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New York housing agency to crack down on rent-regulated, ‘Frankenstein’ loophole

(THE GOTHAMIST) CHAU LAM, SEPTEMBER 8, 2022

A state agency is looking to crack down on a loophole in New York state law that has allowed landlords of rent-regulated apartments to combine units and dramatically increase the rent — a legal workaround that regulators have been aware of for more than two years.

The Division of Housing and Community Renewal, the state agency that oversees roughly one million rent-regulated units in New York, issued a proposed rule change last week that would curb a landlord’s ability to merge regulated units, a move the real estate industry is already decrying.

Landlord groups say the proposed changes would hurt them financially and questioned whether the state agency has the authority to make such a change to state law.

“They’re basically legislating by regulation,” said Jay Martin, executive director of the Community Housing Improvement Program, which represents about 4,000 owners of mostly rent-regulated apartments.

Martin predicts that the proposed rules, if implemented, would lead to potential lawsuits.

“It’s just a catastrophe,” said Martin.

The agency’s proposed rule change, which is subject to public input, comes just days after Gothamist reported on the agency’s lack of movement on the loophole. DHCR was first made aware of the issue as early as February 2020 and said it would address it then.

The Real Estate Board of New York, the powerful trade group representing developers and landlords, is also voicing its objections.

“It is disappointing that at a time when New York City is experiencing a worsening housing crisis, the Governor and her team are putting forward ideas that further discourage investment in rental housing,” James Whelan, president of the Real Estate Board of New York or REBNY, said in a statement.

The 2019 overhaul of New York’s rent laws strictly limited the ways landlords can raise rents on regulated apartments.

However, the law did not say how much rent landlords can charge after they combine two or more rent-regulated units or merge a rent-regulated unit with a market-rate apartment.

In the years since the rent laws passed, the real estate industry waited for clarity from DHCR. In the meantime, landlords went ahead and combined units, setting the initial rent to what they wanted.

Source: The Gothamist