NY High Court Rules in Favor of Owners in High-Rent Vacancy Deregulation Case

May 22, 2018
| Share | Print

On April 26, the New York State Court of Appeals handed down a landmark ruling in favor of rent-stabilized building owners by preventing them from having to re-regulate as many as 150,000 market-rate apartments. The Court unanimously reversed a 2015 decision of the Appellate Division, First Department in Altman v. 285 West Fourth LLC.

The judge in the 2015 decision ruled that an apartment’s rent must rise above the rent stabilization threshold (currently, $2,733 a month) while a tenant still lives there in order to be deregulated. For example, if a rent-stabilized tenant paid $2,000 a month and then moved out, the owner could apply a vacancy increase of 20 percent and then put enough money into individual apartment improvements to justify raising the rent to $3,000 a month. But, according to the 2015 decision, the next tenant would still be entitled to a rent-stabilized lease, even though the rent had risen above the deregulation threshold of $2,733. Until the Court of Appeals decision came down, it was unclear whether an owner could deregulate an apartment by applying these increases to the rent charged after the tenant moved out.

Case Facts and Legislative History

The case began in 2014, when attorney Robert Altman sued his landlord, arguing that his West Village two-bedroom had been illegally taken out of rent stabilization. He began subletting the apartment monthly for $1,829 in 2004, and the landlord sued him to collect a 10 percent increase for the sublet, which is allowed for rent-stabilized apartments. The rent for Altman’s predecessor had been $1,829.49 per month, and increased to $2,261.25 with the 20 percent vacancy allowance.

After they settled the suit in 2005, Altman agreed to sign a lease for $2,482 a month, which was above what was then the rent stabilization threshold of $2,000. At the time, he also signed a rider acknowledging that the apartment would no longer be stabilized, according to court documents. The building changed hands in 2007, and the new owner continued raising Altman’s rent. By 2014, he believed that he could challenge several years’ worth of rent increases on the basis that the apartment should have remained stabilized for the previous decade.

When the New York State Legislature first enacted luxury deregulation in 1993, vacant apartments could be permanently deregulated with a rent of $2,000 or more per month. For the purposes of deregulation, in a 1995 opinion letter, the DHCR wrote that as long as lawful post-vacancy increases raise the legal regulated rent above $2,000 by the time the new tenant moves in, an apartment is deregulated.

In 1997, the New York City Council disagreed with the DHCR and amended Rent Stabilization Law (RSL) §26-504.2 to add a clause providing that luxury deregulation would apply only “where at the time the tenant vacated such housing accommodation the legal regulated rent was two thousand dollars or more per month.”

The New York State Legislature then enacted the Rent Regulation Reform Act of 1997, which added a second clause to RSL §26-504.2, introduced by the critical word “or,” which stated that deregulation would occur with respect to any apartment that “is or becomes vacant with a legal regulated rent of two thousand dollars or more per month.”

The State Legislature’s addition of this clause was particularly important because the Rent Regulation Reform Act of 1997 also added a statutory vacancy increase of 20 percent for two-year leases. Given the 20 percent increase, it became easier for owners to reach the $2,000 threshold, and achieve permanent deregulation, by means of individual apartment improvements.

Court of Appeals Decision

The lower appellate court decisions relied on the first clause of RSL §26-504.2 providing that luxury deregulation would apply only “where at the time the tenant vacated such housing accommodation the legal regulated rent was two thousand dollars or more per month.” The Court of Appeals, however, focused on both clauses. The ruling states, “By contrast, the second clause provides that the key consideration when there is a vacancy is the legal regulated rent, without reference to the rent at the time of the tenant’s vacatur. Given that the second clause is an alternative to the first (preceded by ‘or’), it must mean something different from the first clause – i.e., something other than the legal regulated rent at the time the tenant vacated the apartment. Thus, it is reasonable to read the plain language of the second clause to refer to the legal regulated rent (including the available statutory increases) applicable to the apartment after the tenant’s vacancy.”

The court’s ruling affirmed what owners had done for decades when it came to deregulating apartments. If the latest ruling had swung in favor of tenants, it would have given many renters a precedent to sue their landlords for illegally deregulating their apartments and potentially allow them to win hundreds of thousands in rent overcharge judgments.