Altman Ruling Offers Clarity – and Opportunity – for NYC Real Estate Investors

On April 26, 2018, New York State’s highest court – the Court of Appeals – unanimously ruled in a case that had created significant uncertainty for owners and tenants of many multifamily buildings in New York City since 2014. In Altman v. 285 West Fourth LLC, tenant Richard Altman asserted that his apartment had been illegally removed from rent stabilization. The core of Altman’s argument was that the rent had to pass the destabilization threshold¹ during the prior tenant’s occupancy in order for the apartment to be deregulated. In a ruling written by Chief Judge Janet DiFiore, the Court of Appeals, New York State’s highest court, ruled against this argument and in favor of the building owner. In order to understand the implications of this ruling, Holm & O’Hara LLP spoke with Michelle Maratto Itkowitz, Esq., Partner in Itkowitz PLLC, a real estate litigation firm that represents both landlords and tenants and has a core practice in rent regulation issues.

Altman has a couple of key benefits for owners of buildings that are – or were – subject to rent stabilization. First of all, owners no longer have to worry that a large group of tenants might sue them for illegally deregulating their apartments between their occupancy and the prior tenants’. Around 150,000 tenants are believed to be in situations similar to Altman – that is, that their rents passed the threshold for destabilization during their own tenancies and they met certain other conditions. Any of them could have brought suit, so it’s a huge relief for owners not to have that hanging over them. Second, the final ruling in Altman frees owners up to resume their normal course of business. During the nearly four years that the case was making its way through the courts, owners had to act very carefully and treat tenants who were in a position like Altman’s as if they were entitled to the protections of rent regulations. This ruling provides both clarity and freedom for owners to move forward with plans for their properties.

Uncertainty has the potential to be as expensive for tenants as for landlords, so tenants benefit from clarity. They won’t be spending time and money bringing legal actions that won’t yield the results they want. Additionally, I think we will be seeing more buy-out offers now that landlords can be certain that they are actually going to get possession of the units. That could be highly beneficial to people whose life circumstances might make them open to moving.

Transitioning any multi-family dwelling to the next stage of its lifecycle is a process that should not be undertaken lightly. Sometimes there are perfectly good financial and strategic reasons to leave a property in the rent regulation system. Building owners – or prospective owners – should evaluate this carefully with their full team of legal, financial and property advisors. If the owners decide to try transitioning out of the rent regulation system, they need to plan it strategically and put the right advance team on the ground to both stay in compliance with the law and take advantage of opportunities to get to know tenants and their needs. Emptying a whole building is both an art and a science and no case is the same. Altmancertainly creates some opportunities that were not present before, but it doesn’t change the essential ground rules that govern landlord-tenant interactions.

Try to find a win-win path; you have priorities and your tenants have priorities. If you treat them as people and take the time to discover what might motivate them to stay in a particular unit or move, you can often uncover some surprising options that will work well for both sides – and it’s not always about money. Attempting to harass or strong-arm a tenant into moving is illegal.

There is no single answer to that. It depends on the investor’s goals and needs, as well as on the property. Above all, though, prospective buyers should be proactive about due diligence. That means getting as much detailed information as they can up front, including leases, DHCR (Department of Housing and Community Renewal) documents and tenant files. Just as buyers will typically hire an engineer to make sure the building is stable, they really should consider hiring a landlord and tenant litigator to assess the tenancies and the ability of those tenancies to create or to stymie revenue generation.