²¹⁶

1. Rent-Stabilized Premises

a. Rent Stabilization Overview

In New York City, rent stabilization applies to tenants in buildings that contain six or more residential units and to certain adjoining buildings, known as horizontal multiple dwellings, which contain six or more aggregate units that share "common facilities such as a sewer line, water main or heating plant."²¹⁷ For rent stabilization to apply in New York City, the building must also have been built between February 1, 1947, and January 1, 1974,²¹⁸ or been built before February 1, 1947, and be occupied by a tenant who moved in after June 30, 1971.²¹⁹ Although the overwhelming majority of rent-stabilized apartments are located in New York City, the Emergency Tenant Protection Act extends rent stabilization coverage to apartments in buildings built before 1974 containing six or more units, located in certain municipalities in Nassau, Westchester, and Rockland counties that have declared housing emergencies under the ETPA.²²⁰ In the case of the City of Long Beach, the city was forced to declare that the housing emergency ceased to exist, but landlords compelled to endure the ETPA after the end of the emergency were not entitled to damages.²²¹

The addition of a sixth unit to a building built before January 1, 1974, even if the unit is added after 1974, and even if the added unit is illegal,²²² brings the entire building under rent stabilization.²²³ The later removal of the unit does not deregulate the building.²²⁴ Structural changes to the building are not required to "create" six units. In Robrish v. Watson, the Appellate Term, Second Department held that a two-family house in which the landlord had rented ten rooms to ten separate individuals, without structural modifications, subjected the tenancy to rent stabilization.²²⁵ All previously unregulated units become rent-stabilized once the building contains six, or more, units.²²⁶

An illegally converted loft building does not become subject to rent stabilization even if the landlord acquiesced in the residential use, if the building is located in an area where the zoning does not permit residential use.²²⁷ A split currently exists between the Appellate Divisions in the First and Second Departments about whether an illegally converted loft can become rent-stabilized if it is located in an area where residential use is permitted.²²⁸

Buildings completed or renovated for residential use after 1974 might become rent-stabilized if the owner receives certain tax benefits.²²⁹ If an apartment becomes rent stabilized because of tax benefits, rent may not revert to market rates unless the tenant gets notice in each lease and renewal "that the apartment will be deregulated at the expiration of the tax abatement period."²³⁰ Otherwise, the first tenant to occupy the apartment after the expiration of the tax benefit period will be the first unregulated tenancy, unless the landlord participates in another tax benefit program. Additionally, as discussed in greater detail below, a single-room occupant (SRO) acquires rent-stabilization rights by continuously residing in the same building for at least six months or by requesting a lease for a term of at least six months.²³¹ In some cases, municipalities limit rent-stabilization coverage to buildings with a larger number of units.

Rent-stabilization protection cannot be conferred by an agreement of the parties.²³² The parties may agree, however, that the tenant will have rights similar to those of a rent-stabilized tenant,²³³ including renewal rights.²³⁴

Provided that the tenant primarily resides in the unit and does not otherwise violate a substantial obligation of the tenancy, a rent-stabilized tenant will generally be entitled to successive offers of one- or two-year renewal terms at percentage increases set by the New York City Rent Guidelines Board.

A tenant who initially moves into a rent-stabilized unit is entitled to a vacancy lease for an option term of one or two years; three-year terms were possible in the past, but are now relevant only in rare instances in which the rent history beyond the applicable statute of limitations is at issue. Following the initial vacancy lease, a landlord must offer the tenant renewal leases for additional one- or two-year terms.

While the Rent Stabilization Code provides that a tenant's failure to renew a lease is a basis for a summary proceeding, ²³⁵ it does not address the situation in which a tenant refuses to enter a lease offered by a landlord pursuant to a DHCR order, where the tenant disagrees with specific terms of the lease offered and the terms of the lease were not specified in the order. A proceeding brought on a 30 day termination notice is improper,²³⁶ but the correct procedure for addressing this situation remains unclear.

As discussed in further detail above and below, increases are permitted with respect to rent control, on the basis of increased services, new equipment, or improvements to the apartment or the building. Additional percentage increases each time a unit becomes vacant (referred to as a "vacancy increase") were eliminated by HSTPA.

Before HSTPA, the maximum rent a landlord could charge was determined by adding to the prior tenant's maximum rent an increase to which a landlord is entitled when a tenant vacates a rent-stabilized unit.²³⁷ The vacancy hike comprised a vacancy increase, which could be up to 20%, depending on the term of the vacancy lease; a longevity bonus, which a landlord could collect if the rent had not been increased in the preceding eight years; and a Rent Guidelines Board vacancy allowance. Under legislation enacted in 2011, a landlord of a rent-stabilized apartment was limited to one vacancy increase a year.²³⁸ Additionally, under the Rent Code Amendment of 2014, vacancy increases cannot be collected if there is an outstanding DHCR rent-reduction order based on the owner's failure to maintain services.²³⁹

Another way a landlord may increase rent, applicable equally in New York City and outside New York City...