States of transition

New York’s governor, the honorable Andrew Cuomo, signed into law the Statewide Housing Security & Tenant Protection Act of 2019 last June. The act is one of the strongest tenant protections laws in the country.

A few months later, the California State Assembly passed Assembly Bill 1482, which caps rent increases at 5% annually, plus inflation, until January 1, 2030. It also bans landlords from evicting people for no reason, meaning they cannot evict a tenant in order to raise the rent for a new resident.

Both acts by state legislators in these two larger-than-life rental states have sent real estate property owners and managers everywhere into a time of uncertainty, claiming foul against private property rights, as other states look to follow suit.

From the East…

Let’s start by breaking down the changes to New York’s rental law. The act protects all potential tenants who submit an application for housing throughout the state. The amended law now says that “no landlord shall refuse to rent or offer a lease to a potential tenant on the basis that the potential tenant was involved in a past or pending landlord-tenant action.” In addition, application fees are now capped at $20, and late fees have been restricted to a five day stay from due date and capped at $50 or 5% of the monthly rent, whichever is less. Returns on security deposits must now take place within 14 days of the tenant vacating the rental unit, with a written explanation for any amount of the security deposit that has been retained.

Now let’s talk about the amended New York eviction requirements. If the tenant does not pay rent when it is due, the landlord can give the tenant a notice informing them that they have 14 days to either pay rent in full or move out of the rental unit. If the tenant takes neither of these actions, the landlord can file an eviction lawsuit with the court at the end of the 14 days. However, tenants who petition the court and ask for more time when their landlord starts an eviction case against them automatically get 14 more days. And when the marshal comes to evict them, they get 14 days there, too, instead of 72 hours.

There were also changes to the major capital improvement requirements. Individual apartment improvements (IAIs), which permitted property owners to increase rents based on improvements made to individual units, are now capped at $15,000 every 15 years. Major capital improvements (MCIs), which allowed property owners to increase rents based on the costs of building improvements, are now capped at 2%.

Lastly, there are no exemptions for owner-occupied, 1-to-3 family units. Security deposits have been capped at one month’s rent, and there is no more vacancy and income deregulation on rent stabilized or controlled units. Furthermore, all condo conversions must have a buy-in of 51% of tenants versus the previous 15%.

Wondering how landlords in New York will continue to invest or hold their investments? There will be difficult decisions to be made by many landlords operating in the state over the next few years, and their decisions will affect other real estate practitioners.

However, there has been legal reaction to the New York legislative changes. A group of landlords and five real estate groups, including the New York State Association of REALTORS® along with the National Association of REALTORS®, have signed onto a lawsuit against the state citing that New York’s new rent law violates the U.S. Constitution’s Fifth Amendment, which includes a clause that bars the taking of private property without “just compensation.”

…to the West

Although not as lengthy as New York’s rent control legislation, California passed a measure last October which limits rent increases to 5% (plus local inflation rates) annually from January 2020 through December 2029. While the law didn’t take effect until January 1, it applies to rent increases on or after March 15, 2019, to prevent landlords from raising rents before the caps went into place.

The California legislation also addressed eviction laws. In the past, if a property owner wanted to sell their unit or make major renovations, owners had an opt-out provision in the lease known as “no-fault just cause.” The new law states that the landlord will still have the right of a “no-fault just cause” eviction, but this can only be enforced if that tenant has occupied the unit for less than one year. All other evictions must be “just cause” evictions. However, the landlord may need to offer the tenant relocation assistance (i.e. buyout) of one month’s rent.

The new law will not affect all California properties like the new law in New York. Properties built within the last 15 years are exempt from the new law, as are owner-occupied properties with no more than two rooms or units. In California, there have been speculations that owners and managers may file a lawsuit against the state opposing the new requirements.

There is no doubt that as real estate professionals, we promote and abide by the local and federal laws that govern Fair Housing, and we want tenants to be treated in a fair and just manner. However, with these laws now in effect in New York and California, it is only a matter of time before many more states look to implement more stringent tenant protection guidelines.

It is a new world for us in the real estate management industry as we learn to navigate the new tide while helping our clients maintain their investments.