Governor Signs Rent Stabilization Chapter Amendment

by | Mar 5, 2024 | Industry Updates

Governor Signs Rent Stabilization Chapter Amendment As we previously advised, on December 22, 2023, Governor Hochul signed S2980C, related to a series of housing issues, and subject to a negotiated chapter amendment to be passed by the Legislature during the legislative session, which began on January 3, 2024. On January 4, 2024, the NYS Assembly introduced the proposed chapter amendment, which was designated #A8506 (“the Chapter Amendment”). On March 1, 2024, Governor Hochul signed the Chapter Amendment.

All of the Chapter Amendment’s provisions are effective retroactively to December 22, 2023, which is S2980C’s original effective date. While the Chapter Amendment eliminates a number of issues of significant concern, it nevertheless is intended to strengthen tenant protections and will require your diligent compliance to minimize liability. A summary of its contents is as follows:

Substantial Rehabilitation: the Chapter Amendment requires owners claiming exemption from rent stabilization based on substantial rehabilitation to file an application within one year and obtain an administrative determination from DHCR confirming the exemption. Note that although S2980C initially contained a requirement to file applications for any building for which the owner previously claimed it had completed a substantial rehabilitation, the Chapter Amendment removes that requirement, and owners are only required to file an application for substantial rehabilitation work initiated on or after January 1, 2024. While there is no clear definition of what constitutes “initiated,” any substantial rehabilitation work completed prior to January 1, 2024, is exempt from the obligation to file an application with DHCR as a prerequisite to claiming exemption from rent stabilization.

Fraudulent Scheme: the Chapter Amendment redefines the definition of “fraud” in the rent stabilization context, in response to the decision of the Court of Appeals in Regina Metropolitan (in which R&E represented one of the owners), as well as numerous Appellate Division cases (in several of which R&E also represented the prevailing owner), all of which hold that when making a claim of a fraudulent scheme, tenants must prove all of the elements of common law fraud. The Chapter Amendment now provides that when a tenant makes a colorable claim before a court or DHCR that an owner has engaged in a “fraudulent scheme to deregulate,” the court or DHCR shall consider “the totality of the circumstances” which may include that all of the elements of common law fraud were satisfied. Therefore, the Chapter Amendment gives Judges and DHCR leeway to consider additional indicia of fraud and their inquiry is not strictly limited to an examination of the elements of common law fraud. Notably, the Chapter Amendment specifically addresses a “fraudulent scheme to deregulate,” which is consistent with the Court of Appeals ruling in Regina Metropolitan and its progeny, and provides support for owners to assert that absent deregulation, the Chapter Amendment will not apply. We expect that there will be substantial litigation on this issue. Critically, the Chapter Amendment provides that it will apply to pending actions, proceedings, applications and complaints. That retroactive application likely violates the same constitutional due process rights as those raised in Regina Metropolitan.

Newly Created Apartments: the Chapter Amendment leaves the original language of S2980C largely unamended, which establishes a new methodology for calculating legal rents under certain scenarios in which apartments are newly created or modified. These rules for rent-setting are nearly identical to those set forth in DHCR’s recent Rent Stabilization Code amendments. Please reference our prior summary for more information.

Records Retention: the Chapter Amendment codifies that there is no limitation on records lookback for the purpose of determining the regulatory status of an apartment.

Registration Penalties: in the event an owner fails to timely file a rent registration statement with DHCR and has been provided notice of such delinquency from DHCR, the owner shall be subject to a fine of $500 per unregistered unit for each month that the registration is delinquent.

We strongly encourage you to reach out to us to discuss how this legislation affects you and best practices moving forward. Please contact your trusted R&E attorney or Deborah E. Riegel and Zachary J. Rothken, Members, who authored this alert.