Owning and managing apartment buildings in New York City is not for the faint of heart. There are numerous rules and regulations to be aware of and comply with. Now, the Division of Housing and Community Renewal (DHCR) has issued amendments to the Rent Stabilization Code. In order to maximize the value and profitability of apartment buildings, owners and managers need to become familiar with the amendments.

Deregulation notice to first fair market tenant. One amendment concerns apartments that can become deregulated. If an owner has made improvements to a vacant apartment so that the apartment’s legal rent increases to over $2,500 per month, an owner will want to make sure the apartment is legally deregulated. The code was amended so that an owner is now required to provide the first fair market tenant of a deregulated unit a “Notice of Apartment Deregulation Pursuant to High Rent Vacancy.”

The notice must explain how the unit became deregulated, how the rent was computed, and what the last regulated rent was. A copy of the rent registration indicating the deregulated rent must also be provided to the tenant. Under the amended code, an Exit Registration must be filed with the DHCR demonstrating that the apartment is no longer subject to any regulation.

The fair market tenant then has 90 days from date of service of the notice to file a Fair Market Rent Appeal with the DHCR. The agency will then determine if the apartment was properly deregulated. If the owner prevails, no subsequent tenant can make that same claim regarding the propriety of the deregulation of the apartment.

Please also keep in mind that, to be deregulated, the first rent paid cannot be a preferential rent and it must be at least $2,500.

Rent increases based on individual apartment improvements. Another amendment involves individual apartment improvements. The Tenant Protection Unit (TPU) of the DHCR focuses on investigating individual apartment improvements. So, it is critical to keep proper records of the improvements so that you can increase the rent as much as you’re entitled to.

The amended code requires lease riders to have greater detail as to how the rent was calculated. The rider needs to include details about how any individual apartment improvement rent increase was calculated. The tenant will be able to request proof from the owner concerning the individual apartment improvement. Unless the owner can prove the rent charged is otherwise legal, if the owner fails to provide an appropriate lease rider and/or the requested individual apartment improvement documents, there can be no rent increase until the rider/documentation is provided. If the rent charged is above the legal rent during the period when the rider/documentation is not provided, there can be a rent overcharge proceeding.

More exceptions to the four-year rule. The amendments to the code continue the attack on the four-year statute of limitations on rent overcharge claims. Generally, the statute of limitations when examining an apartment’s rent history to determine an overcharge is four years. The amended code adds a list of situations where the legal rent history can be investigated even further back. Now, the DHCR or a court may examine the rent history for more than four years when the tenant alleges the owner engaged in a fraudulent scheme to deregulate the unit. But the tenant must have some proof of the scheme. The mere increase in the rent should not be enough.

Also, where an outstanding rent reduction order based upon a decrease in services was issued more than four years before the rent overcharge complaint, the DHCR or a court may examine the rent history. Owners and managers should investigate with the DHCR to confirm that there are no outstanding rent reduction orders on any of their apartments. If a rent reduction order exists, the underlying condition needs to be corrected and a rent restoration application filed as soon as possible.

Three other situations where the four-year statute of limitations will not be applied are: (1) where it is determined that there is a willful rent overcharge; (2) where there is a vacant or exempt unit on the four-year base date; and (3) where there is a need to determine whether a preferential rent exists.

The above are only a few of the amendments. I urge owners and managers to obtain a working knowledge of the changes to the Rent Stabilization Code. The full text of the changes can be found at http://www.nyshcr.org/Rent/RentCodeAmendments/.

Armed with the knowledge of how to deregulate apartments and properly increase and document rents, owners and managers will run efficient and profitable buildings. With the proper preparation and documents, the value of the building can be increased and will withstand scrutiny when it comes time to refinance or sell the building.