2014 RENT CODE CHANGES THAT EVERY OWNER NEEDS TO KNOW
RSA, CHIP and New York County Lawyer’s Association combined forces to file an Appeal against the Rent Code Amendment of 2014 and, specifically, to seek reversal of eleven (11) of the most egregious twenty-seven (27) Amendments. The TRO was not signed and the litigation is expected to take years. Therefore, in the interim, the salient changes to the Rent Code, which must be adhered to, and which greatly affect the way landlords do things, are as follows:
a) With respect to the four (4) year rule: the DHCR has further extended the exception to the four (4) year rule with respect to fraudulent schemes to deregulate; the new enactment allows the Agency to go back at any time, if there is a claim of a fraudulent scheme to deregulate, to investigate. There no longer needs to be a claim but a decision from the DHCR (including the newly formed Tenant Protection Unit – TPU) to allow the Agency to go back indefinitely. Since Luxury Deregulation did not come into effect until 1993 there is a basis to argue that no records need be maintained from prior to 1993. Based upon this current change in the law, it is recommended that all records be kept on each apartment.
b) Default method: DHCR has further modified the default method which allows the use for the lowest comparable rent on date of commencement of tenancy as opposed to the base date rent (which would be four (4) years prior to the date of filing of the Complaint).
c) Preferential rent: The Owners must now include the legal rent and the preferential rent on every lease renewal; caveat – if a landlord uses a preferential rent in any instance it opens the door for the DHCR go back more than four (4) years in investigating the rent based upon “fraudulent scheme to deregulate”. The legal rent can only be preserved by disclosing in the tenant’s lease the legal rent and the preferential rent. If the legal rent is not disclosed in every renewal lease the preferential rent will become the legal rent.
d) Creation of the Tenant Protection Unit (TPU): This arm of the DHCR has total isolation. There is no ability to file a PAR based upon the decision from the TPU and this is the first arm of the Agency that is not complaint driven. The Agency opens up its own complaints and there are no restrictions on its power. The creation of the TPU has been deemed one of the most drastic examples of overstepping by an Agency against individual property owners in all time.
e) Presently there is a proposed amended lease rider that is still being finalized; for the time being the old lease riders are acceptable. As soon as the proposed lease rider has been approved the owners will be required to utilize the new lease rider.
f) Amendment of Registrations: In the past, the Owner could file an amendment to the registration at any time; now, a registration may be amended just by refiling only if it is during the same cycle; otherwise, an Administrative proceeding has to be commenced. Failure to file registrations will result in a complete rent freeze of any MCI rent increase and any applicable statutory vacatur increase.
g) MCIs: There are several changes: No MCI rent increases are allowable anymore for conversions from sub-metering to individual metering. However, electrical wiring for the building can be subject to an MCI increase; when an MCI application is submitted the DHCR will initiate its own search to determine if there is any immediate hazardous violations in the building; if there is such a violation the DHCR will reject the MCI. Under all circumstances, except for a lead paint violation, a third party certification can be submitted, along with the MCI Application, to demonstrate that the hazardous violation has been corrected (even if it has not yet been removed from the HPD records). For lead paint the violation must actually not be on the record and, if the time to file the MCI Application is coming to an end (2 years after the completion of the work) an Application to the Court may have to be made to force HPD to remove the violations or to toll DHCR’s 60 day violation clearance period.
h) Vacancy deregulation notice: In the past, the owners were recommended to file exit registration. They are now required to file exit registrations along with the vacancy deregulation notice (a new Notice that had previously not existed). Because the Deregulation Notice and the Exit Notice must be sent to the new tenant (first free-market tenant) by certified mail within thirty (30) days after the tenancy commences, or after the signing of the lease by both parties, which ever comes first, it is recommended that the Vacancy Deregulation Notice and Exit Registration be delivered to the tenant at the time of execution of the lease. It must be signed by both Owner and Tenant; it requires the Owner to provide: a) a basis for deregulation; b) reflect the rent computation; and c) list last regulated rent.
i) Individual apartment improvements: There is a new part of the lease rider which provides for a much more comprehensive breakdown of rent increases based upon individual apartment improvements; based upon these changes it is recommended that your contractor breaks down the work that is done at least room by room but the more broken down the better; the DHCR is no longer allowing fees for obtaining permits, for licenses or professional fees. Both tenant and owner must sign this Rider and the Rider allows for the tenant to be able to ask for proof of the individual apartment improvements within sixty (60) days of execution of the lease and the owner then has thirty (30) days from when they receive the request to provide this documentation. If a Super is doing the work the Owner is going to have to be able to prove the work was not done during his regular hours for the owner.
The back-up documentation – copies of contracts, proof of payments, etc. must be sent to the tenant by certified mail. If the owner does not respond to the tenant’s request within the allotted time period the tenant is not obligated to pay any increase and although it is curable once the documentation is provided it is not retroactive so the rent increase will not take effect until after the documentation has been provided if it is not provided, within the required time frame.
Because of this change it is recommended that records be kept and that either everything be provided at the time the lease execution takes place or at a minimum, is readily accessible so that it can be sent to the tenant immediately upon request.
j) Deemed Renewals: The practice of deeming leases renewed is no longer accepted although the Agency has determined that you can accept a higher rent for purposes of defending an overcharge however you still have to deal with the issue concerning whether or not rent increases are then allowable. Best bet is to get that renewal signed. Suggestion to send them out early.
k) Service Complaints: In the past tenants had to notify a landlord prior to filing a Decrease in Services Complaint and that is no longer the case. The tenants can now immediately file the complaint. The only difference is that if there is a correction order the owners are given more time to correct if there had been no prior notice. However, during the rent reduction period there are no vacancy or longevity increases allowable.
l) Harassment: DHCR’s ability to go after an owner for harassment has been extended to include filing of false documents or making false statements to the DHCR; many of the documents now with respect to registrations and lease renewals require the owner to sign an affidavit; the wording of this Statute however includes, as “harassment” conversations with a tenant concerning rights of regulation or continued occupancy which calls into question whether or not owners are at risk of having harassment complaints filed against them when they have conversations with tenants about buy-outs. Right now there is uncertainty how the Court and/or DHCR will handle that particular problem.
There are many new fact sheets that were promulgated by the DHCR effective as of January, 2014 (copies are attached and are readily available from the DHCR website (www.nyshcr.org):