Stunned CRE Groups Vow To Launch Legal Challenge To Sweeping Rent Reform
The real estate industry is still digesting the details of wide-reaching rent-regulation reform announced this week, and some are reportedly planning to mount a legal challenge if the proposal makes it into law.
“The industry is prepared to file a lawsuit as early as Monday challenging provisions of the legislation, if it were to pass,” an unnamed representative of the industry told Commercial Observer.
Some contents of the legislation, upon which the Senate and the Assembly reached a deal this week, was revealed late Tuesday. Gov. Andrew Cuomo says he will sign it, and it has been hailed as a victory by tenant advocates.
Members of the industry called the changes “irresponsible” and “devastating” on Wednesday.
The new laws, which do not sunset, remove the vacancy bonus, which allowed landlords to increase rents by as much as 20% when a unit became vacant. Landlords who provided a preferential rent — meaning a rent lower than they can legally charge — will not be allowed to hike the rents to the full price when leases are renewed.
Major Capital Improvement and Individual Apartment Improvements programs — which allowed landlords to pass on the cost of upgrades to tenants — are being reformed. MCI increases would be capped at 2%, down from 6%, and will be eliminated after 30 years. IAIs would be capped at $15K in a 15-year period, over which time landlords are allowed to make three improvements at a maximum.
Real estate owners, in a state of shock, are working feverishly in the final hours before Cuomo is handed a bill to sign to try and undo what they perceive as highly damaging rules that will impact how they do business — and, they claim, worsen housing conditions for city residents.
Developers Douglas Durst, Richard LeFrak and William Rudin even went as far as to ring the governor, the New York Times reports — and their efforts have not made any difference.
Cuomo told them that “they should call their legislators if they want to do something about it,” someone with knowledge of the call, which went for around 15 minutes, told the Times.
“It’s a new paradigm. That was made clear yesterday ... There has been a profound change in the Senate,” Brown & Weinraub’s Dave Weinraub — a lobbyist who represents Taconic Investment Partners, Brookfield Properties and Cammeby’s — told the The Real Deal.
“The legislation takes a wrecking ball to New York City’s affordable housing plan," REBNY President John Banks said in a statement. "The construction of thousands of units is predicated on an agreement that developers create mixed-income buildings with both affordable and market-rate units. As currently written, the new law would subject every unit to stabilization, making their construction financially impossible. Some projects currently under construction may be halted and future ones never built. We are deeply concerned about exacerbating the affordability crisis in the future if developers have no financial incentive to produce more affordable units for our growing population.”