By Sabina Mollot
Ever since the new rent regulations — all 74 pages of them — were signed into law by Governor Andrew Cuomo on Friday, real estate attorneys have been scrambling to determine what this means for the city’s property owners.
There has been at least one published report in the Commercial Observer suggesting there could be an industry-backed lawsuit, and Blaine Schwadel of Rosenberg & Estis, a law firm representing owners and lenders, said he’s pretty sure there will be some kind of legal action taken.
This reporter was unable to determine what group, if any, was behind the rumor of a planned suit, but Schwadel said there’s at least been talk.
“I have heard that various real estate groups, RSA (Rent Stabilization Association), REBNY (Real Estate Board of New York) and CHIP (Community Housing Improvement Program) are having discussions about how to challenge it,” said Schwadel.
But, he warned, “There have been very few successful challenges to rent regulations in the past.”
There have a been a few exceptions, however, with Schwadel giving one example of the city having made a requirement that owners of single room occupancy buildings make sure every unit was rented. “You couldn’t leave one vacant,” he said. However, this was later struck down by the courts. And that was in the 1980s.
“I do think there are going to be some challenges, but whether they’re successful or not isn’t up to me.”
In Schwadel’s opinion however, the new law is “far reaching.” He said in the past the law seemed to take into consideration a landlord’s need to have a certain level of income to maintain a property. “When rent stabilization was started you had MCIs (major capital improvements) and IAIs (individual apartment improvements) and vacancy allowances. Everyone recognized you have to do that.”
Today, an owner can expect to see his or her return for an IAI whittled down from the full cost of a project to $15,000 with a limit to three in a 15-year period.
“If you renovate an apartment in New York City, you can’t do a complete renovation for $15,000,” said Schwadel. “I don’t even know if you can do a bathroom for $15,000. I asked somebody about doing my bathroom, thinking it was small so maybe 15 or 20, and the guy said double that. It’s in Manhattan, but still.”
The attorney noted that he gave this interview after coming straight from a meeting with his colleagues about how to advise the clients who’ve been burning down their office phone lines since Friday.
“What does all this mean?” asked Schwadel. “We don’t all agree on what advice to give. It’s just all over the place.”
Another industry attorney, Sherwin Belkin of Belkin Burden Wenig & Golden, said he didn’t want to predict what the outcome of such a lawsuit could be but does think certain aspects of the law could be challenged.
“Obviously this is a very multifaceted bill. There are aspects of it that raise significant questions,” he said. Those questions would relate to “takings without just compensation, possible interference with contracts and potential civil rights issues insofar as private property rights are concerned.”
Belkin added, “It was not so much written so much as rent reform as it was rent revenge.”
Craig Gambardella, an attorney with the firm Kucker & Bruh, said he thinks an aspect of the law that potentially could be challenged is the fact that it is now permanent. Historically, the rent regulations were up for renewal every four years.
Though he hasn’t researched this new law, Gambardella said, “Laws in general aren’t supposed to go forever. I think there is an argument to be made based upon the custom of rent control and rent stabilization laws, that they have been reviewed and revised every four years. How can you allow a law to go forever without change, (when there are) circumstances that are unclear at the present?”
However, an attorney who represents tenants and shareholders in housing cases, said he thought a suit of this nature would have little chance of success.
“The U.S. Constitution does not allow the government to control prices, except if there is an emergency,” said Sam Himmelstein of Himmelstein, McConnell, Gribben, Donoghue & Joseph LLP.
“In the 70s, there was an oil crisis, so the government capped prices. There is an emergency for housing. That justifies the imposition of these laws. The laws were first enacted when World War II soldiers were coming home and the vacancy rate has been under 5 percent.”
Like the other attorneys interviewed, Himmselstein has been hearing “all kinds of rumors” about legal challenges and doesn’t doubt they’ll come true.
In particular, he thinks changes to co-op and condo conversions will be challenged, because in the weeks leading up to the law’s passing, he’d heard from industry attorneys that clients were thinking of converting their properties as had been common in the 1980s and 1990s because it seemed like the only way to get units out of regulation. But then, the law ended up including a provision that made it harder to convert a building due to significantly more cooperation being needed from existing tenants.
“That made it feel as if they have no way out now,” said Himmelstein. Another rumor he’s heard is that there may be more demolitions to subdivide or change the layout in order to create new units not necessarily subject to regulation.
“I think you’ll see an uptick in demolition cases,” said Himmelstein, “where landlords are knocking down buildings to put up a big high-rise because that has not been challenged.”
Ironically, with everything that has changed, Himmelstein said he sees parallels to the weakening of the rent laws a quarter century ago that made apartments subject to high-income decontrol and vacancy decontrol.
“We subsequently lost 300,000 units of regulated apartments,” the attorney said. “It was as harsh as what’s going on right now to (landlords) and maybe they should have thought of that at some point and said, ‘Maybe we should stop that.’”
Meanwhile, the supporters say The Housing Stability and Tenant Protection Act, as it is formally known, is legally sound.
Assembly Member Harvey Epstein, who is also an attorney who previously worked for the Urban Justice Center before becoming elected, said, “The law is prospective and extremely defensible. We are not changing any prior rents.”
Michael McKee, spokesperson for TenantsPAC, agreed, but said there was no doubt there would be a legal challenge from the real estate industry.
“There will be, though their chances of winning are slim,” he said. “But they have so much money they don’t care.”