Use Independent Company to Prevent Storage Units from Becoming Required Services
Providing individual storage units to tenants is a popular amenity in the city. Extra storage space can also become an additional revenue stream by charging tenants for the use of the storage units. But renting storage units to tenants can also bring added hassles, such as the cost of building the storage units, maintaining them, and billing and collecting money from tenants. Also, if your building has rent-stabilized tenants and you create and rent the storage units yourself, you must worry about the units becoming a required service that you must continue to provide to tenants.
Rent Stabilization Code (RSC) Section 2520.6 generally defines “Required Services” as “That space and those services which the owner was maintaining or was required to maintain on the applicable base dates…” Required services can include ancillary services such as a garage, recreational facilities, or storage facilities.
Ancillary services. Whether or not an ancillary service is considered a required service depends on a few factors. According to RSC §2520.6(r)(xi), a service for which there is or was a separate charge “shall not be subject to the provisions of this Code where no common ownership between the operator of such service and the owner exists or existed on the applicable base date and such service is or was provided by an independent contractor pursuant to a contract or agreement with the owner.”
In other words, a storage facility at an apartment building that has always been run by an independent operator—not by the building owner—wouldn't be considered a required service. If this is the case, the owner wouldn't be perpetually obligated to continue the service. It also means that the fees imposed by the operator aren't subject to the limitations of rent stabilization.
De minimis services. Another categorization in which already provided-for storage space wouldn't be a required service is if it were classified as de minimis. Some required services have been determined by the Division of Housing and Community Renewal (DHCR) to be of such negligible impact upon the rent-stabilized tenancies, that even though they've been provided by the owner, they may be eliminated without penalty.
Specifically, RSC §2523.4(e) provides that “Certain conditions… may be de minimis in nature, and therefore do not rise to the level of a failure to maintain a required service… Such conditions are those that have only a minimal impact on tenants and do not affect the use and enjoyment of the premises…”
The DHCR's schedule of de minimis “Building-Wide Conditions” includes “Storage Space.” The schedule states “Storage Space: Removal or reduction of, unless storage service is provided for in a specific rider to the lease (not a general clause in a standard form residential lease) or unless the owner has provided formal storage boxes or bins to tenants within three years of the filing of a tenant's complaint alleging an elimination or a reduction in storage space service.”
In other words, owners may have provided an area for general basement storage for tenant use, without charge. Assuming that storage service isn't reflected in a specific rider to the lease or provided by the owner via formal storage boxes or bins, the owner can discontinue this free storage service.
If Tenants Already Have Storage Units
If your building has rent-stabilized tenants and you've already been providing them with storage units in the building, a switch to fees may not work for you. If you shift from giving tenants free storage to charging them for it, tenants may file a reduced service complaint with the DHCR.
And even if you're already charging tenants a fee for the storage units, switching to an outside company may not work for you. That's because providing tenants with storage units for a particular fee is a required service that you must continue to provide. So if the storage company charges more than you're charging, the DHCR could find the additional charge to be a rent overcharge. Also, you wouldn't be able to stop providing the storage units to the tenants.
Starting to Charge for Service
If owners notify their rent-stabilized tenants that free storage service is being ended, require the removal of possessions, and have these possessions put in individual bins for which they require a charge—this will then become a required service.
Creating hybrid spaces. Some owners have reduced the free storage area by creating a hybrid instead. That is, they've created a smaller free general area in addition to providing bins for a fee (either independently run or not). This mix sometimes avoids tenant disputes, in that those who had free storage can continue to receive it, while the owner earns a new source of revenue on some of its former free storage space.
Using storage company. Other owners have eliminated free open storage and have leased out the space to an independent operator to provide storage services. If you currently don't provide on-site storage or do provide free storage to your rent-stabilized tenants, teaming up with a storage space rental company is the easiest way to avoid the hassles associated with classifying the storage service as a required service and still earn extra money.
Because of the independent operations of the storage company, this method wouldn't be a required service. There would be no common ownership between you and the storage company. You should have a contract or agreement with the storage company to provide and manage the storage units. This company would bill tenants and collect rents for the storage units. And the company would sign their own leases with the tenants for the storage units. Under this arrangement, you should get a fee from the storage company reflecting a percentage of gross rents received that isn't attributable to any individual tenant's payment for the storage space.
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