An Introduction to the NYC Rent Guidelines Board
Table of Contents

MAIN FEATURES OF RENT STABILIZATION
(PART I)

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(Part I) (Part II) (Part III)

The landlord/tenant context -- objectives, enforcement & primary provisions of the Emergency Tenant Protection Act, Rent Stabilization Law, Rent Stabilization Code & related laws

As seen from the history of rent regulation, the rent stabilization system has evolved from a combination of State, City and administrative agency actions beginning in 1969. Under the Emergency Tenant Protection Act (ETPA) of 1974, the State established the broad legal parameters within which the City, its agencies, and now the State Division of Housing and Community Renewal must administer rent stabilization. Much of the ETPA, however, refers to and relies upon provisions of the local Rent Stabilization Law (RSL) of 1969 as governing the administration of rent stabilization within New York City. Both laws in turn prescribe the establishment of a code of regulations known as the Rent Stabilization Code (RSC) which implements the provisions of these laws in detail.

Although the provisions of the ETPA concerning rent setting and the role of the Rent Guidelines Board(s) were previously noted, it may be worthwhile to consider some of the general themes of the rent stabilization laws and regulations before proceeding with a more detailed discussion of the administration of rents.

The rent stabilization system is structured to provide three interrelated protections to tenants while permitting a fair return to owners who invest in rental property. A prime concern of lawmakers in establishing the system was to preserve the basic affordability of rental housing. Yet, affordable rents would provide little protection for tenants who are at the same time vulnerable to arbitrary evictions or service reductions. Consequently, the rent regulation system goes far beyond the simple establishment of rents and addresses a whole range of landlord/tenant issues. These issues mainly concern habitability and security of tenure.

It is also important to consider whether rent regulation produces fair returns for affected owners. As previously discussed, the interests of owners are vested with certain protections based upon the constitutional guarantees of equal protection, due process and just compensation for the taking of private property for public use. Concern for these protections has been incorporated into the structure of the rent stabilization system through the allowance of "hardship" rent increases for owners and by the various constitutional limitations governing the Board's and the DHCR's general authority. Additionally, the system is designed to prevent tenants from unfairly abusing or profiting from their control over regulated units. Finally, mechanisms have been added to encourage owners to invest in major capital improvements and to develop new rental units or to improve existing units.

A general familiarity with all of these aspects of rent stabilization is helpful in understanding the regulatory framework within which the rent guidelines must be established and enforced.

Affordability

The findings of the City Council in enacting the Rent Stabilization Law of 1969, and the State legislature in adopting the Emergency Tenant Protection Act of 1974, clearly establish that fair and generally affordable rents are a primary objective of these laws. The intent is clearly not to guarantee an affordable rent for every tenant. Rather, it is to protect tenants against "abnormal" rents driven up by chronic housing shortages. A full reprint of the findings from the Rent Stabilization Law of 1969, as amended, is provided below:

The question of how much weight to give to affordability is a controversial one. Two judicial pronouncements on the issue indicate that tenants' ability to pay is a permissible consideration in setting the guidelines.84 Owner representatives have often asserted that affordability (as reflected in tenant incomes, unemployment statistics, shelter allowances, non-payment petitions, evictions etc.) should not be a factor in the Board's annual deliberations. They have argued that rent limits established by focusing on economic factors - such as operating costs, vacancy rates, mortgage rates and so on - preserve affordability to the extent intended by the system. In other words, guidelines that are exclusively concerned with the specific considerations prescribed by law85 result in presumptively "fair" rents. Tenants counter that this focus on the mandated considerations neglects the intent of the legislation - described in the above Declaration of Emergency - and ignores the third section of the charge to the Board which permits it to consider "such other data as may be made available to it".

Regardless of who has the better of this argument there is an independent and quite plausible reason for continuing to review and factor affordability into the guidelines. In the purest economic sense, the object of the guidelines should be to eliminate the effects of the housing shortage on rent levels. All of the mandated criteria suggest that the Board should be making a rough attempt to simulate the kinds of rents that a competitive market with a vacancy rate in excess of 5% might provide. Such a market would be shaped by the same basic forces that control all unregulated markets: supply and demand. Demand would in turn be determined by a host of factors, the most significant of which is tenant affordability.

In an unregulated rental housing market, if incomes fall or unemployment rises the demand curve will gradually shift downward - more people will double up, move away, skip out on payments or negotiate more vigorously with owners - and rents will eventually fall or rent increases will be limited. This pattern was clearly in evidence in unregulated markets nationally where rents remained virtually flat throughout the recession of the early 1990's.86 In New York's unregulated rental sector, rents fell by as much as 15% during this recession.87 Vacancy rates are higher in other areas of the country giving rise to more balanced bargaining relations and permitting the partial transfer of recessionary pressures from tenants to owners. Except in high rent sectors where market rents prevail, New York's housing shortage largely suppresses or masks these consequences. Housing options in middle and low-income markets are limited. Owners are commonly in a position to say "take it or leave it" and tenants have little choice but to accept what is offered. The benefit to low and moderate income tenants of a recession-induced deflation of rents is largely lost.

In short, a genuine attempt to simulate a competitive equilibrium rental price will recognize that rents fall in a recession because incomes fall. From this perspective, ability to pay may be an important economic factor for the Board to consider.

The consideration of affordability does not necessarily compel lower rent adjustments. Those who are willing to factor affordability into the guidelines by limiting increases during a recession are bound to accept a logical corollary - when tenant incomes rise so should rents. Nothing in the Declaration of Emergency suggests that rent levels should be immunized against inflationary pressures brought on by rising incomes. The expansion underway since 1994 suggests that consideration of tenant affordability may actually result in relatively higher guidelines.

The chronic dilemma faced by Board members is that for decades New York has experienced a "dual" economy. According to one recent study New York ranks 50th among the states in the growing gap between high and low income earners.88 From 1978 through 1998, on average, the top 5% of New York households gained 67% or $107,880 in real (inflation adjusted) annual income while the bottom 20% lost 21% or $2,900.89 Nearly one in four New York City residents had incomes below the Federal Government's poverty threshold in 1998 -- twice as high as the national average.90 Thus, while incomes may rise on average, housing affordability for many, including a majority of rent stabilized households, has been stagnant or falling. According to the 1999 Housing and Vacancy Survey ("HVS"), while the incomes of all households rose 4.2% in inflation-adjusted terms between 1995 and 1998, the median income of rent stabilized households fell by one half percent.91 The HVS found that the median rent stabilized household earned $27,000 in 1998.92 The median income of homeowners was $53,000. The median of all households was $33,000. Fewer than 6% of rent stabilized households earned in excess of $100,000 in 1998.93 More than 19% of owner occupied households (conventional homes, co-ops and condos) earned in excess of $100,000 in 1998. Thus, although there are wide individual variations, when compared to owner occupied households, rent stabilized households tend to have relatively low income levels.

While rent stabilization may preserve fairness and affordability in a general sense for the 1,046,000 households protected by it, it clearly does not protect individual tenants who may not be able to afford existing rents at stabilized levels. Conversely, rent stabilization does protect some tenants who can afford market rents, although luxury decontrol has begun to limit such protection.

Many tenants do benefit from various government housing programs. As of 1998, 22.3% of all renter households and 21.6% of stabilized households received public assistance.94 About 7.8% of renter households (7.7% of rent stabilized) receive shelter allowances.95 Yet, shelter allowances often fall short of prevailing rents. Shelter allowances for a four-person household have remained at $312 monthly since January of 1988. In inflation adjusted terms the value of these allowances is less than half of what it was in 1975.96 Thousands of households threatened with eviction receive additional allowances pursuant to a court order issued in a State Supreme Court case known as Jiggetts v. Dowling.97 That remedy requires the initiation of an eviction action before relief can be granted.98

Some 6.8% of renter households (6.5% of stabilized households) receive federal rent subsidies ("Section 8" vouchers).99 Nearly 170,000 public housing units are occupied by tenants who pay rents determined by household income. These programs are, however, confronted with an extraordinary level of unmet demand. The wait list for public housing presently includes some 130,000 families.100 This translates into waits for assistance that average about eight years. The wait list for rent vouchers includes some 215,000 families.101 Since the number of available vouchers is limited, many families will never receive this type of assistance.

Thousands of others reside in the approximately 122,000 (middle income) co-op (55,000) and rental (67,000) apartments commonly known as "Mitchell-Lama" housing. Waits for housing in these projects may last up to ten years.

In addition, some 6.6% of renter households receive rent increase exemptions through a program which offers a dollar for dollar property tax credit to owners for the amount of rent abated -- the Senior Citizen Rent Increase Exemption or "SCRIE" program.102 Among seniors in rent stabilized housing, 8.4% receive such subsidies. These subsidies cover rent increases for persons over 62 years of age earning less than $20,000 per year and paying over one third of their income in rent.

About 3% of renter households benefit from other federal and state subsidies.103

To put all of this in perspective, New York City has a total of approximately 2,868,000 million households. About 575,000 live in conventional owner occupied homes. Some 51,000 families occupy owner occupied condominiums and 290,000 reside in owner occupied co-ops. The remaining 1,953,000 are renter households. Of these, 1,046,000 are rent stabilized and 53,000 are rent controlled.

Among all renter households, 6.8% receive Section 8 vouchers, 7.8% receive shelter allowances, 6.6% receive SCRIE and 3.1% receive other government subsidies. In sum, 24.3% of all renter households receive some kind of rental assistance.Among rent stabilized households, 24.7% (nearly one in four) receive such assistance.

Rent regulation does, of course, play some role in limiting the rents paid by many households that receive limited or no assistance. Yet, in spite of the high number of rental households protected by rent regulation, the proportion of household income paid in rent rose steeply throughout the early period of stabilization. (This phenomenon also occurred - to a lesser extent - throughout the nation during the same period.) The median "rent to income ratio," or percent of gross income paid in rent, increased from 20% to 29% for all renters and from 22% to 30% for stabilized renters over the past thirty years:

Tenants currently residing in rent stabilized apartments (as distinguished from those searching for new apartments) receive the greatest level of protection under the existing system. The creators of rent stabilization were particularly concerned with community and household stability and sought to avoid the displacement of "long-time" residents. While existing tenants face guideline adjustments upon renewal of their leases, new tenants are charged vacancy increases (in accordance with the statutory formula). This approach has, however, resulted in widely "skewed" rents for comparable apartments. Notably, the RGB staff has found that "longevity discounts" exist in unregulated housing as well as in New York's regulated market.105 Whether regulated or not, landlords favor long-term steady rent payers. The critical difference is that rent regulated tenants tend to stay in their units about twice as long (about 9 years on average) as their unregulated neighbors. Thus the longevity discounts accumulate over a longer period.

Habitability

Historically a tenant's obligation to pay rent was considered independent of an owner's obligation to provide a habitable apartment. Thus tenants were required to pay rents even when services were unavailable or hazardous conditions existed. In 1939 the State began to depart from this tradition by permitting tenants to deposit rents into court when apartment conditions threatened life, health or safety. This process required a court proceeding, however, and did not provide the tenant with compensation for having to live with the dangerous conditions or for the loss of services. The court simply withheld the rents to induce the landlord to make the needed repairs or to restore services - or the court ordered that the problems be remedied directly with the deposited funds.106 No abatement of rent was authorized for the period in which tenants were without full enjoyment of their apartments.107

In 1943, under federal rent controls, owners were required to provide essential services or face a downward adjustment of rents. These protections were continued when the State took over the administration of rent control in 1951. In 1971, amendments to the rent control laws establishing the MBR system expanded tenant protections by requiring owners to correct all "rent impairing" violations - a designation given to a select group of housing code violations by the City's housing agency - and at least 80% of all other violations, prior to receiving any rent increase. These protections for rent controlled tenants continue in effect today.

In adopting the Rent Stabilization Law of 1969, the City established protections against loss of services for the newly created class of rent stabilized tenants by requiring that such protections be included in the code of regulations to be established by the real estate industry.108 The current Rent Stabilization Code [now promulgated by the DHCR] requires owners to certify annually that they are continuing to provide the same services as those provided at the time the apartment first became subject to stabilization.109

In 1975 the State reversed completely the policy of decoupling the obligation to pay rent from the obligation to supply fully habitable premises. Under the warranty of habitability110 all residential leases are now "effectively deemed a sale of shelter and services by the landlord who impliedly warrants: first, that the premises are fit for human habitation; second, that the condition of the premises is in accord with the uses reasonably intended by the parties; and, third, that the tenants are not subjected to any conditions endangering or detrimental to their life, health or safety."111 Consequently all tenants, regardless of rent regulation status, are now eligible to seek repairs and rent abatements for violations of this warranty.112

The right of rent stabilized tenants to seek compensation for lost services and to obtain the restoration of such services is still in some ways broader than the rights afforded by the warranty of habitability. The services protected by the warranty or otherwise required by law may not include all services furnished on certain applicable base dates, which the Rent Stabilization Code has categorized as "required services" and which rent stabilized tenants have a right to continue.113 If a required service is not provided, the DHCR may reduce the rent to the amount in effect prior to the most recent guideline increase for the period in which the tenant is deprived of the service. The rent reduction commences on the first day of the month following the month in which the owner is served with a copy of the tenant's complaint. It is important to note that the warranty of habitability may provide greater relief for loss of those services covered by the warranty because rent abatements under the warranty may be retroactive and are not limited solely to the elimination of guideline increases.

It is also worth noting (although unconnected with habitability) that rent stabilized tenants have a right to a renewal lease on the same terms and conditions as the expiring lease. If a tenant received what the Code considers an "ancillary service" (e.g. garage space, swimming pool access, health club rights etc.) under an expiring apartment lease - even though such service was not provided on the applicable base dates for required services - the tenant may continue to demand such services at stabilized rents upon renewal of the lease. While the owner may not demand that the tenant rent the ancillary service (other than security) as a condition of renting the apartment, once the tenant has accepted the service, the owner may demand that the service (and special charges for it) be included in subsequent renewal leases. However, tenants have a right to sublet such services. These renewal rights and obligations are not protected under the Code if the service is not provided primarily for the tenants in the building and is governed by a separate agreement.

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MAIN FEATURES OF RENT STABILIZATION
(Part I) (Part II) (Part III)

An Introduction to the NYC Rent Guidelines Board
Table of Contents

Footnotes

84 See Greystone Hotel Co. v. City of New York, Rent Guidelines Board et al., case #17, supra at p.45. Note: This case was not published and may not be cited as precedent in any other case. See also Matter of Muriel Towers Co., case #10, supra at page 42.

85 Recall that the mandated considerations include:

86 See State of the Nation's Housing - 1992, Joint Center for Housing Studies of Harvard University, Exhibit 2a.

87 N.Y. Times 2/7/93 Real Estate Section at 12, col. 1.

88 N.Y. Times 1/19/2000, Metro Section, B5, citing research conducted by the Economic Policy Institute and the Center on Budget and Policy Priorities.

89 Id.

90 N.Y. Times 10/7/99, Metro Section, B1.

91 Selected Findings of the 1999 N.Y.C. Housing and Vacancy Survey, 2/16/00, Table 8.

92 1999 Housing and Vacancy Survey, Tabulation Package, Series 1A, Table 9.

93 1999 Housing and Vacancy Survey, Tabulation Package, Series 1B, Table 9.

94 1999 Housing and Vacancy Survey, Tabulation Package, Series 1A, Table 38.

95 1999 Housing and Vacancy Survey, Tabulation Package, Series 1A, Table 102.

96 N.Y. Times 7/9/00, Housing Crisis Confounds a Prosperous City; In New York, Scarcity and High Costs Spur Competing Ideas for a Solution, Metro Section, B1.

97 261 AD2d 144,689 NYS2d 482 (1st Dept. 1999), leave to appeal dismissed, 94 NY2d 796, 700 NYS2d 428 (1999).

98 For more information on this process, see Hoops & Hurdles by Anna Lou Dehavenon, City Limits, October 1993.

99 1999 Housing and Vacancy Survey, Tabulation Package, Series 1A, Table 102.

100 N.Y. Times, Housing Crisis, supra note 96.

101 Id.

102 1999 Housing and Vacancy Survey, Tabulation Package, Series 1A, Table 102.

103 1999 Housing and Vacancy Survey, Tabulation Package, Series 1A, Table 102.

104 1996 HVS Table 6.26, 1999 Selected Findings of the 1999 HVS, Table 12

105 See Rent Stabilized Housing in New York City, A Summary of RGB Research, 1994; Rent Skewing in Rent Stabilized Buildings, 1994, p. 62, noted further herein at page 103.

106 Former Civil Practice Act, 1920, section 1446-a, added L. 1939, c. 661, and repealed by CPLR 10001. Now section 755 of the Real Property Actions and Proceedings Law.

107 In 1965, §302-a was added to the Multiple Dwelling Law permitting, under certain circumstances, a complete abatement of rent if selected violations, designated as "rent impairing" remain uncorrected.

108 See former RSL section YY51-6.0(c)(8), and current RSL section 26-514.

109 See RSC sections 2523.2 through 2523.4.

110 Real Property Law section 235-b.

111 Quoting Cooke, Ch. J., N.Y. Court of Appeals, Park West Management Corp. v. Mitchell, 1979, 47 N.Y. 2d at 319.

112 See also §235 of the Real Property law which makes willful refusals to provide essential services a misdemeanor.

113 See RSC 2520.6(r).