Relates to adjustment of maximum allowable rent

Summary of specific provisions

Sections 1, 2, 4 and 5 increase the amortization period for expenses due to individual apartment improvements from 40 months to 60 months.

Sections 2 and 4 provide that no rent increase shall be collectible for an individual apartment improvement unless:

* the owner of the apartment has provided the tenant with a lease rider or a notice explaining in detail how the individual apartment improvement rent increase in the vacancy lease has been computed;

* there are no current hazardous violations of any municipal, county, State or Federal law that relate to the maintenance of any required services;

* there is no outstanding determination by the DHCR that the owner has failed to maintain any required services;

* the owner of the apartment has filed with DHCR an explanation and documentation of how the· individual apartment improvement rent increase was computed, whenever such rent exceeds 10 percent of the rent charged to the previous tenant including supporting documentation. A new tenant must be given an opportunity to respond to the owner's filing with the DHCR prior to the DHCR's determination of the appropriate rent increase.

Section 3 provides that vacancy lease riders given to rent stabilized tenants in New York city must include detailed breakdowns of any individual apartment improvement rent increase charged to the new tenant.

Sections 6 and 7 require owners to file "exit" registrations with DHCR and give notices to the first tenant after an apartment is subject to vacancy decontrol stating the reason for deregulation and a calculation of how the last rent was increased to exceed the $2,000 vacancy decontrol threshold. The notice will also advise tenants as to how they can verify the last legal regulated rent with DHCR.

These sections also stipulate that units cannot leave rent regulation unless and until an "exit" registration is filed with DHCR and copies of the registration and the notice of how the apartment was subjected to vacancy deregulation are served upon the new tenant.

Effects of present law which this bill would alter

Extends the amortization period from 40 months to 60 months and gives DHCR a stronger oversight role by authorizing it to approve or disapprove larger rent increases in whole or in part.

Justification

There is a major loophole in the rent regulation system called the 1/40th loophole, also known as an Individual Apartment Improvement Increase. This loophole allows a landlord to raise the rent on an unoccupied rent stabilized apartment by passing the cost of physical improvements to the next tenant by raising the monthly rent an amount equal to 1/40th of the total cost of the improvements. A 1/40th increase can be taken in addition to any other rent increase to which the landlord is statutorily entitled. There is no oversight of any kind of the 1/40th loophole. Landlords are allowed to unilaterally impose 1/40th rent increases without prior approval, or even documentation.

This lack of oversight has led to widespread fraud, and has been a major reason for the loss of affordable housing in New York. Landlords are able to use the 1/40th increase to move the apartment above the current $2,000 High Rent Vacancy Decontrol threshold that allows them to permanently de-regulate the apartment. Although there are not absolutely clear government records of the frequency with which 1/40th increases are used, because there is no oversight of the program, it is clear that rent regulated apartments are moving out of affordability at a rate faster than statutory rent increases would allow.

Fraudulent rent increases for apartment renovations are a major reason affordable housing is disappearing from New York, according to a recent study by the Association for Neighborhood and Housing Development (ANHD).

The only present oversight mechanism is an inadequate tenant-initiated complaint filed with DHCR as a Complaint of Rent Overcharge. Because the improvement occurs in a vacant apartment, the new tenant has no way of knowing what the rent should be, and if the work done justifies the increase.

This legislation would give DHCR the authority to approve or disapprove such increases in whole or in part based upon the proof of expenses submitted by the landlord. It will also give new tenants a

breakdown of how their rents are computed and information allowing them to challenge such rents.

Prior legislative history

2012 REFERRED TO HOUSING, CONSTRUCTION AND COMMUNITY DEVELOPMENT 2011 REFERRED TO HOUSING, CONSTRUCTION AND COMMUNITY DEVELOPMENT 2010 S.S296A/A.S316B

Fiscal implications

Some expense associated with DHCR administration of this program.

Effective date

This act takes effect on the 90th day after it becomes law except that sections six and seven take effect on the 30th day after the it becomes law and DHCR is authorized and directed to promulgate rules, regulations, and standards immediately.