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Here's Why a Rent Freeze Won't Help Some Tenants

By Amy Zimmer | June 28, 2016 5:05pm
 A row of apartment houses in Bushwick with rent stabilized apartments. Rent stabilized apartments are generally in buildings constructed between 1947 and 1974 with six or more units, as well as buildings that receive tax breaks like 421-a.
A row of apartment houses in Bushwick with rent stabilized apartments. Rent stabilized apartments are generally in buildings constructed between 1947 and 1974 with six or more units, as well as buildings that receive tax breaks like 421-a.
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DNAinfo/Gwynne Hogan

MANHATTAN — For the second year in a row, the Rent Guidelines Board voted to freeze rents for one-year leases on the city's nearly 1 million rent stabilized apartments.

Though many tenants were calling for a rent rollback, the vote still reflected that the board — whose members are appointed by Mayor Bill de Blasio — has created a more tenant-friendly landscape than during the Bloomberg era, when the increase on one-year leases averaged 3.7 percent.

De Blasio applauded the freeze as another way of meeting his goal of preserving 120,000 affordable units over the coming decade.

But some stabilized tenants will continue facing pressure to move out so that landlords can raise rents, housing advocates said.

Here's why:

Vacancy allowances are the largest contributors to rising rents on stabilized units.

“When a rent stabilized tenant leaves an apartment, the landlord can increase rents up to 20 percent without so much as a new cabinet,” said Delsenia Glover, with the advocacy group Tenants & Neighbors.

Almost half of the increased costs borne by renters in the regulated stock was due to the vacancy allowances — otherwise known as an eviction bonus — according to a recent Community Service Society report.

When there are new cabinets, landlords can increase the rent even more, adding a percentage of an apartment renovation or a building renovation cost to the rent.

“The vacancy period — in between tenants — is when a lot of bad stuff happens in terms of dramatic increases in rents,” said Raun Rasmussen, executive director of Legal Services NYC.

Besides the legal increases for the vacancy and renovations, some landlords will register the rent with the state’s Division of Housing and Community Renewal at illegally higher amounts — and if that goes unchallenged for four years, there’s little recourse, Rasmussen said.

The end goal for many landlords, he said, is to deregulate their units, which can occur when the rent for a vacant apartment hits $2,700 a month.

An estimated 8,000 units were taken out of rent stabilization due to the high rent vacancy provisions in 2015, according to data from the Rent Guidelines Board.

The number represented a 29 percent increase in newly deregulated units from the year before.

“Preferential rent” provides a loophole, which allows landlords to raise rents significantly.

Roughly 28 percent of rent stabilized units — or about 240,000 — are subject to preferential rent, according to Pro Publica.

In these cases, landlords lease rent-stabilized units for less money than they are legally allowed to charge, and a rent freeze could be moot since a landlord can take away the preferential rate — if the lease didn’t specify it would last for the duration of the tenancy — and hike up the rent whenever the lease is renewed.

Tenants often are unaware of what preferential rent means or that their rents could be significantly hiked up because of it, so when they’re faced with the rent hikes, many have no choice but to leave, many advocates say.

“What we are seeing this year — and last — is that landlords are suddenly, and without warning increasing renewal leases from the preferential rent to the legal regulated rent, which I’ve seen top 10-15 percent, or hundreds of dollars in a single lease,” Glover said. “Landlords have figured out a way to make their huge profits using these poor, unsuspecting tenants who signed preferential leases without fully understanding  what could happen to them when their leases came up for renewal.”

As the rent freeze squeezes smaller landlords, bigger firms could take over.

With the rent freeze and other policies, investors are no longer seeing rent stabilized properties as a way to get quick returns on their investment, said Shaun Riney, a commercial real estate investment professional with Marcus & Millichap.

“The risk of buying a rent stabilized building has increased exponentially,” said Riney, noting that a lot of mom-and-pop landlords are trying to sell — and seeing their prices drop. “Mom-and-pop owners who have been doing everything right the last 20 years are getting hurt. [The freeze] basically guarantees the city will be run by professional management and landlords. The small three-to-five building owner cannot compete.”

He recently sold a 16-unit building in Prospect Heights where 13 of the units were market rate, but because the paperwork wasn’t in order on how some of those were deregulated, potential buyers were scared away.

It still sold, but the $8 million price tag was 17 percent less than the asking price.

To truly avoid tenant harassment, advocates say policies must be changed at the state level. 

The de Blasio administration has increased its budget to bolster legal services for dealing with tenant harassment and partnered with the state Attorney General’s office on creating a Tenant Harassment Prevention Task Force.

Several bills have been introduced in the City Council that also aim to curb harassment, including a law that would require landlords obtain a “certificate of no harassment” when getting Department of Buildings renovation permits if their buildings have a history of tenant harassment. (Such certificates are already required when owners of Single-Room Occupancy buildings apply for permits as well as buildings in certain rezoned areas, like Williamsburg/Greenpoint.)

Another bill aims to prevent the use of hazardous construction as a form of tenant harassment, by requiring DOB oversight for tenant protection plans. Currently, landlords can easily claim a building is vacant or has no rent-regulated tenants — even when that is blatantly untrue — so they can avoid creating a tenant protection plan, advocates say.

But advocates also believe that harassment won’t stop until Albany changes the loopholes in the rent laws allowing for the eviction bonus and preferential rent.

“The truth of the matter is that until we take away the perverse incentives for landlords [to get tenants out], we’ll continue to see harassment,” said Ellen Davidson, of the Legal Aid Society.