Essentials of Rent Stabilization – Key Strategies for Real Estate Investors, A Practical Guide to Investment Real Estate, by Michael L. Landsman, Esq.
May 12, 2022
If you are contemplating buying New York City multifamily real estate, be you an experienced investor or somebody new to the game, you are crazy if you do not buy a copy of this book just published, in Spring 2022, by my friend and colleague, Michael L. Landsman, Esq., entitled “Key Strategies for Real Estate Investors, A Practical Guide to Investment Real Estate”. And I am not just saying that because I authored the rent regulation chapter therein!
Seriously, this is all the stuff you realize after an acquisition that you desperately wish you knew before! This is a substantive 235-page book, and it covers: all the fundamentals of a deal, from ownership structures, to title insurance, to contract, to financing, to closing, and through management, long-term investment strategies, and sales. The book takes a deep dive on brokerage, land use (zoning), environmental issues, structural engineering, expediting, accounting and tax implications, like-kind exchanges, and estate planning for these assets. This book even has a chapter at the end by a licensed psychotherapist examining “Analysis Paralysis!” It is genius that Michael has topped off tons of objective content with a smart business self-help chapter.
Every chapter in Michael’s books is introduced by a “my story” section, where all the professionals who worked with Michael on the book explain how they got their starts and what led them to a place where they are amply qualified to give you advice on investing in real estate. Think of how often you read something and then, after the fact, you search for the author’s bio, wondering if what you just read is something you can rely upon? Here, you become familiar with the expert even before you hear what they have to say. The book contains useful charts and cool illustrations. Come on, you need this book!
Allow me to walk you through my chapter in Key Strategies for Real Estate Investors, entitled, “The Rent Regulation Specialist: Building Value”. My chapter: talks about the radically changing landscape in Rent Stabilization; covers the essential things you must know about Rent Stabilization; exposes mistakes and misconceptions that investors make about Rent Stabilization (that I see every single day); and presents strategies for getting the most out of your Rent Stabilized asset.
With the permission of the author, I reprint the section in my chapter “mistakes and misconceptions”:
Essentials of Rent Stabilization
Rent stabilization applies to about one million tenancies in New York City. [footnote omitted] Rent stabilization limits the rent an owner may charge for an apartment, restricts the right of an owner to evict tenants, and imposes other requirements on both landlords and tenants. Rent stabilization is overseen by the New York State Division of Housing and Community Renewal (DHCR), McKinney’s Uncons Laws of NY§ 26-516 [Rent Stabilization Law (RSL)]. Here are six fundamental aspects of New York’s rent stabilization system:
• Tenant entitlement to leases: Rent-stabilized tenants are entitled to leases and lease renewals. Even if a landlord fails to renew a rent-stabilized tenant’s lease, all tenant rights remain intact (Rent Stabilization Code (RSC § 2523.5).
• Inability to collect rent if a lease is not properly renewed: lf a rent-stabilized lease is not properly renewed, a landlord cannot sue the tenant for the rent. Paid Enters. v. Gonzalez, 173 Misc.2d 681, 682. [App Term 2d Dept 9th and 10th Jud Dists I997] (“Rent [S]tabilization is a lease-based regulatory scheme. As such, a tenant’s obligation to pay the stabilized rent is dependent on the tenant’s agreement to pay it.”).
• Tenant succession rights: Family members of a rent-stabilized tenant residing in a rent-stabilized apartment often have succession rights to the tenancy. RSC § 2523.5(b)(I); RSC § 2520.6(o).
• Regulated rent increases: Rent increases for rent-stabilized tenants are controlled by the New York City Rent Guidelines Board, which sets maximum rates for rent increases once a year, effective for leases beginning on or after October 1. [footnote omitted]
• Specific procedures for lease renewals: Under rent stabilization, a landlord is required to follow a very specific procedure for rent-stabilized lease renewals. Leases must be entered into and renewed for one- or two-year terms, the tenant’s choice (RSC § 2521.5). Landlords must send the lease renewal offer between 150 and 90 days before the expiration of the current lease (RSC § 2523.5). Every lease renewal offer must have a special DHCR rider attached. At the time of this writing, the DHCR rider is 12 pages long [footnote omitted] (RSC § 2522.5). A rent-stabilized lease renewal offer must be on the same terms and conditions as the expired lease (RSC § 2522.5).
• Required DHCR filings: Landlords are required to register all rent-stabilized apartments initially and then annually with the DHCR, and to provide tenants with a copy of the annual registration. Landlords must be very careful when filing DHCR registrations because, once they are filed, they cannot be amended without initiating a DHCR proceeding and explaining the reason for the amendment, which is time-consuming and costly and which makes the landlord look suspicious in the eyes of DHCR or the courts (RSC § 2528.3; In Re Selkirk 308 West 82nd St LLC, www.land.lordvtenant.com LVT Number 30571 [11/27/19]).
As important as filing is, l do not recommend filing for years during which you lack information. You cannot register guesses, only facts. When they find their new acquisitions lack full DHCR registration, many building owners make the mistake of bulk retroactive filing, which is an even bigger flag for DHCR than missing filings. When you buy a building that likely has current or recent tenancies subject to rent stabilization, insist on the seller transferring to the purchaser whatever records they have. They may have to bring up dusty boxes from the cellar and these may have leases showing certain rents-or they may not. But at least then you have a starting point and can constructively consult with an attorney who understands the system and come up with a plan to protect yourself from future issues with DHCR.
[End of Excerpt]