BBG News

Pending Substantial Rehabilitation Bills Shake Real Estate Industry

Aug 11, 2023

As we reported several weeks ago, in the final hours of the Legislative session, the New York Senate and the New York Assembly voted and passed two bills which would greatly expand the retroactive reach of the 2019 Housing Stability and Tenant Protection Act (”HSTPA”).

Substantial Rehabilitation:  The first bill would require that owners of substantially rehabilitated buildings obtain an affirmative determination from DHCR of the building’s exempt status.  The ETPA specifically exempts building that have been “substantially rehabilitated as family units” on or after January 1, 1974.  For the nearly 50 years of its existence, the law has been self-operating. An owner could simply treat the building as exempt if it has been substantially rehabilitated. Under the bills, for the first time in history, an owner would be required to file an application with DHCR to determine the exemption within one year of the completion of the project.  For buildings that have been exempt as a matter of law for the last 50 years, an owner would have to file the same application with DHCR to determine deregulated status within six months of the effective of the new law.  Regulations proposed by DHCR in August of 2022 which remain pending provide that the “lack of evidence for any reason, including passage of time, does not excuse [an owner’s] obligation to substantiate the [substantial rehabilitation] application.”

First Rent Rule:  The second bill further amend the RSL and ETPA so as to eliminate DHCR’s “First Rent Rule,” which allows an owner that combines two (or more) vacant apartments to establish a negotiated “first” rent stabilized rent with an incoming tenant. In its place, the bills include new provisions of law that provide for the calculation of the legal regulated rents of such combined apartments based upon the legal regulated rents of the prior units.

Nearly 6 weeks later, both of these bills have not yet been signed by Governor Hochul and therefore, the legislative package is still not enacted.  However, this situation – where the Legislature has passed two bills that are very damaging to the real estate industry but the Governor has not signed – has created a great deal of uncertainty in the industry and clients are reaching out to determine the best way to strategically plan.

Contact Us

If you would like to discuss the particular fact pattern involving work that you have done or are contemplating– either involving substantial rehabilitation or combining/splitting two or more units, feel free to contact your BBG attorney of record or contact us.

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