Legislators Reach Deal to Extend Rent Laws, Overhaul 421-a Program

On June 25, Governor Cuomo and leaders of the New York State Legislature agreed to strengthen the state’s rent regulations and to overhaul the 421-a tax abatement program. The legislative session had been originally scheduled to end on June 17, but negotiations continued into the following week. The Assembly voted 122 to 13 to pass the legislation, while the Senate passed it 47 to 12.

Extending and Reforming the 421-a Tax Abatement Program

The agreement on 421-a, a key subsidy that’s meant to spur development but has been criticized as a giveaway to millionaires, seemed to satisfy both real estate interests and construction unions, the latter of which had been calling for a prevailing wage mandate in the law. The legislation extends the 421-a program for six months, with a provision that allows representatives of labor and industry groups to reach a memorandum of understanding regarding wage protections for construction workers. If such an agreement is reached, the program will automatically be extended for four years. If the unions and developers can’t reach an agreement on wages, however, in the next six months, the program will end.

In addition, the legislation would extend the length of the abatements from 25 years to 35 years, mandate that all rental projects receiving the subsidy include low-income housing in their project, and, like de Blasio’s proposal unveiled in early May, give developers three options for low-income housing.

The requirement that between 25 percent and 30 percent of new rental projects include low-income apartments wouldn’t apply to projects that start construction before January. The measure also grandfathers any projects that complete 421-a applications before the end of the year under the exiting program.

Extending Rent Regulations

The New York metropolitan region’s rent laws will be extended for four years until June 2019, and will be made retroactive to June 15, 2015. The following are summaries of the changes to the rent regulation made by the recent legislation:

Deregulation rent threshold limits. High-rent vacancy deregulation and high-income/high-rent deregulation limits will be increased from $2,500 to $2,700. And this threshold will be adjusted Jan. 1, 2016, and each Jan. 1 thereafter by the one-year guidelines issued by the Rent Guidelines Board. This will make it more difficult for units to be removed from rent regulation because it will allow for the high-rent watermark to float based on the Rent Guidelines Board increases.

In addition, while prior high-rent vacancy deregulations were based upon the legal rent of the new tenant, the legislation calls for high-rent vacancy deregulation to be based upon whether the legal regulated rent for the prior tenant was more than $2,700.

Increasing civil harassment penalties. These provisions increase monetary penalties imposed on landlords who harass tenants by approximately $1,000, to $3,000 for each offense and up to $11,000 for each offense where the owner harassed a tenant to obtain a vacancy.

Increases amortization period. The legislation extends the Major Capital Improvement amortization period from 84 months to 108 for buildings over 35 units and 84 months to 96 for buildings under 35 units. The legislation limits the amount of rent that owners can charge tenants in order to receive reimbursement for necessary improvements or installations. These new amortization periods apply to pending MCI applications.

Vacancy allowance. The legislation limits the vacancy bonus provided to owners for tenants who receive preferential rent as a way to stop the “churn” on these units. The legislation contemplates using a graduated scale limiting the vacancy bonus dependent on when the last vacancy lease was commenced. Where the tenant paid a preferential rent, a vacancy allowance of 5 percent is permitted if the last vacancy lease commenced less than two years prior to the new lease, 10 percent if less than three years prior to the new lease, 15 percent if less than four years prior, and 20 percent if four years or more prior to the new lease.