The
one decision of the Rent Guidelines Board that has, by far, the greatest
impact on owners and tenants is the annual establishment of lease renewal
guidelines. Since 1983 tenants have had the option of choosing between
one and two year renewal leases.143 An
estimated 80% of all stabilized tenants have a renewal lease, 10-12% move
or 'turn over,' approximately 7% report having no lease, and about 1% pay
no cash rent. Approximately one third of all stabilized tenants with leases
regularly sign one-year leases leaving some two thirds of tenants who sign
two-year leases. Approximately half of those choosing two-year leases remain
unaffected by any given guideline - being in the second year of a two-year
lease signed under the previous guideline.144 Consequently,
about 53%, or approximately 540,000 of the 1,021,000 rent stabilized households
are directly affected by the adoption of any single set of annual renewal
guidelines.
The
economic impact of these guidelines on the City's housing stock is enormous.
Given current rent levels, any 1% increase in average rents raises aggregate
rent rolls by about 90 million dollars per year. An average annual increase
of 4.4% in rent rolls for each of five years from 1996 through 2000 for
the stabilized apartment inventory as a whole (including an estimated impact
of the statutory vacancy allowance)145 amounted
to approximately two billion dollars in cumulative added rent - an average
of about $2,000 in total added rent per rent stabilized household. Guideline
renewal increases account for most of this growth.
Two
major caveats are in order. First, not all of the increases authorized
by the Board are collectible. Increases in renewal guidelines may not be
passed on to tenants who occupy one of the growing number of units renting
at market -- particularly outside of Manhattan. The second major caveat
(which may more than countervail the first) is that the impact of administrative
rent adjustments authorized by the Division of Housing and Community Renewal
is largely unknown. The effect of thousands of major capital improvement
and individual apartment improvement rent increases is not and cannot presently
be measured in the rent index prepared by the RGB staff each year. Therefore,
these increases are not reflected in the above estimates.
The
vast majority (about one million) of tenant households affected by these
guidelines are apartment dwellers.
Approximately
38,000 units fall within the hotel stabilized group which presently
includes (according to the 1999 HVS) class "B" hotels (8,100), single room
occupancy units (9,200), rooming houses (8,700), lodging houses (few units/no
data) and "apartment hotels" (11,500).146 The
number of stabilized hotel units has declined dramatically in recent years
as a result of building demolitions and conversions and from an increase
in transient (and thus unregulated) hotel rentals.
The
Board reviews the economics of hotel buildings separately from apartments
pursuant to §26-510(e) of the RSL (included as part of Appendix A).
It also holds separate hearings for hotels and adopts separate hotel orders.
These orders have historically differed significantly from those given
for apartments and lofts. While one year renewal increases for apartments
and lofts averaged around 3% between 1996 -2000, increases for the hotel
sector averaged about 1% over the same period.
A
sound estimate of the number of loft units currently affected by
the Board's loft guidelines pursuant to §286 of the Multiple Dwelling
Law is difficult to calculate.147 As
these units are "legalized" and move from interim multiple dwelling status
to class "A" multiple dwellings some may be deregulated while others may
fall under apartment rent stabilization.
While
the Rent Guidelines Board does conduct an independent review of the economics
of loft buildings, because of significant similarities with apartments
in operating cost changes over the years the Board's loft orders have generally
paralleled its apartment orders. In 1999, however, lofts were given a slightly
lower increase (1% for one-year leases and 2% for two-year leases) compared
to apartments (2% and 4%, respectively). In 2000 a similar lower increase
was granted for lofts (3% for one-year leases and 5% for two-year leases)
compared to apartments (4% and 6% respectively).
Useful
Appendices for Reference:
Special
Orders
Sublet
Allowances
As
discussed in the section describing the Rent Regulation Reform Act of 1997,
the vacancy allowance is now established by statute, although the RGB is
not precluded from adding an additional vacancy increase. The Board may,
however, promulgate a special vacancy allowance for apartments occupied
by subtenants, known as the 'sublet allowance.' Section 2525.6(e) of the
Rent Stabilization Code provides that "the legal regulated rent payable
to the owner effective upon the date of subletting may be increased by
the vacancy allowance, if any, provided by the Rent Guidelines Board Order
in effect at the commencement of the date of the lease, provided the lease
is a renewal lease." Under Order #32, the Board authorized a 10% sublet
allowance.
Supplemental
Rent Adjustment
The
supplemental rent adjustment is a fixed dollar amount in addition to renewal
and vacancy increases which is added to rents the Board has regarded as
exceptionally low. This adjustment has been one of the most controversial
components of the Board's past rent orders. Owners have strongly urged
the continuance of the adjustment to remedy what is viewed as unfairly
low rents. Tenant advocates, on the other hand, have regarded it as a "poor
tax" upon the hardest hit class of tenants and a cause of homelessness.
As
shown in the following chart, the first supplemental adjustment was adopted
in 1983 as part of order #15. From 1990 through 1993 no supplemental adjustment
was added. In 1994 the Board reinstituted the allowance and in 1999 a minimum
rent of $215 was imposed. In 2000 the Board added $15 for rents under $500
and continued the minimum rent provision.
According
to the 1999 Housing and Vacancy Survey, fewer than 9% of rent stabilized
apartments now rent for less than $400.148 About
one-fifth or 20.4% rent for less than $500.
Special
Guidelines and Decontrolled Units
As
discussed in the section concerning fair market rent appeals (supra, here)
apartments in buildings with six or more units vacated by a rent controlled
tenant will fall under rent stabilization. If the first stabilized tenant
chooses to challenge the rent, the DHCR will consider the special guidelines
adopted by the Board pursuant to §26-513 of the RSL (See Appendix
O) in making its determination as to whether the new rent is "fair".
As noted previously, in addition to this advisory guideline the DHCR will
permit the owner to submit information on "rents generally prevailing in
the same area for substantially similar housing accommodations." If presented
with such information, the current DHCR practice is to average the rent
calculated in accordance with the special guideline with the average rent
for qualified comparable units.
In
establishing the special guidelines, at one time the Board's policy was
generally to close the gap between rent controlled rents and rent stabilized
rents, the latter often being much higher. From 1974 through 1986 the Board
adopted special guidelines which ranged between 15% to 20% above the maximum
base rent ("MBR") established under the rent control system. In 1987 the
Board took notice of information provided by the most recent Housing and
Vacancy Survey which indicated that median rent stabilized rents in pre •47
buildings were approximately 35% above median rent controlled rents. Consequently,
the Board increased the special guideline to 35% above the MBR in its 1987
rent orders. The following year tenant representatives argued that since
the Board's stated aim for the special guideline was to close the gap between
rent controlled and rent stabilized rents, and since the gap reflected
in the HVS figures is really a gap between Maximum Collectible Rents149 and
stabilized rents, the special guideline should be added to the MCR and
not the MBR. Acknowledging some value in retaining the MBR as the minimally
desired rent, the Board's 1988 and 1989 special guidelines consisted of
a 45% increase above the MCR or a 25% increase above the MBR - whichever
increase was greater. In 1990 the Board moved to a fixed increase of 35%
above the MCR. In 1991, responding to arguments that the MBR is a minimally
sufficient rent to run a building, the Board returned to the MBR as an
appropriate base from which to calculate adjustments by simply adding 15%
to the MBR. This approach was continued in 1992. In 1993 the Board once
again returned to the "closing the gap" approach by adding 40% to the MCR.
In
later years the Board again added a minimum increase above both the MBR
and the MCR. Thus, in 1995 the special guideline consisted of the greater
of 35% above the MBR or 45% above the MCR. In 1996 and 1997 the numbers
were 40% and 50% respectively. In 1998 the Board increased the special
guideline to the greater of 80% above the MBR or a minimum of $650. In
1999 and 2000 the Board adopted a complex special guideline consisting
of the greater of 150% above the MBR plus the fuel cost adjustment, or
the Fair Market Rent for existing housing established by the U.S. Department
of Housing and Urban Development.
Notably,
according to the 1999 Housing and Vacancy Survey, the median rent controlled
rent (the "MCR") is $477 while the median rent stabilized rent is $650
-- a 36% difference.150 Because
the MBR is always equal to or greater than the MCR, the Board's most recent
minimum adjustment of 150% above the MBR would raise a typical decontrolled
unit to well over $1,100 per month.
It
should be added that the Board's special guideline orders also affect buildings
which have been decontrolled pursuant to section 2(f)(15)(c)&(d) [now §2200.2(f)(15)(iii)&(iv)]
of the New York City Rent and Eviction Regulations. These sections concern
apartments with past rent levels that made them high rent or "luxury" apartments
in the mid-1960's. These units may still be decontrolled on a case by case
basis pursuant to a court order. While this type of decontrol rarely occurs
today, the Board's orders continue to provide protection for newly stabilized
tenants who move into one of these previously controlled units. These decontrol
guidelines have historically been identical to the special guidelines for
rent controlled units which are voluntarily vacated.
Electrical
Inclusion Adjustment
Approximately
86% of stabilized tenants pay for their own electricity while some 14%
have the cost of electricity included in their rent. If the cost of electricity
rises at a faster rate than the average increase in operating and maintenance
costs and the Board does not compensate owners for this difference in its
rent orders, owners who supply electricity would be at a disadvantage.
Similarly, if the price of electricity were falling relative to other expenses,
owners who supply electricity would reap a windfall unless the Board adjusted
rents accordingly. Recognizing this, the Board has included special adjustments
- both up and down - where the rate of increase for electricity costs has
not paralleled changes in other costs. These "electrical inclusion adjustments" were
common in the mid-1970's to the early-1980's but have not been added to
any rent order since 1983 when a one percent reduction for master metered
buildings was included in order #15. Master metered buildings are still
analyzed separately in the Board's annual review of operating cost changes,
however, and there is no indication that electrical inclusion adjustments
will not be included in future rent orders.
Buildings
with J-51 or 421-a Tax Abatements
As
mentioned previously, owners of property completed or substantially rehabilitated
after January 1, 1974 may avail themselves of 421-a (new construction)
or J-51 (rehabilitation) tax abatements or similar abatements. A condition
of entering these programs is acceptance of rent stabilized status for
a prescribed period. The period of stabilized status and conditions for
deregulation vary by program. Relevant portions of these regulations are
attached as Appendix P.151
Owners
of buildings receiving 421-a benefits may charge initial rents according
to a formula which accounts for development costs and operating expenses,
and, during the period of gradual diminution of their 421-a tax exemption,
may only charge guideline rent increases plus 2.2% of the original rent
per annum.152 Owners of
buildings with J-51 tax benefits do not receive this additional 2.2% increase.
Stabilizers
Stabilizers,
according to a 1982 staff review, "have been authorized to take into account
the yield of rent stabilized buildings relative to other investments and
increases in capital costs for such buildings". They have consisted of
separate additional rent increases ranging from 1% to 1/2% in orders 2,
3, 4 & 6c. They have also been explicitly "included" in the standard increases
in orders 5,7,8,9,10 & 11. While the stabilizers enacted in these years
are incorporated into base rents in accordance with subsequent rent orders,
no additional stabilizers have been added in recent years.
Other
- Fractional Terms, Escalator Clauses
Although
the RSC §2522.5 provides that rent stabilized tenants have a right
to choose only a one or two year renewal lease, under certain rare circumstances
a lease term may be a fraction of these periods. If that is the case, the
Board's orders provide that lease terms of up to one year shall be deemed
a one year lease for the purposes of determining the appropriate rent adjustment.
Similarly, a lease term of more than one year and up to two years in length
is deemed a two-year lease.
Escalator
clauses are provisions in lease agreements permitting periodic rent adjustments
that are generally fixed or pegged to some economic indicator. Under the
RSC §2522.5(e) most escalator clauses are no longer permitted in stabilized
leases. According to the Board's orders, where escalator clauses continue
to be permitted, the amount of any increase due under such clause must
be offset against the guideline increases.
Exemptions
to Orders
Warehousing
Exemptions
As
far back as 1972, under hotel order #3, the Board began adopting orders
denying rent increases to owners of hotel buildings which contain a large
number of units deliberately withheld from the market. It has long been
argued that owners who deliberately deprive themselves of additional rents
by withholding units from the market should not be heard to complain that
existing rents for the remaining tenants are inadequate to produce a fair
return on their investment. This view may be distinguished from attempts
to eliminate warehousing on public policy grounds through the imposition
of fines or other penalties. The anti-warehousing provisions of recent
Board orders are an attempt to distinguish between buildings in economic
terms and to adopt guidelines accordingly - not to penalize owners who
choose to utilize their properties in a manner that some might find offensive.
In
1985, an anti-warehousing provision was added to an apartment order
for the first time. Order #17 deprived owners of vacancy allowances in
buildings of 50 units or more in which more than 10% of units were deliberately
withheld from the market. Anti-warehousing provisions have not been retained
in the Board's recent apartment orders.
Registration
Exemption/Hotels
The
stabilization provisions governing hotels are distinct from those governing
apartments in one fundamental respect: vacant hotel units may be rented
to transient tenants who are generally not protected by the rent stabilization
laws.153 Prior to 1983,
rents in hotel units that became vacant were allowed to go to market. They
were thereafter re-stabilized if the unit became occupied by a permanent
tenant. In 1983 the language permitting market rents upon vacancy was deleted.
New tenants were not automatically given rent stabilized status under this
legislation, however, and are still required to request a lease or reside
in the unit for six months before becoming "permanent" (and thus stabilized)
tenants. Upon becoming a permanent tenant, the DHCR will require that the
rent be rolled back to the level that existed under the last stabilized
tenancy, plus any renewal increase. Consequently, the hotel stabilization
laws continue to permit several classes of tenants within a single building:
those who are long term stabilized tenants, those who are transient tenants
and as such pay open market rents, those who reside units with rents which
exceeded $350 per month or $80 per week on 5/31/68 and thus were never
stabilized,154 and those
new tenants who request leases or reside in their unit for six months and
thereby become rent stabilized.155 It
is easy to see that owners have significant incentives to rent only to
transient tenants and the Board has received testimony that such practices
are commonplace.
Recognizing
that owners who reap market rentals from transient tenants may have less
of a need for rent increases from other tenants, the Board, in its last
3 hotel orders (28, 29 & 30), adopted special exemptions for buildings
which show limited occupation by rent regulated tenants. Because rent registration
data compiled by the DHCR indicates the number of stabilized units and
those not stabilized in a given hotel or SRO, the Board uses this ratio
to establish the criteria for implementing its "registration exemption".
The current provision (under Hotel Order #30) allows for no rent increase
if fewer than 70% of the residential units in a building are occupied by
permanent rent stabilized or rent controlled tenants paying no more than
the legal regulated rent.
In
1991 the RGB staff compiled data on operating expenses and registration
levels in the stabilized hotel sector. As the report indicated, it appeared
that at least 40% of the hotel stabilized universe of buildings had never
been registered with DHCR. The most severe non-registration problem appears
to be with rooming houses in the outer boroughs. In 1992 the staff added
to the report by compiling data which indicated, among other things, that
the transient problem is largely confined to Class B hotels - where [in
hotels registered with the DHCR] an average of only 57% of units were registered
as stabilized. Copies of these two staff reports on hotels are included
in Appendix Q and Q1.
In
addition to the registration exemption, the RGB has refused rent increases
to owners who fail to provide new hotel occupants with a copy of the "Rights
and Duties of Hotel Owners and Tenants, pursuant to Section 2522.5(c)(2)
of the Rent Stabilization Code." Thus, while hotel owners received a 2%
rent increase under Order #30, they received a 0% adjustment if they failed
to provide this required notice. Among other things, this notice apprises
incoming tenants of their right to the protections of rent stabilization.
Resolutions
The
Board is often called upon to adopt advisory resolutions with respect to
the legislative design or administration of the rent stabilization laws,
and has, on occasion adopted such resolutions. In 1992 the Board adopted
a resolution calling upon the DHCR to look in to possible violations of
the Board's hotel orders. In 1988 the Board adopted two resolutions, one
requesting an examination of the process by which hardship increases are
granted and a second requesting an examination of a proposal from City
Council President Andrew Stein to deny rent increases to owners who have
outstanding uncollected judgments for housing code violations. (Corporation
Counsel later advised that this latter policy, or any policy linking rent
increases to code compliance or energy conservation efforts, may not be
within the Board's discretion.) In the Summer of 1993 the Board adopted
an extensive resolution on distressed properties
DUTIES
OF THE RENT GUIDELINES BOARD
(Part I) (Part II) (Part
III)
An
Introduction to the NYC Rent Guidelines Board
Table of Contents
Footnotes
143 Prior
to the enactment of the Omnibus Housing Act of 1983 tenants were given
the additional option of choosing three year leases.
144 See
note 22 following Table 8 in the Explanatory Statement for Apartments (Appendix
N1) for further explanation of these estimates.
145 This
is an average of the last five entries in the Board's rent index contained
in table 8 of the Explanatory Statement for Order #31.
146 1999
HVS, Table 15
147 A
copy of §286 of the Multiple Dwelling Law is contained in Appendix
L.
148 1999
Housing and Vacancy Survey, Tabulation Package, Series 1A, Table 30.
149 "MCR" =
the amount rent controlled tenants are actually required to pay which may
increase by no more than 71/2% per year. The MBR is a rent ceiling which
reflects the amount theoretically required to maintain the unit and produce
a fair return. The MCR never exceeds the MBR.
150 1999
Housing and Vacancy Survey, Tabulation Package, Series 1A, Table 30.
151 See
also RSC 2520.11 (o) &(p).
152 See
RSC 2522.5(e)(2).
153 Such
tenants may have the right to become permanent and thus rent stabilized
tenants pursuant to §2522.5(a)(2) of the RSC, as well a right to be
notified of the protections afforded by rent stabilization [RSC §2522.5(c)(2)],
but these protections may have been thwarted to some extent by the use
of "short-stay" agreements and by other actions designed to deprive tenants
of legal process (required under NY Admin. Code § 26-521) prior to
being locked out.
154 See
RSL §26-506.
155 See
RSL §26-510(e).
