Christina Rossetti

Rent Stabilization and Rent control are becoming hot topics here in Illinois as various pieces of legislation are being drafted and proposed. What does it mean for landlords and tenants? The answer is not so obvious. This article is meant to provide some historical context of the concepts as they were implemented in NYC. This context can be used as a starting framework in how to start thinking about these issues.
New York City has 2 systems of rent regulations known as rent stabilization and rent control. These systems were enacted as a result of rents rising sharply and became the legal solution to public pressure from tenants and landlord tension around rental price and eviction policy. Rent regulation is intended to protect tenants in privately-owned buildings from illegal rent increases, gives tenants the right to renew their leases and allow owners to maintain their buildings and realize a reasonable profit. The system has been extended and amended frequently, and now about one million apartments in NYC are covered by rent stabilization.
The Division of Housing and Community Renewal (DHCR) is an executive branch agency responsible for the supervision, maintenance, and development of affordable low-and moderate-income housing in New York State. Their office also covers tenant harassment cases and is the largest division in the Housing and Community Renewal department.
Rent Control vs Rent Stabilization
Rent control in New York City started in 1920 just after World War I when a severe housing shortage led to high rents and rent strikes. To help remedy the problem, the New York State legislature “…passed a rent-control program designed to keep costs down and limit baseless evictions.”
  • Rent control is now defunct and the only people living in rent-controlled apartments are able to do so if it is inherited from a family member.
  • Rent-controlled apartments can be passed down within a family from one person to the next whenever the existing tenant of the apartment vacates or dies. 
    • The inheriting family member must live in the apartment for two years prior to the previous tenant’s vacancy or death.
According to the New York City Rent Guidelines Board, rent-controlled apartments currently number about 38,000 units and are occupied largely by an elderly, low-income population who have been in occupancy since July 1, 1971 or by their lawful successors.
Rent-stabilized apartments occupy buildings that were constructed before 1974 and have more than six units; they usually lease for less than $2,700/month.
  • Rent-stabilized apartments include limits on how much a landlord can increase the rent each year and a guaranteed right for tenants to renew the lease.
  • Protect landlords against tenant subletting, assigning the lease to non family members though succession rights and require tenants to only maintain 1 residence.  If a tenant is found to have another residence the landlord is able to move forward with eviction to cure.  This is discovered by hiring a PI or performing a background check for other addresses in the renewal period.  
  • Tenants have the option to sign a one or two-year renewal lease with regulated % increases. Most recently a 0% increase for 1-year leases and a 2% increase for 2-year leases. 
What is a legal rent and a preferential rent?
Every rent-stabilized apartment has a maximum legal rent based on its unique history. Landlords are required to register the legal regulated rent of rent-stabilized apartments with a state agency (DHCR) every year but may offer the apartment a lower amount called a preferential rent.
The preferential rent can be revoked whenever the lease is renewed, and the landlord can start charging the higher legal regulated rent plus other allowable increases called stripping the preferential rent. Landlords offer a preferential rent of 2 reasons; 
  • The building is under a tax incentive program to keep rents low for real estate tax credits.
  • The market does not yield a rent over the legal rent. For example, if a rent-stabilized apartment is listed at $1,950/month, the lease would contain a preferential rent rider for $750 to cover the discrepancy between the market value and the legal rent of $2,700 which the tenant will actually pay on a monthly basis.
A landlord can increase the legal rent during a lease with building-wide and individual apartment improvement projects such as updating heating systems or unit specific renovations.  
The typical landlord and property management experience will vary depending on how organized and methodical the group is on being complainant while achieving the goals set forth for the asset.   As any landlord or management company knows training and continued education is the key mitigating the risk of legal action from the tenant or regulatory bodies.  Independent of the landlord groups competency to navigate the tense relationship between landlord and government, landlords in NYC on a day to day bases feel the effects for working through gerontology and the aging process. The residence stay in their apartment until the end of life because of the affordability. Most apartments that have not been deregulated or had a vacancy can experience a lot of deferred maintenance and habitability challenges. 
But you can always deregulate …..  like any system, there are strategies to leverage investment. The money is in the details.  

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Christina Rossetti   works as Head of Leasing for Bundled Management, a new property management firm in Chicago. Christina also serves on the Board of the NBOA. In Christina’s past life, she worked in the multifamily industry in New York City, which is how she gained special knowledge on this troubling topic.