Q: I own an 8-unit multifamily property that is rent stabilized. Long-term renters gain significantly since legal increases don’t come anywhere close to market rent. One of my tenants moved out after 12 years and the current rent is about half of market rent. I want to make structural enhancements but will I be able to increase the rent legally if I do? –New York Landlord
The purpose behind rent regulation laws is to provide affordable housing in cities where the average home or rental price is very high, so much so that workers who provide many services can’t live within the perimeter of the city they work in, and long-term residents on fixed incomes find themselves squeezed out of the rental market. New York City and West Hollywood, California are such markets.
Unfortunately for landlords, the rent regulations are usually based on old figures. The markets have adjusted ever higher, leaving landlords to anguish over how much more they could be making if only they could charge market rent.
Rent stabilization rules are different than rent control. Rent stabilization generally means that the landlord cannot increase the rent based solely on market forces — supply and demand. Guidelines are in place that offer a standard rent increase, usually on an annual basis. This is the case regardless of whether the same tenant stays for a long period of time, or whether the landlord rents to a series of new tenants. Long-term tenants do benefit from rent stabilization, but new tenants are also covered.
Rent control rules are a bit different, in that they are designed more for the long-term tenant. Rent control has slowly fallen out of favor, and often when the long-term tenant leaves, the property is no longer subject to the rent control rules. However, it may convert to a rent stabilized property.
Under New York’s stabilization rules, a distinction is made between a renewal lease and a vacancy lease–when a new tenant moves in. The guidelines for rent increases for vacancy leases, and a vacancy lease increase calculator are available on the Rent Guideline Board’s website. But be prepared to navigate a maze of regulations. Consider hiring an experienced attorney if you feel the answers are not clear.
As for capital improvements, you will have to contact the state’s Division of Housing and Community Renewal for those rules. Generally, a landlord can adjust rent for both individual unit improvements as well as major capital improvements. In the first case, rent is adjusted to 1/40 of the total cost. In the case of major capital improvements that benefit the building, you will likely have to complete an application with DHCR for permission to raise rents (see their form RA-79.) According to DHCR, the rent increases will be apportioned among the tenants on a per room per month basis.
Landlords should keep in mind that rent regulations don’t just cover rent increases. These rules also prohibit nudging the tenant into leaving, or trying to evict a tenant except for the most egregious situations, making it all the more important to conduct a thorough tenant background check on new applicants to avoid compounding the issues with rent regulations.
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Disclaimer: The information provided in this post in not intended to be construed as legal advice, nor should it be considered a substitute for obtaining individual legal counsel or consulting your local, state, federal or provincial tenancy laws.