The New Rules of 'Certifications of No Harassment'
One of the most fascinating parts of a real estate lawyer's career is negotiating the selling of rights to a rent-regulated tenancy to a landlord. These deals have made tenants into multimillionaires and given landlords the ability to build high-rise buildings. Now, this symbiosis of dreaming dreams and making them come true is under threat by existing case law (discussed in last month’s blog post) and new laws already enacted and politically promised.
Under these threats, there is pressure to reach deals rapidly—both from landlords who seek to free their apartments from regulation and from tenants who wish to cash out the value of their apartments’ potential unregulated value—before possible political action renders the reasons for the deal obsolete.
However, recent changes to the NYC Administrative Code and a recent decision in the Appellate Term, First Department, have created a minefield of requirements and restrictions for landowners who seek to buy out the rights of tenants in occupancy. These new laws and changes to the law cause landowners to proceed with extreme caution or risk not only crippling fines, but also the inability to make any building improvements and surrendering the building to considerably more rigorous regulation, all while the tenant remains in the property.
New ‘Harassment’ Laws
Lumped into the definition of “harassment” in New York City’s Administrative Code [§27-2004(a)(48)], are specific regulations, nearly all of them effective within the past year, regarding having buyout conversations with tenants. In a list of activities explicitly set forth as not being exclusive, activities prohibited include:
- Reaching out to the tenant to make a buyout offer within six months after the tenant has informed the landlord in writing not to unless revoked in writing or a court orders otherwise [NYC Admin. Code §27-2004(a)(48)(f-1)];
- Reaching out to the tenant to make a buyout offer without informing the tenant (at least every six months): (a) the reason for reaching out; (b) that the tenant can turn the landlord down harmlessly; (c) that the tenant can seek legal counsel and should go to a city maintained website; (d) that it is the landlord reaching out; and (e) that the tenant has the rights outlined in (1) above [NYC Admin. Code §27-2004(a)(48)(f-2)];
- Making the buyout offer while: (a) threatening, intimidating, or using obscene language; (b) initiating communication at odd hours or in an (undefined) abusive or harassing manner; (c) initiating communication at the tenant’s job without prior written consent; or (d) lying [NYC Admin. Code §27-2004(a)(48)(f-3)]; and
- Repeatedly contacting the tenant on weekends, holidays, outside normal banking hours unless the tenant previously approved outside-work-hour contact in writing, or in an (undefined) abusive or harassing manner [NYC Admin. Code §27-2004(a)(48)(f-4)].
Particularly noteworthy is the last paragraph of these requirements in which a landlord is mandated to limit its contacts with the tenant for buyout purposes to those times when the tenant is least likely to be at the apartment.
While some of these behaviors are clearly “harassment” in any dictionary understanding of the term, some of these are more in the nature of strict liability. Take for example, the requirement that a landlord not initiate a buyout conversation with a tenant for 180 days after the tenant has advised in writing not to. In the dictionary understanding of harassment, there is no actual difference between contacting the client on day 179 or day 181. But, although there is, as yet, no appellate case law construing these provisions, it can be assumed that the deadlines will see strict enforcement, including such things as 180 days, prohibited initiated contact during the ordinary business day, and lying, where the regulation prohibits “knowingly falsifying or misrepresenting any information.”
Courts, under the doctrine that every word must be accorded a meaning, are likely to find a distinction between “falsifying” and “misrepresenting.” Perhaps that distinction will be between those things that are demonstrably false—falsifying—and those things that are merely speculative or impossible for the landlord to know if true—misrepresenting. Perhaps, instead, the distinction can be drawn at falsifying being the creation of a forgery and misrepresenting being lying about a situation.
The rules described above apply exclusively to the entire City of New York. They are not part of the suburban counties that enforce the Emergency Tenant Protection Act of 1974 or the other statewide counties that have rent control. However, under the city’s Local Law 1 of 2018 (LL1) the fact that these rules are part of the definition of “harassment” carries significance both in rent-regulated housing where there are special penalties for harassment and in seeking and receiving building permits, which throughout the city requires non-harassment in Single Room Occupancy (SRO) buildings and under LL1 in certain specified neighborhoods of the city, any targeted residential multiple dwelling, regardless of whether it is an SRO.
The rules for buying out tenants are the same throughout New York City, but LL1 targets specific buildings within specific neighborhoods for stiffening the penalties for violating those rules.
LL1 states “The purpose of this local law is to provide for the implementation of such a program as a geographically targeted and time-limited pilot program to allow an evaluation of the program’s accuracy and efficacy in targeting and addressing harassment in particular buildings.”
LL1, effective Sept. 27, 2018, occupies some 6,000 new words of the Administrative Code at §27-2093.1. Under it for Bronx Community Districts 4, 5 and 7; Brooklyn Community Districts 3, 4, 5, and 16; Manhattan Community Districts 9, 11, and 12; and Queens District 14 all buildings and selected buildings throughout the city, neither construction nor the issuance of certificates of occupancy can take place until certain further procedures are in place. The lack of a certificate of occupancy in a residential building means the landlord cannot sue for rent.
‘Certifications of No Harassment’
These further procedures entail employing the now familiar “Certification of No Harassment” (CONH) procedure, previously applicable only to SRO buildings (described at length in Bailey and Treiman, Understanding Single Room Occupancy Laws, NYLJ, Feb. 10, 2016). Under LL1, a finding of “harassment” will deny the CONH and potentially prevent a building from getting building permits, a certificate of occupancy, and collecting rent.
Thus, aside from the fines, penalties, and litigation entailed in a finding of harassment, if a building is inside this pilot project, a single finding of harassment by breaking the rules with regard to buyouts can result in a building’s complete loss of its income stream.
The DOB will issue building permits in targeted buildings if the landlord “cures” the harassment. However, the “cure” is not a cure at all. It is instead a coerced entry into a more restrictive form of regulation. Under the Administrative Code provision, the landlord must enter and record an agreement to provide within the community district housing square footage devoted to low-income housing of at least 25 percent of the target building’s square footage. The rents for such units are set at maxima described in NYCRR HPD Rules §53-12.
The expenses associated with constructing such housing may not, under the program, receive 421-a benefits, but it is clear that the low-income housing provided under this program is intended to be like that of 421-a. There is no provision in the anti-harassment statute for what happens if there is nowhere available where such construction could take place.
However, since, under the pilot program, a building may pass in and out of being targeted for these provisions, lenders may become reticent about lending in these designated community districts or may require affidavits of no harassment from the tenants as a prerequisite to closing on a loan at the time of sale of the building.
As to harassment, regardless of whether it takes place where the pilot program is in effect, Administrative Code §27-2115 imposes fines for harassment at a minimum of $2,000 and a maximum of $10,000. If the court finds there was any harassment under these Administrative Code provisions, it is compelled to impose the $2,000 minimum, without the discretion to waive it completely [ABJ Milano LLC v. Howell, 61 Misc.3d 1037 (Civ. Ct. NY Cty. 2018)]. Since harassment under these provisions is a violation of the NYC Housing Maintenance Code, Civil Court Act §110(a) empowers the NYC Civil Court to enjoin further violations of these provisions.
For the past several years, landlords and tenants have had a shared interest in having the landlord buy the tenant out of the value the tenant is sitting on in the apartment. Navigating the highly restrictive new landmines and curtailments on these negotiations will not only affect the actual agreements but treatment by lenders and government agencies and officials. Landlords and their attorneys must tread carefully.