Relates to the collection of charges for residential utility service deemed to be rent

Summary of specific provisions

This bill would establish the following provisions:

* Creates section 75 -a of the public service law to allow that in any action or proceeding in any court for the collection of gas or electric charges or for the possession of real property by reason of an unpaid charge, if the charges for the utility are deemed to be rent under any arrangement or agreement related to the rental property this shall be a complete defense to the action; * Act taking effect immediately.

Justification

The Public Service Commission has plenary jurisdiction over the sale or distribution of electric service under § 5.1.b of the public service law. Under the public service law, the provision of electric service by a landlord to a tenant is recognized as a permissible activity only by "a railroad or street railroad. . . for the use of its tenants and not for sale to others." Public Service Law §2(13). The issue whether a residential landlord - who is neither a railroad nor an electric corporation - can lawfully sell electricity to its tenants has been questioned in the lower courts but has not been decided by the court of appeals. (See, e.g., Owners & Tenants Electric Co., Inc. v. Tractenberg. 158 Misc. 677, at 679 - 680 (Mun. Ct. N.Y. City 1936¤.

In 1951 the Public Service Commission (PSC) prohibited all residential electric submetering, calling the practice "parasitic." That decision was upheld in the courts. (Campo Corp. v. Feinberg, 279 App. niv. 302, (3d Dept. 1952) affirmed 303 N.Y. 995 (1952). As a consequence, utilities were directed by the PSC to adopt electric tariffs broadly prohibiting the resale of utility service. The previously permitted landlord submetering was converted to direct utility metering.

Subsequently, the practice of submetering was again allowed by the PSC on a case by case basis, mainly for residential cooperative and condominium projects, where tenants have an ownership and governance interest. Public service commission regulations and numerous orders have allowed landlords waivers from the general prohibition against resale of utility service contained in commission regulations and utility tariffs. The PSC allows landlords to provide submetered electric service on a deregulated or loosely regulated basis and allows landlords to collect charges for unpaid service by actual or threatened eviction. As a result, landlords are being allowed to be monopoly providers of electric service to their captive tenants. Also, in many instances

the state division of housing and community renewal has allowed landlords who previously rented with utility service included in the rent to change the terms of leases so as to shift responsibility for payment of electric charges from landlords to tenants.

In its regulations and in its orders granting applications of owners of residential real property to waive longstanding tariff and regulatory prohibitions of submetering, the public service commission acknowledges the applicability of Article 2 of the public service law, the Home Energy Fair Practices Act (HEFPA), to the landlords in their new capacity as a provider of utility service. The commission also allows or approves standard lease provisions which "deem" charges for utility service to be "additional rent" due the landlord under the lease. These "additional rent" provisions give landlords a claim to evict tenants for unpaid "rent" which really includes charges for utility service.

The legislature has carefully designed programs designed to protect utility customers from abuse, such as HEFPA, and has created safety nets for the needy in the emergency utility assistance program under social services law § 131-s and the energy crisis provisions of the home energy assistance program under social services law § 97 (HEAP). Assistance in these programs is triggered by a notice of termination of utility service, and is not available when a landlord attempts to evict tenants for unpaid rent. As a result, tenants who have temporary difficulty in meeting their obligations to pay for utility service are in a far worse position than direct utility customers, who cannot be evicted from their homes by the provider of utility service over unpaid or disputed charges, who have the opportunity to pay arrears over time in affordable installments through deferred payment plans which must be offered as an alternative to termination of utility service, and who have the opportunity to obtain emergency HEAP or 131-s assistance if alternative payment arrangements with the utility cannot be afforded.

A "Residential Electrical Submetering Manual" published in 2001 by the New York State Energy Research and Development Authority (NYSERDA) suggests to landlords who provide submetered electric service to their tenants that they may evict tenants in court proceedings as an alternative to complying with the Home Energy Fair Practices Act (HEFPA):

There are two potential remedies for an owner if a resident fails or refuses to pay submetered electric charges. One is to discontinue supplying the electric service. The other is to sue for either recovery of the unpaid amounts or eviction.

As noted in the section discussing PSC requirements, New York State has extensive regulations in place to protect residents against their electric service being shut off. An owner seeking to continue the tenancy while discontinuing the service will most likely be required to comply with all tenant-protection regulations applicable to utilities for discontinuing the service. These include various notice and payout requirements and protection for the elderly and disabled, which are time-consuming, burdensome to the owner, and inconsistent with continuation

of the rental tenancy. Moreover, special arrangements with respect to electric charges are likely to cause confusion in billing and collection procedures. As a result, owners may want to consider legal action for eviction of the resident or recovery of unpaid amounts as the primary enforcement mechanism for nonpayment of submetered electric charges.

Thus, rather than provide tenants in financial difficulty ample notice and the opportunity to pay arrears over time through deferred payment agreements required to be offered under HEFPA, rather than provide detailed HEFPA notices to the elderly and disabled which require referral to public assistance if they cannot make arrangements, landlords are being encouraged to evade HEFPA requirements and to bring tenants with unpaid electric charges to court seeking court judgments and eviction orders.

The deeming of utility service to be "additional rent" subjecting a utility customer to eviction at the hands of an owner who provides monopoly utility service under PSC orders is resulting in displacement, hardship and injustice to submetered tenants, who are often unrepresented in court proceedings, and is adding to the burden of the courts. One example of a landlord's lease with such a rider, that was approved for submetering by the Commission, reads as follows: "The electricity charges will be billed to the Tenant as additional rent and will be payable on a monthly basis by the Tenant as additional rent. Tenant specifically understands that if the electricity charges are not paid in full on a monthly basis by the Tenant, that the Landlord may commence a summary proceeding to recover a money judgment and a judgment for possession against the Tenant and that the Tenant can be evicted from the apartment for failure to pay electricity charges."

Some courts have prohibited submetering landlords from terminating tenancies for unpaid electric charges (see Related Tiffany, L.P. v. McConeyhead, N.Y. City Civil Court L&T No. 55444/04, June 30, 2004) on the ground that the "deeming" language of the landlord's lease does not work to convert utility charges due into rent. In contrast, some court decisions have allowed judgments and evictions for unpaid charges for utility service provided by the landlord that were contractually defined as "rent." This bill would clarify that unpaid charges for residential utility service cannot be the basis for an eviction proceeding.

This bill will bring to a halt the growing use of the landlord tenant courts by landlords to collect charges for unpaid electric service as "additional rent." It will not affect any right the landlord may have to collect its charges through conventional means, such as an action for damages, and it will not affect any right the landlord may have, after complying with HEFPA, to cease providing utility service if the tenant does not pay. The bill will halt the evasion of HEFPA compliance, will enable needy tenants to obtain energy assistance triggered by advance termination notices, and will channel disputes over utility charges away from the courts and back to the public service commission's complaint handling and decision process under HEFPA, i.e., section 43.2.

Prior legislative history

2009-10: Referred to Energy and Telecommunications (S.4748A)

Fiscal implications

None is anticipated.

Effective date

This act shall take effect immediately.