As pretty much everyone who has ever owned a rental property will tell you — being a landlord is not easy. Well… it is safe to say that things just got a lot harder for thousands of landlords across New York State. On June 14, 2019, New York State Governor Andrew Cuomo signed into law the Housing Stability and Tenant Protection Act of 2019 (the “Housing Act”). The Housing Act represents the biggest overhaul to the State’s landlord-tenant laws in the last 50 years.
DISCLAIMER: The views and opinions expressed in this article are my own alone and do not necessarily represent those of my law firm or any of my business partners. Nothing in this article should be construed as legal advice. Readers are strongly encouraged to do their own research and to consult with their own attorney before making any legal or financial decisions based on this article’s contents.
First, let me say that as a landlord and as someone who favors free markets over government regulation in general, I think that the changes imposed by the Housing Act are pretty terrible. Supporters of the law claim that it corrects a historical power imbalance between landlords and tenants. But, in reality, prior to the enactment of the Housing Act, New York landlord-tenant laws were already among the toughest in the country. Tenants already had significant protections with respect to lease terms, habitability standards, and eviction procedures. The oppression of tenants cited by supporters of the Housing Act is about as real as the final dream sequence in the movie Inception.
It is a rare landlord who has ever woken up in the morning and said, “I think today I am going to start a frivolous eviction proceeding against my tenant, cost myself thousands of dollars in fees and lost rent, and go through weeks of aggravation just so that I can turn around and try to find a new tenant to replace them…” But, that is exactly what some of the proponents of this new law claimed. But, I digress.
The point of this article is to provide New York landlords with an overview of the various changes to the landlord-tenant laws, how they will impact landlords, and how to best mitigate their effects and still, hopefully, turn a profit form their rentals.
Statewide Rent Regulation.
Let’s first talk about the part of the Housing Act that got the most press — the expansion of rent regulation (also sometimes referred to as “rent stabilization”) provisions. If you are not familiar, rent regulation, among other things, places limits on how much a landlord can charge in rent for a given apartment and by how much a landlord can increase rent from one lease term to the next. These limits are typically set by local administrative boards made up of individuals appointed by the New York State Division of Housing and Community Renewal.
Previously, only New York City, Nassau, Rockland, and Westchester Counties were subject to rent regulation. However, the Housing Act expands the possibility of rent regulation to the rest of the State. The Housing Act gives all municipalities in the State the opportunity to opt into rent regulation if they can show that there is a “housing emergency,” defined as a vacancy rate of 5% or less in a housing class within that municipality. Additionally, even if a housing emergency does exist and the municipality elects to impose rent regulation, it can impose it only on buildings of six units or more built before 1975.
The Housing Act also closes numerous so-called “loopholes” in the old law, which allowed owners of rent-regulated apartments to increase rent by more than the annual amount set by the local administrative board and, in some cases, to deregulate the regulated apartments altogether. Landlords were previously able to deregulate a unit if it became vacant and the “legal regulated rent” (for rent regulated units) or the “maximum rent” (for rent-controlled units) was at or above the deregulation threshold when rented to a new tenant. Landlords were also previously permitted to deregulate a unit if they could prove that the tenant occupying the unit earned $200,000 per year or more for the previous two years. The Housing Act eliminates both of these options.
The Housing Act also eliminates vacancy bonuses, which allowed landlords to raise rents as much as 20% each time a regulated unit became vacant. Additionally, the Housing Act places severe limits on rent increases previously allowed for individual apartment improvements (“IAI’s”) and major capital improvements (“MCI’s”). Under the old law, landlords were permitted to increase rent on rent-regulated units based on a percentage of the cost of the improvements they made. Now, IAI’s are capped at $15,000 and landlords are allowed to count no more than three separate IAI’s in a 15 year period for the purpose of calculating the allowable rent increase. Also, any such rent increases will not be permanent and will expire 30 years from the date the increase is imposed. Rent increases based on MCI’s are now also capped to just 2% per year.
This is obviously bad news for the owners of over 900,000 currently rent-regulated units in New York City, Nassau, Rockland, and Westchester Counties. Many economists and observers point out that by limiting landlords’ ability to increase rent, this aspect of the Housing Act makes it very difficult for landlords of rent-regulated buildings to keep up with the ever-rising costs of ownership, such as taxes, insurance, maintenance, and upkeep costs. It also dis-incentivizes landlords from putting money back into their buildings by way of improvements, thereby making the housing conditions in rent-regulated buildings poorer. This, together with the new limitations on rent increases, is expected to drive down re-sale values of the rent-regulated buildings, reduce tax revenue for the municipalities, and put some smaller landlords out of business entirely.
But, what about the owners of buildings which may qualify for rent regulation in other parts of the State? Should they be worried too? Maybe. But, I think concerns over rent regulation coming to other parts of the State should be tempered by the threshold requirement and by the local political climate.
First, the municipality would have to show that the vacancy rate within its borders is 5% or less. This is not the case currently for most of Upstate New York. The housing shortage that we see in New York City and the three nearby counties currently subject to rent regulation is not present in other parts of the State. Many cities and towns across the state have vacancy rates which are much higher than 5% and plenty of affordable housing for tenants to choose from. Additionally, because the imposition of rent regulation would occur at the local level, there is more opportunity for the real estate and construction industries to voice their opposition. The threat of loss of local tax revenue, jobs, and potential voter support is likely to be a significant deterrent to local politicians imposing rent regulation if it is clearly not needed or wanted.
Time will tell, but in my opinion, when it comes to the changes to the landlord-tenant law brought about by the Housing Act, rent regulation should not be the primary concern of most owners of currently unregulated buildings. Rather, the more immediate and potentially more costly concerns, relate to the Housing Act’s changes to other aspects of the landlord-tenant laws, which apply to both regulated and market-rate units across the entire State.
Changes to the Eviction Procedures.
The Housing Act greatly expands the time-frames involved with eviction proceedings, by giving tenants inordinate leeway and opportunities for delay. Let’s take a look at a hypothetical eviction scenario under the old law and the new law, so that you can see how drastic these changes are.
Procedures Under the Previous Law
It used to be that a landlord could theoretically complete the eviction process from start to finish and regain possession of the property within 30 days from a tenant’s default. In the case where the basis for an eviction was non-payment, the process used to go something like this. (Note – for the sake of the following example, we will assume that the rent is due on the first of the month and that the landlord-tenant court in the municipality meets once a week, every Friday).
- On July 1, 2019, the tenant does not pay the rent due.
- On July 2, 2019, the landlord provides the tenant with a 3-day notice requiring the tenant to pay in full or vacate the property.
- Tenant fails to pay or vacate by July 5, 2019.
- On July 8, 2019 (the next business day), the landlord has a process server begin service of the eviction papers (Notice of Petition and Petition) on the tenant.
- Because the tenant does not open the door and evades personal service, the service of process takes three attempts and is completed by what is called substitute service (also referred to as “nail and mail” service) on July 10, 2019.
- From there, the landlord calculates the next available court date (which has to be no less than 5 days or more than 12 days from the date of completion of service of the eviction papers) to be July 19, 2019.
- On July 19, 2019, the landlord and the tenant go to court. The tenant tells the judge that he needs some extra time to get money for the landlord. The judge grants the adjournment to the next court date, which is the following Friday, July 26, 2019.
- On July 26, 2019, the landlord and the tenant return to court. The tenant does not have the money and does not have any valid defenses. The judge renders a judgment in favor of the landlord awarding him possession of the apartment and issues a warrant of eviction to the landlord. The landlord provides the county sheriff with a copy of the warrant of eviction for execution.
- On July 29, 2019, the county sheriff serves the tenant with the warrant of eviction, giving the tenant 72 hours to vacate the property.
- On August 1, 2019, the tenant vacates the property and the landlord regains possession.
This example is probably a bit of an ideal scenario, but it is reasonably close to real life. Most landlords would likely not be so quick to provide the tenant with the 3-day notice. There would also probably be additional delays in preparing the eviction papers, getting in touch with a professional process server (or a non-professional third party who could serve the eviction papers for the landlord), and further delays with the county sheriff due to scheduling and back logs. But, these additional practical-reality delays exist regardless of which law applies. So, it does not really affect the validity of the comparison.
Procedures Under the Housing Act
The same assumptions with regard to the due date for rent and the court meeting frequency and day of the week apply.
- On July 1, 2019, the tenant does not pay the rent due.
- Before the landlord can do anything about the non-payment, the landlord must wait a mandatory 5-days from the date the rent was due. This is a new requirement imposed by the Housing Act.
- On July 6, 2019, the landlord mails to the tenant a notice informing the tenant that they are late in payment of rent by certified mail. Failure to mail this notice will void any subsequent eviction proceeding filed with the court. This is another new requirement imposed by the Housing Act.
- On July 8, 2019, the landlord has a process server begin the service of process of the next required notice — the 14-day notice. This used to be the 3-day notice under the previous law. The Housing Act increased this period to 14-days. Additionally, while under the old law, the 3-day notice could be provided to the tenant by the landlord, the Housing Act mandates that the 14-day notice has to be served by an independent third party, following New York State’s requirements for legal service of process.
- Because the tenant does not open the door and evades personal service, the service of process of the 14-day notice takes three attempts and is completed by substitute service on July 10, 2019. The tenant thus has until July 24, 2019 to pay the late rent in full.
- The tenant does not pay the rent due by July 24, 2019. The landlord’s next step is to serve the tenant with eviction papers.
- On July 25, 2019, the landlord has a process server begin the service of process of the eviction papers (the Notice of Petition and Petition).
- Because the tenant does not open the door and evades personal service, the service of process of the eviction papers takes three attempts and is completed by substitute service on July 29, 2019. It takes five days to complete service because of the intervening weekend on which the process server does not attempt service.
- From there, the landlord calculates the next available court date to be August 9, 2019. The Housing Act extended the court window time period from 5 to 12 days to 10 to 17 days from the date of service of the eviction papers on the tenant.
- On August 9, 2019, the landlord and the tenant go to court. As in the previous scenario, the tenant tells the judge that he needs some extra time to get money for the landlord. Under the previous law, the judge had discretion as to whether to grant the tenant an extension and for how long. The Housing Act now mandates that the judge must grant the tenant’s adjournment request and the adjournment must be at least 14 days long. The judge therefore adjourns the case to August 23, 2019.
- On August 23, 2019, the landlord and the tenant return to court. The tenant does not have the money and does not have any valid defenses. The judge renders a judgment in favor of the landlord awarding him possession of the apartment and issues a warrant of eviction to the landlord. The landlord provides the county sheriff with a copy of the warrant of eviction for execution.
- On August 26, 2019, the county sheriff serves the tenant with the warrant of eviction. Under the new law, this can only be done on a business day (Monday – Friday). Instead of giving the tenant 72 hours to vacate the property, the Housing Act now mandates that the tenant be afforded 14 days to do so.
- On September 9, 2019, the tenant vacates the property and the landlord regains possession.
As you can see, the difference in time frames is drastic. Under the new procedures, the landlord is essentially guaranteed to lose an additional two months of rent. Furthermore, in addition to paying for the service by certified mail of the initial late notice, the landlord must also pay a process server not once, but twice to serve the 14-day notice and the eviction papers. And if the landlord hires an attorney to represent him, which he definitely should (more on that below), the combined cost of an eviction could easily be in the thousands of dollars.
Additional Points Regarding Evictions
According to the changes imposed by the Housing Act, if a tenant is able to come up with and furnish all of the back rent owed to the landlord, prior to the issuance of a judgment and a warrant of eviction, the tenant would have a complete defense to the eviction proceeding, notwithstanding the existence of any late fees and that the landlord may have expended money on process servers, court filing fees, and attorney’s fees. In fact, unpaid late fees and all other fees are no longer able to be counted as “rent” (even if the current lease provides for this) and cannot by themselves serve as the basis for an eviction proceeding.
The Housing Act also extends the maximum time period of a discretionary stay of a warrant of eviction that a judge can grant to a tenant. A discretionary stay, in plain English, is an order from the judge which puts the execution of the warrant and removal of the tenant on hold. In other words, even though a tenant has no valid defense in the eviction proceeding and loses in court, the tenant may get to stay in the apartment for the duration of the stay granted by the judge. The maximum permitted stay under the old law was six months and was only permitted in holdover eviction proceedings. The Housing Act increases the maximum stay period to twelve months and eliminates the holdover proceeding limitation. This means that even if the reason for the eviction is non-payment, the tenant may obtain a stay of up to a year and may not have to pay the rent owed during the duration of the stay. The Housing Act does state that, in the event of a stay, the tenant would be required to pay into court an amount to be determined by the judge and the judge would then (presumably after deducting any administrative court expenses) remit such amount to the landlord. The Housing Act also expressly allows the judge to stay the landlord’s ability to “collect the costs of the proceeding.”
Why would a judge grant a stay to a tenant? The Housing Act has the answer. The first reason listed is the tenant’s inability to secure, within the same neighborhood, premises similar to those occupied by the tenant. The tenant does have to show that they made reasonable efforts to obtain such premises. “Neighborhood” is defined as as either (1) the same town, village or city where the tenant now resides, or (2) if the applicant has school aged children residing with him or her, the school district where such children attend or are eligible to attend. The second reason listed is “extreme hardship,” which may include circumstances such as “serious ill health, significant exacerbation of an ongoing condition, a child’s enrollment in a local school or any other extenuating life circumstances affecting the ability of the [tenant] or the [tenant’s] family to relocate and maintain quality of life.”
The factors supporting a stay are intended to be balanced by any “substantial hardship” that a stay would impose on the landlord. What constitutes substantial hardship is not explained and there are no examples provided in the Housing Act. One would think that loss of rent as a result of a period of time that a tenant remains in the property but does not pay rent (or does not pay market rent that the landlord would otherwise get from another tenant) would be considered a hardship. Whether or not it would be considered “substantial” probably depends on the dollar amount and possibly on the overall financial situation of the landlord. Smaller landlords are likely to be more impacted than larger ones by the economic vacancy created by the granting of a stay of a warrant of eviction to one tenant, so they would presumably have an easier time showing substantial hardship.
Whether or not to grant a stay remains within the judge’s discretion under the new law. In theory, it is supposed to be a drastic remedy reserved for rare cases, but only time will tell how it will be interpreted in practice. The decision in any given case would likely come down to whether the landlord or the tenant appears to be more sympathetic. So, landlords are well-advised to follow the court’s rules, be respectful to the judge and the tenants during the court proceedings, and make sure that they are and appear to be acting in good faith during the entire process.
In an eviction proceeding based on a tenant’s violation of a provision in the lease (other than payment of rent), the Housing Act appears to mandate that the judge grant a 30-day stay of the warrant of eviction upon the tenant’s request which would allow the tenant to comply or correct the tenant’s non-compliance with the lease.
Other Changes Affecting Landlords Statewide.
The Housing Act prohibits landlords from charging application fees. While credit and background check fees are still permitted, the Housing Act limits those fees to the actual cost of the credit or background check or $20 total, whichever is less. In order to collect the credit or background check fee, the landlord has to provide the applicant with a copy of the background or credit check together with the receipt or invoice from the entity providing the background or credit check.
Aside from the fact that $20 in most cases is simply not enough to complete a background and credit check, these new rules create a practical problem for landlords. Most landlords collect the fee up front. The Housing Act appears to require the landlords to pay for the background and credit check out of their own pockets first and then go back to the applicant with a copy and a receipt and request to be reimbursed for that cost (up to the $20 limit). This is all fine and good if the background and credit checks came back satisfactory and the landlord is going to rent to the applicant. But, what do you think will happen when the applicant’s background or credit check comes back poor and the landlord decides not to rent to the applicant? Do you think that the rejected applicant is going to pay the landlord the $20 the landlord spent? I will let you answer that question for yourself.
Another major change found in the Housing Act is the prohibition on use of prior evictions as a method of screening. Yes, you read that right — you can no longer deny an applicant for rent because he or she has been previously evicted. The provision is actually broader than that since it prohibits a denial on the basis of any eviction actions being instituted against the tenant whether or not they resulted in an eviction. The apparent intent behind this change was the Legislature’s concern that tenants who had previously been evicted were being “blacklisted” by landlords and were thus unable to find a place to live. Never mind the fact that the tenant had to have done something really bad (such as not pay their rent for some extended period of time!) in order to get evicted and that such tenants should have a harder time to find housing as a deterrent to bad behavior in the future. But, that is clearly not what the Legislature had in mind.
The prohibitions on such unlawful denials will be enforced by the Attorney General and will subject landlords to civil penalties of between $500 and $1,000 per violation. Additionally, New York State courts are also now prohibited from sharing the names of the parties involved in eviction proceedings with any third party providers, even if courts have current contracts with such providers for release of such information.
If you thought that you might be able to mitigate the restrictions on your ability to screen tenants and the higher eviction costs by requiring the tenant to provide a higher up-front deposit, you were mistaken. The Housing Act expressly limits security deposits to only one month of rent.
The Housing Act also requires landlords to provide the tenant with an opportunity to inspect the property with the landlord or the landlord’s agent to determine the condition of the property. This must occur after the lease is signed, but before the tenant takes possession. If the tenant requests such an inspection, the parties have to enter into an agreement describing any preexisting defects at the property.
Similarly, the tenant now also has a right to inspect the property prior to move-out. The landlord must notify the tenant of this right in writing within a reasonable amount of time of learning that the tenant will be moving out. This inspection must be made no earlier than two weeks and no later than one week prior to the tenant’s move-out. After the inspection, the landlord must provide the tenant with a statement itemizing all repairs and cleaning for which the landlord plans to make deductions from the security deposit. The tenant must have an opportunity to cure any issues identified by the landlord prior to the tenant’s move-out.
Within 14 days of the tenant vacating the premises, the landlord must either return the tenant’s deposit in full or, if the landlord is claiming any deductions from the deposit, provide the tenant with an itemized list of deductions and return any remaining portion of the deposit. If the landlord fails to provide an itemized statement within 14 days, the landlord shall forfeit the right to retain any portion of the deposit.
In any legal dispute regarding the deposit, the landlord bears the burden of demonstrating that the amount retained was reasonable. Any person who violates any of the above provisions, shall be liable for actual damages, unless the court determines that the violation was willful, in which case, the person shall also be liable for punitive damages of up to twice the amount of the security deposit.
Rent Receipts and Late Fees
The Housing Act also increases formalities with respect to rent receipts. Landlords are now required to maintain records of cash receipts for at least three years from the date of payment. Rent receipts must be issued immediately if rent is personally transmitted and within 15 days, if payment of rent is transmitted indirectly.
Late fees are now limited to the lesser of 5% of rent or $50. Landlords cannot charge a late fee unless the rent is at least five days late. These new requirements cannot be waived in a lease even if the tenant agrees to higher late fees or earlier application of late fees.
Rent Increase and Non-Renewal Notices
Beginning on October 12, 2019, whenever a landlord intends to either increase the rent by 5% or more or to not renew the lease at the end of a tenancy, the landlord must abide by the following notice requirements:
- If a tenant has occupied for less than 1 year and does not have a lease term of at least 1 year, the landlord shall provide at least 30 days’ notice.
- If a tenant has occupied for more than 1 year, but less than 2 years, the landlord shall provide at least 60 days’ notice.
- If a tenant has occupied for more than 2 years or has a lease term of at least 2 years, landlord shall provide at least 90 days’ notice.
Failure to abide by these notice requirements would invalidate the rent increase or the non-renewal of the lease, as the case may be, and provide the tenant with a defense in any eviction proceeding based on the tenant’s non-compliance.
Self-Help and Retaliatory Evictions
The Housing Act also amends the law to make it a Class A Misdemeanor for a landlord to engage in self-help and unlawfully evict a tenant without going through the court process described above. The civil penalty is a minimum of $1,000 and a maximum of $10,000 per violation. Prohibited conduct includes things like locking the tenant out of his or her apartment and turning off landlord-paid utilities, such as gas, electric, or water.
The Housing Act increases protections for retaliatory evictions, expressly protecting the warranty of habitability and prohibiting changes to the terms of tenancy, creating a presumption of retaliation for efforts to evict within 1 year of a good faith complaint, and adding attorney’s fees to a civil action for retaliatory eviction. It also codifies the landlord’s duty (previously recognized at common law by New York courts) to mitigate his or her damages and shifts the burden to the landlord to prove that the landlord in fact made efforts to do so. The most common example of this would be in an action brought by the landlord to recover unpaid rent when a tenant vacates the property before the expiration of the lease and stops paying. The landlord would have to prove that he or she made reasonable efforts to re-rent the property and that those efforts were unsuccessful before the landlord could recover damages.
What Should Landlords Do Moving Forward?
There is no sugar coating, the changes in the Housing Act are extremely pro-tenant and anti-landlord. Their effect is to increase landlords’ costs at every stage of the leasing process, from screening to managing to evictions. So, what can landlords do to cope with the drastic changes?
Well, the first thing is they need to be aware of the new changes. If you have gotten this far in this article, you are far ahead of most New York landlords. Knowledge of the new rules is key in avoiding the numerous landmines planted by the Housing Act. While I discuss many of them in this article, this is by no means a comprehensive guide, nor is it a substitute for sound legal advice. If you are a landlord and you are concerned about how you should run your rental business going forward, you should absolutely set up an appointment to speak with a qualified attorney in your area.
With regard to tenant screening, although prior evictions are now off limits, other screening methods are still available. Landlords can and should still check a tenants’ credit scores. In light of the new law, landlords may also consider raising their minimum credit requirements. Yes, they will miss out on some good tenants with bad credit scores, but it is a lot less likely that a bad tenant will have a good credit score than a good tenant will have a bad one. Of course, raising minimum credit requirements may also have the effect of narrowing the tenant drawing pool too much. Landlords will have to calibrate it based on the desirability of their property.
Another thing landlords should absolutely continue to do is check prior landlord references. And not just the last landlord, but landlords from prior years. The latter will have no reason to embellish their description of the tenant to make them seem more qualified. Additionally, landlords should make sure that the prospective tenants make enough money to pay the rent. My rule of thumb is that the applicant has to make gross at least three times the monthly rent. If they can’t meet this basic requirement, they are eliminated from consideration. Any less than this and they will not be able to meet all of their obligations and pay their rent. The best way to confirm how much they make is to ask them to provide two most recent pay stubs. The next thing is to call their employer and try to confirm that they are currently employed there and how long they have been employed there. The longer their term of employment is, the more likely it is that they are in a stable financial situation.
Landlords should also keep an eye out for any inconsistencies with the applicants’ story, their application, and the independent information you acquire by speaking with their landlord references and employers. Misstatements and falsehoods on a rental application are huge red flags and should be taken very seriously. For me, a lie on an application is an automatic disqualification. If they are starting the business relationship by lying to you, they are not likely to respect and honor your lease or any other agreement you reach with them.
If a landlord is about to begin an eviction proceeding where the landlord thinks the tenant is going to resist and not vacate the property voluntarily, the landlord should hire an attorney to help him or her. It makes little sense to try to DIY something as nuanced and costly as the new eviction process. There are numerous ways to get the notice, service, and filing requirements wrong. One misstep and you may have to start the entire process from the beginning. That could be extremely costly in time, fees, and lost rent. I am not just saying this because I am an attorney and because I like to see my fellow attorneys make money. A good attorney will help you save money when all is said and done.
Alternatively, landlords may also consider the “cash for keys” strategy. This is where a landlord pays a tenant to leave the property within a short period of time, instead of going through an eviction process. The idea behind this strategy is that you actually spend less money by paying the tenant than by going through a 70-day eviction process, losing months of rent and incurring hundreds or thousands of dollars in fees.
Cash for keys is a very controversial strategy, because it just seems wrong to have to pay a tenant to vacate the property when the tenant is the one violating the lease and not meeting their obligations. Most landlords cannot bring themselves to do this because it hurts their ego. But, when it comes to real estate and business, you have to set your ego aside and look at the situation from a purely economical point of view. If paying a deadbeat tenant $1,000 to vacate the property now is going to save you $4,000 in lost rent and fees, not to mention the months of aggravation and stress, it seems like a no brainer to me.
As for numerous other changes in the law, there is not much that can be said. You just have to comply, or not and live with the consequences. As long as you know what is required, you can plan ahead for the possible outcomes. If you own a market-rate apartment, try to raise the rent to offset some of the new costs. If you cannot do that, well… you just may have to get that part-time job at the Quickie-Mart to cover your bills.