The Unintended Consequences Of NYC's New Rent Regulation Laws

In the waning hours of the last session before its summer break, the New York state legislature pushed through the first “cleanup bill” addressing the sweeping rent regulation laws it passed days earlier. According to legal experts, however, the cleanup process is far from over.

While the new laws were passed with the goal of protecting tenants from harassment and unpredictable rent hikes, they could have adverse effects, forcing tenants into court more often and leaving buildings to fall into disrepair. These effects won’t be addressed until the legislature reconvenes in January, if they are addressed at all. Meanwhile, the new laws will begin to play out. 

“There are 15 separate parts to the legislation — it’s a conglomeration of the tenant advocate wish list,” said Blaine Schwadel, a member at Rosenberg & Estis and an expert in New York’s rent regulation laws. “But putting it all together at once is different than one thing at a time. There are going to be consequences that tenants and advocates have not foreseen.”

Soon after the passage of the first set of laws, legislators noticed a mistake. The wording of the new laws eliminated the benefits of Affordable New York, a program that eases developers’ tax burdens in return for creating affordable housing. They hurried to pass a bill that kept the one-year-old program on the books.

That corrective bill was a first step, Schwadel said, but he expects more bills to crop up as tenants come to grips with the reality of the laws that were passed on their behalf.

One part of the new laws stipulates that landlords may not ask for a security deposit greater than one month’s rent, and that a security deposit must be refunded within 14 days of a tenant vacating an apartment. The intention was to free up funds that tenants might need to move to another home. But Schwadel said the effect could be that landlords have to sue their tenants.

“Fourteen days often isn’t enough for a landlord to get a contractor in to inspect an apartment after a tenant leaves,” Schwadel said. “Even if it’s just $200 for a broken cupboard, landlords will end up bringing their former tenants to court to recover that cost.”

The new laws present similar difficulties for landlords looking to recover rent from tenants. A forgiving landlord might have let a tenant go into arrears with the understanding that the debt should be paid back after two months. The new laws stipulate that landlords must give longer notice; they can't wait to see if rent is paid in the second month or else it will become the third.

Landlords who might have had forgiving working relationships with their tenants could become far stricter about getting paid on the first of the month.

The most obvious unintended consequence of the bill, Schwadel said, is that landlords, especially small ones, may soon not have enough capital to renovate or even repair their buildings. The Rent Guidelines Board, which each year determines how much landlords can raise the rent of rent-regulated tenants, has consistently chosen increases that fail to keep pace with the growth of expenses, including real estate taxes.

“If I’m a landlord, I’ve barely got my head above water this year,” Schwadel said. “Four years from now, I would be losing money. When my building goes under, one of two things happens: Either I stop making repairs and start cutting expenses, or the bank gets involved.” 

If banks begin to repossess buildings across New York City, Schwadel said, tenants and their advocates will have forced the market right into the hands of the corporations they were trying to avoid.

Real estate professionals and tenant advocates alike have expressed concerns that the new laws did not do enough to create more affordable housing within the city, and that the laws may have protected some people that didn’t need protecting. 

Schwadel described two hypothetical neighbors, both of whom live in rent-regulated apartments. The first, an elderly woman on a fixed income who rarely leaves the building since she uses a walker, he described as a perfect example of the type of tenant that needs to be protected through rent regulation and programs like the Senior Citizen Rent Increase Exemption. The second, he said, is in his late 50s, makes over $200K per year and has a house in the Hamptons.

“Is he deserving of rent regulation just because he chose this apartment 20 years ago, because he was at the right place at the right time?” Schwadel asked.

Part of the reason that there are so many unintended consequences, Schwadel said, was because the real estate industry was not consulted in the drafting of the laws. The final version of the laws, he said, went much further in restricting landlords than any of the nine proposals that had been floated before the legislature met.

Schwadel expects more follow-up laws to come in the next legislative session, but whether the real estate industry will be consulted in their drafting remains to be seen.

This feature was produced in collaboration between Bisnow Branded Content and Rosenberg & Estis. Bisnow news staff was not involved in the production of this content.