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Courts Come to Sensible Conclusion in Major Case
May 2, 2018
The health of the real estate industry in New York City depends on consistent, reliable and sound rule of law and regulations. That is why the Real Estate Board of New York applauds the recent New York State Court of Appeals case regarding the high rent, vacancy deregulation provisions of the rent stabilization law.
A ruling in favor of the plaintiff would have upended the status quo and negatively impacted the owners of thousands of deregulated apartments across the city – even though those owners obeyed the law and followed the rules.
The ruling finally settles a dispute over the deregulation of a previously rent-stabilized unit in the West Village that began in 2005. The owner of the apartment deregulated the apartment at that time in full accordance with the law. That is where the dispute began.
When the tenant vacated that unit, the rent was $1,829.49. After the application of a 20 percent vacancy allowance which is permitted under the law, the legal rent exceed the then-$2,000 threshold for deregulation and was deregulated, Vacancy allowance increases have been included in the calculation of the legal rents of regulated apartments since the Rent Regulation Reform Act of 1997. An estimated 100,000 apartments across the five boroughs were deregulated by the high rent vacancy deregulation provisions.
Previous legal decisions in this case, including an appellate court decision in 2015 and a prior ruling from the New York State Supreme Court, had found that the law required that the vacancy deregulation threshold had to be attained prior to vacancy and the inclusion of the vacancy allowance. In these decisions, the courts concluded that the landlord acted illegally and owed the tenant money from overcharged rent. These decisions, if reaffirmed by the Court of Appeals, would have put in jeopardy the many thousands of apartments owners across the city that were deregulated when the legal rent after vacancy and allowable rent increases such as a vacancy allowance was calculated. The financial impact on residential building owners would be enormous and would have created chaos in the residential rental market.
But the New York State Court of Appeals, the state’s highest court, finally settled the dispute and ruled that the owner had the right under the law to apply a vacancy allowance to the vacated tenant’s rent and that the subsequent total brought the legal rent above the deregulation threshold and that the apartment was legally deregulated. Accordingly, the tenant was not entitled to the alleged rent overcharges and damages that the earlier decisions had imposed. This important decision reaffirms the long-standing legal practice and commonly-held understanding of the Rent Stabilization Law’s vacancy decontrol provisions.
This decision is a win for stability. Owners of deregulated rent-stabilized apartments over the period between 1997 and 2011 can now rest assured that the rules governing deregulation have been clearly affirmed by the Court of Appeals.
All in all, overturning the lower court decision returns the state of the city’s residential rental market to the original, agreed-upon status quo. The lower court decision had previously introduced uncertainty in this market and caused widespread concern among residential rental building owners who had deregulated units in accordance with their understanding of the law which was reinforced by the State’s housing agency.
The Real Estate Board of New York welcomes this important affirmation of the high rent, vacancy deregulation rules – and so should all New Yorkers concerned with consistent and fair interpretation of the law.