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State Agency Moves To Clamp Down On Popular 'Frankenstein' Rent-Stabilization Loophole

New York City

New York landlords might no longer be able to set the rents on units they create from combining stabilized apartment if new proposed changes to rent stabilization laws from the state’s Division of Housing and Community Renewal take effect.

DHCR said last week it is proposing amendments to the rent regulation legislation to tighten up the rules around combining apartments, Crain’s New York Business reports. The Housing Stability and Tenant Protection Act of 2019 curtailed property owners’ ability to move stabilized apartments into the free market and reduced the amount they could raise rents based on building and apartment improvements.

Combining stabilized apartments to create larger units, and allowing landlords to charge what they please on the newer, larger apartment, remained legal.

Under this proposed amendment, the DHCR has said that if a property owner combines stabilized units to form larger offerings, they will only be able charge the total of what they were charging for the previous apartments when they were separate, with the relevant increases.

If a landlord were to bring a market-rate apartment together with a stabilized one, the apartment would be subject to rent regulation and not enter the free market. The amendments also make it more challenging for a landlord to take an entire building out of regulation.

“Through these regulatory amendments, HCR has put forth proposals that will better protect New York’s approximately two million rent regulated tenants and prevent our current housing stock from unlawful deregulation and disrepair," agency spokeswoman Charni Sochet said in a statement to Crain’s.

Landlords have been engaging in the practice in the city — The Real Deal reported that thousands of regulated apartments have been kept vacant as owners hope for an adjacent unit to become available. At the same time, rents in New York City have set new records for several months straight.

Sherwin Belkin, a partner at law firm Belkin Burden Goldmin LLP, opined on LinkedIn that the DHCR has overstepped the intention of the 2019 laws and gone beyond their legislative mandate.

"Not only are each of these proposals not mandated by the HSTPA, each is contrary to decades of precedent by appellate courts and DHCR itself," he wrote. "These proposals are now subject to several months of public comment and hearings. Let’s hope that during this period DHCR keeps an open mind and will reconsider these unnecessary and wholly unwarranted reductions in the pre-existing rights and remedies of property owners."