vacant apartment

Reuben Strayer

Vacant, but not without pricing potential, according to some interpretations of last year’s rent law.

When New York State adopted sweeping reforms to rent regulations last year, the death of the vacancy bonus—which allowed landlords to hike the legal rent up to 20 percent on new leases for stabilized apartments—was proclaimed.

Tenant advocates, who said the bonus created a massive incentive to evict people, hailed the move.

Last week, however, even as its members approved a rent freeze for rent-stabilized tenants, the New York City Rent Guidelines Board may have given the vacancy bonus new life—very, very quietly.

With little explicit discussion, the board indicated that landlords could hike the rent on leases for vacant units as much as they could for leases on occupied apartments. This was achieved by subtracting a single word from the RGB’s preliminary order: A key heading in the document was changed from the phrase used in previous years, “proposed adjustment for renewal leases,” to “proposed adjustment for leases,” a shift that meant the adjustment applied both to new leases on vacant apartments and renewal leases on occupied units.

Back from the dead

This year, the change has no concrete impact, since rents are frozen. But in future years, should the RGB permit renewal leases to rise, the rent on vacant apartments would, too.

Tenant representatives on the Rent Guidelines Board were surprised by the move. After all, last year’s rent-regulation reform bill mandated that, “County rent guidelines boards shall no longer promulgate adjustments for vacancy leases unless otherwise authorized by this chapter,” and no other mention of an RGB’s role in vacancy adjustments appears to be made in that law.

Obituaries for the vacancy bonuses appeared in several places.

A legislative memo that accompanied the law in the State Assembly said that it both “repeals vacancy bonus increases, which allows automatic rent increases of up to 20 percent upon vacancy” and “prohibits a Rent Guidelines Board (RGB) from setting vacancy bonus rent increases.”

An analysis of the final law by the Real Estate Board of New York, a group that supports developers and landlords, concluded that “elimination of the vacancy allowance,” was part of the law and that it “prohibits a rent guidelines board (RGB) from instituting vacancy allowances.”

A brochure issued last year by the New York Attorney General titled “Changes in the Rent Law” agreed: “Vacancy bonuses” it said “are now prohibited.”

But a dispute over the meaning of the vacancy provision has been brewing since the fall. A Division of Homes and Community Renewal fact sheet issued in October pronounced a different interpretation from the ones the legislature, REBNY and the AG had.

Last year’s rent law “eliminated the statutory vacancy rate and does not permit Rent Guidelines Boards to establish a separate vacancy rate,” it read. “However, if authorized by the board, a one or two-year lease guideline may be applied and added to the previous tenant’s legal rent. This guideline is subject to the limitation that no more than one guideline adjustment can be added in one guideline year.”

DHCR did not respond to a City Limits request for an explanation of its interpretation of the law.

The Rent Guidelines Board says it relied on DHCR’s interpretation. The RGB Chair, Brooklyn Law School Professor David Reiss, did not respond to a request for information about his approach to the topic, which was discussed with RGB members offline before the public session last week.

The only mention of it during the RGB’s public meeting on Thursday was toward the end, after several members had already voted for the proposal that included it. The discussion reflected a fundamental difference among RGB members about what’s in the law that empowers them.

“The rent-reform law is very clear that there shall be no more vacancy bonuses and my misgiving is that we’d be using this vote to circumvent that and treat vacancy bonuses the same as renewal leases when the law is very clear,” said Leah Goodridge, one of the tenant representatives on the board.

Patti Stone, one of the landlord reps on the RGB, countered: “The law actually rescinded the statutory vacancy increase but said that it’s really up to – that there’s no vacancy [allowance] unless granted by the rent guidelines board,” meaning that the RGB retained the power to grant them.

What impact?

RGB rent hikes typically are in the single digits, so it’s extremely unlikely the vacancy allowance would ever get as high as the former 18 percent to 20 percent range. Per DHCR, the vacancy allowance can only be used once per year. And since vacancy decontrol—a mechanism that removed vacant apartments from the stabilization system once their rent crossed a threshold—was eliminated in the 2019, there is no longer any danger that the vacancy bonus would, by raising the rent, help push an apartment out of the system altogether.

But even a small vacancy bonus will lead to higher rents.

After the legislature passed last year’s rent law, landlords and their allies predicted many of the elements of the reform would have severe consequences. The “death of the vacancy bonus,” as the Real Deal proclaimed it, was a particular cause for concern. “The impact,” the Real Deal said, “will be immediate and disastrous: and the effects will not be limited to landlords.”

“Some multifamily landlords say they may not be able to make loan payments and their buildings would pass into foreclosure,” the article continued.

It is not clear that any evidence of such an impact has emerged in the seven months since the law took effect. Landlords have argued that the turnover of an apartment from one tenant to another requires repair work that the vacancy allowance offset.

Besides eliminating vacancy decontrol, the 2019 rent law also sharply landlords’ ability to raise rents to cover limited major capital or individual apartment improvements.

Indeed, the RGB’s move on vacancy allowances is unlikely to make landlords happy. They’d hoped for 2.4 percent to 3 percent increases in rent this year.

Up for discussion

The RGB’s moves last week were only preliminary. The final vote won’t come until June, after a series of hearings and meetings. The action on vacancy allowances could be discussed at those events, but it is a strange year for the public process to wrestle with a complicated question. All RGB hearings and meetings are online, and so far it appears there will be only two public hearings this year, not the four that typically occur.

Until 1997, when the rent laws shifted dramatically in landlords’ favor—including the establishment of a 20 percent statewide vacancy bonus—local rent boards could approve vacancy bonuses. The last one approved by the New York City Rent Guidelines Board covered October 1996 through September 1997 and was for 9 percent.

There are also rent guidelines boards in Nassau, Rockland and Westchester Counties. Nassau’s board included vacancy allowances in its 2019 order. It is unclear whether the other two boards plan to create their own vacancy allowances.

Ultimately, the dispute seems likely to end up in court—but not for a while. “Assuming the proposed guideline is adopted, for the first year, the increase will be zero so there will be no harm to tenants. Assuming the guideline is adopted it won’t be until October 2021 at the earliest that a tenant will be harmed,” says Ellen Davidson, a lawyer at Legal Aid who focuses on housing law. “At that point, a lawsuit will be brought on behalf of a tenant who is charged the increase and the order will be overturned.”

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