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Why the City Should Leave Old Rent Control Bill in the Past
October 10, 2018
Across the nation, the retail sector is undergoing a major transformation. The rise of internet shopping is disrupting traditional retail and changing the way brick-and-mortar stores are interacting with consumers. Successful retailers are adapting with creative new ways to lure customers in the door.
Here in New York City, retail employment is increasing, even though online shopping continues to change consumer behavior. Local retail businesses are facing rising costs of wage and benefit regulations, constant and arbitrary fines from city agencies, and anti-business sentiment in the form of community board denials of liquor licenses and onerous rounds of public review for routine landmark approvals. Vacancy rates fluctuate among individual retail corridors and rents are, in general, decreasing.
Now that a City Council bill that has been languishing for more than thirty years will be the subject of an upcoming hearing, it’s time for an update on commercial rent control. The bill would undermine a fundamental part of our nation’s legal system for over two centuries – property rights. The provision to establish rent control for commercial properties makes the bill unconstitutional.
Every commercial property owner in New York City would lose the ability to fairly negotiate, sign or end lease deals at their own commercial spaces. The bill covers all commercial leases large and small as well as residential owners with ground floor retail. Owners would be forced – through binding negotiation – to retain existing tenants and lease terms regardless of other interests, impacting the building’s finances. Building owners would lose any certainty and predictability in how they manage their space.
Homeowners in New York’s Co-Op buildings, too, would be impacted. Homeowners in certain co-op properties – about 100,000 in total – rely upon commercial spaces in their buildings to offset rising maintenance fees and support good-paying building service jobs. But Intro 737 would prevent co-operatives from fairly negotiating rents and even from making leasing decisions regarding their own commercial spaces. This is just one example of this bill’s negative impacts and why it is facing sharp criticism from the Council of New York Cooperatives and Condominiums.
The bill would mean bad news for the overall commercial brokerage market and stifle the innovation that we’ve seen develop citywide in recent years. Retailers are thinking outside the box when it comes to physical spaces, and commercial brokers have been well-positioned to advance these trends – but that innovation would stop if this bill takes effect.
In fact, limiting potential tenants makes it more difficult to keep stores occupied. Areas of the city with the most notable vacancy rates are in landmarked districts such as the West Village and SoHo and on Madison Avenue.
The Council would be wise the ease the time-consuming and expensive regulatory environment that makes life more difficult for small businesses. Our recent analysis found that commercial vacancy is more than twice as high in the West Village than Hell’s Kitchen even though commercial rents are comparable. Among the reasons listed, the report cited the Village’s extremely high rate of landmarking and higher rate of denying liquor license and more stringent permitting rules.
Finally, the New York City Bar Association released a report last month that found that New York City has no legal power to enact commercial rent control under the existing City Charter, state Constitution or existing state law. Courts in the past have struck down similar provisions and would be expected to do so again in this case.
In other words, Intro 737 is a flawed proposal from a public policy standpoint and a troubling one from a legal standpoint. It ignores market conditions and would hurt the economy. The Council should focus its limited time, energy, and resources on solutions that will support small businesses instead of wasting millions of tax dollars defending an illegal bill that experts agree will be thrown out by the courts.