State Legislature Enacts “Good Cause” Eviction, Amendments to IAI Provisions, and a Tax Benefit Program to Replace 421-a

As part of the 2025 Fiscal Year budget, the New York State legislature has enacted significant provisions affecting owners of real estate in the City and State, which the Governor has recently signed into law.

The below is meant to provide brief highlights of some of the most prominent changes.  Please reach out to your BBG attorneys for more detailed information and with any questions.

Good Cause Eviction

The Good Cause Eviction Law was enacted with immediate effect in New York City. The law will subject otherwise unregulated residential apartments to a new form of rent and eviction regulation.  At its core, the law requires landlords and owners of covered properties who seek to remove a residential tenant to establish one of the statute’s so-called “good cause” grounds.

• Owners of covered properties are not permitted to evict their tenants for failure to pay outstanding rent that resulted from an “unreasonable” rent increase or for failure to renew an expiring lease that contains an unreasonable rent increase. Rent increases above the lower of 10 percent or the annual percentage change in Consumer Price Index (“CPI”) plus 5 percentage points are presumed to be unreasonable.
•  Among other grounds for “good cause” evictions in the law are: where the tenant has violated a substantial obligation of their tenancy which they have failed to cure; where the tenant is committing a nuisance; where the tenant is using the premises for an illegal purpose; and where the owner seeks in good faith to recover possession of the apartment either for personal use, to withdraw it from the rental market, or to demolish it.
•  Among others, exclusions from the Good Cause Eviction Law include:
  • Units owned by “small landlords” (who own 10 units or fewer). Where a building is owned by an entity, the statute provides that no one natural person with a direct or indirect ownership can own more than 10 units in order to qualify for this exemption;
  • Units already covered by state or federal rent regulation;
  • Units within cooperative and condominium buildings;
  • Certain luxury units where the rent is 245-percent of the geographic Fair Market Rent as published by HUD;
  • Units in buildings issued a certificate of occupancy after January 1, 2009 (for a period of 30 years);
  • Affordable housing units; and
  • Hotel rooms and other transient use Class B multiple dwellings.

• In the first tier, the IAI cap is increased from the $15,000 limit established by the HSTPA to a $30,000 limit over a 15-year period.
  • The 1/168th (for buildings of 35 or fewer units) and 1/180th (for buildings with more than 35 units) amortization rates established by HSTPA remain the same, but the rent increase is now permanent.
• In the second tier, the cap is $50,000 for IAIs undertaken during a vacancy if:
  • The prior tenant was in occupancy for a period of 25 years or longer; or
  • If the apartment was timely registered as vacant with DHCR in the 2022, 2023, and 2024 registration cycles.
• The amortization rates for IAIs under the second tier are 1/140th (for buildings of 35 or fewer units) and 1/156th (for buildings of more than 35 units) and, like the first tier, the rent increase is permanent.
• Under the second tier, costs are only recoverable if, prior to the IAI, the landlord receives prior certification that the apartment satisfies the eligibility requirements.
  • In addition, prior to undertaking the IAI, the landlord must submit to DHCR evidence demonstrating that the improvement was necessary due to a substandard condition or exceeding an item’s useful life.
  • Following the IAI, a landlord must submit to DHCR evidence that the work was completed and pay a fee equal to one-percent of the claimed IAI costs.

• Construction wage requirements for projects over 100 units, including:
  • For projects over 150 units in certain geographic areas, one of two options exist, depending on the location of the project:
    • The lesser of (i) an hourly wage of $72.45, increasing 2.5% every tax year after 7/1/2025, or (ii) 65% of the greatest prevailing wage.
    • The lesser of (i) an hourly wage of $63.00, increasing 2.5% every tax year after 7/1/2025, or (ii) 60% of the greatest prevailing wage.
  • For projects over 100 units, that are not subject to the restrictions set forth above, the construction wage requirements set forth an hourly wage of $40.00, increasing 2.5% every tax year after 7/1/2025
• Affordability requirements for projects vary on the size and location of the projects are as follows:
  • OPTION A: Up to a 3-5 year construction exemption benefit at 100% exemption, and a 35 or 40 year 100% exemption thereafter
    • Rental projects of 150+ units in certain geographic areas: 25% of units at 60% AMI, with no more than three income bands, where no income band exceeds 100% AMI; and
    • Rental projects of 100+ units, where not restricted as above: 25% of units at 80% AMI, with no more than three income bands averaging 80% or less, where no income band exceeds 100% AMI.
  • OPTION B: Up to a 3 year construction exemption benefit at 100% exemption, a 25 year 100% exemption thereafter, and a benefit equal to the percentage of affordable units for the final 10 years thereafter.
    • Applies to rental projects that contain 6-99 units: 20% of units at 80% AMI, with no more than three income bands averaging 80% or less, where no income band exceeds 100% AMI.
  • OPTION C: Up to a 3 year construction exemption benefit at 100% exemption, and a 10 year 100% exemption thereafter.
    • Applies to rental projects containing 6-11 units, not in Manhattan; and
    • No specified affordability requirements, but requires 50% of all units be subject to rent stabilization.
  • OPTION D: For homeownership projects, not in Manhattan, that have assessed values of under $89 per square foot.  The projects are given up to a 3 year construction exemption benefit at 100% exemption, a 14 year 100% exemption thereafter, and a 25% exemption for the final 6 years.

Affordable Housing from Commercial Conversions (467-m)

The legislation also provides a new tax incentive for conversions of commercial space to new residential dwellings.  The benefit runs up to 35 years, and provides enhanced incentives for those projects located in Manhattan south of 96th Street (the “Manhattan Prime Development Area” or “MPDA”).

The overall benefits and requirements are similar to 485-x.  25% of all units must be affordable (5% of those units must be 40% AMI, the weighted average cannot exceed 80% AMI, there must be less than 3 total income bands, and no income band may exceed 100% AMI.

Eligible projects in the MPDA are granted a 100% exemption for up to 3 years during the construction period, and a 90% exemption of real property taxes for all but the final 5 years, which phase out 10% for each year.

Eligible projects outside of the MPDA are granted a 100% exemption for up to 3 years during the construction period, and a 65% exemption of real property taxes for all but the final 5 years, which phase out 10% for each year.

Projects which commence before July 1, 2026 receive a 35-year benefit, projects commencing before July 1, 2028 receive a 30 year benefit, and projects commencing before July 1, 2031 receive a 25 year benefit.

Extension for Vested 421-a (16) Projects

The budget extends the 421-a completion date to June 15, 2031 for new construction or eligible conversions that commenced on or before June 15, 2022.  The 421-a is not available for projects that opted into 421-a Affordability Option C or Option G.  Additionally, applicants to 421-a seeking an extension must submit a form (dubbed a “Letter of Intent”) within 90 days of the date the form is made available on HPD’s website.

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For details on the new legislation or any inquiries, please reach out to your BBG attorney or contact us here.