The Emergency Tenant Protection Regulations, as promulgated and adopted by the Division of Housing and Community Renewal pursuant to the Emergency Tenant Protection Act of Nineteen Seventy-four, section 4 of Chap. 576, Laws of 1974, section 10(a), as amended, are amended to read as follows:

PART 2502 ADJUSTMENTS

Section 1

Subdivision (b) of Section 2502.3 of this Part is amended by adopting new paragraphs (3) and (4) to read as follows:

(3) Any such adjustment shall consider in addition to the factors contained in 2502.3(b)(2), the equities involved and the general limitation that such adjustment can be put into effect without dislocation and hardship inconsistent with the purposes of the act and with due regard for preserving the regulated rental housing market.

(4) Previous regulation of the rent for the housing accommodation under the PHFL or any other State or Federal law shall not in and of itself constitute a unique and peculiar circumstance within the meaning of this subdivision. Any change in economic circumstances arising as a consequence of the termination of such prior regulation of rent may only be addressed in a proceeding for adjustment of the legal regulated rent under paragraphs (c) and (d) of section 2502.4 of this Title.

Subchapter B of Chapter VIII of Subtitle S of Title 9 NYCRR

The Rent Stabilization Code, as amended and adopted pursuant to the powers granted to the Division of Housing and Community Renewal by section 26-511(b) of the Administrative Code of the City of New York, as recodified by Laws of 1985, Chap. 907, section 1 (formerly section YY51-6.0[b], as amended by Laws of 1985, Chap. 888, section 2), and section 26-518(a) of such Code, as recodified by Laws of 1985, Chap. 907, section 1 (formerly section YY51-6.1[a], as added by Laws of 1985, Chap. 888, section 8), is amended to read as follows:

PART 2522 RENT ADJUSTMENTS

Section 1

The Title of Section 2522.3 of this Part is amended to read as follows:

§ 2522.3. Fair Market Rent Appeal and Other Applications for Adjustment of Initial Legal Regulated Rent for Housing Accommodations

Section 2

Section 2522.3 of this Part is amended by adopting a new subdivision (f) to read as follows:

(f)(1) Except as provided in section 2521.1(a)(2) of this code, the landlord or tenant of a housing accommodation made subject to this code by the ETPA may, within 60 days of the date the housing accommodation became subject to the ETPA or the commencement of the first tenancy thereafter, file an application on forms prescribed by the DHCR to adjust the initial legal regulated rent on the grounds that the presence of unique or peculiar circumstances materially affecting the legal regulated rent has resulted in a rent which is substantially different from the rents generally prevailing in the same area for substantially similar housing accommodations.

(2) The DHCR may grant an appropriate adjustment of the initial legal regulated rent upon finding that such grounds do exist, provided that the adjustment shall not result in a legal regulated rent substantially different from the legal regulated rents generally prevailing in the same area for substantially similar housing accommodations.

(3) Any such adjustment shall consider, in addition to the factors contained in 2522.3(f)(2), the equities involved and the general limitations required by section 2522.7 of this title.

(4) Previous regulation of the rent for the housing accommodation under the PHFL or any other State or Federal law shall not, in and of itself, constitute a unique and peculiar circumstance within the meaning of this subdivision. Any change in economic circumstances arising as a consequence of the termination of such prior regulation of rent may only be addressed in a proceeding for adjustment of the legal regulated rent under paragraphs (b) and (c) of Section 2522.4 of this code.

1. STATUTORY AUTHORITY

Section 26-511(b) of the Administrative Code of the City of New York, as recodified by the Laws of 1985, Chap. 907, section 1 (formerly section YY51-6.0[b], as amended by Laws of 1985, Chap. 888, section 2) and section 26-518(a) of such Code, as recodified by the Laws of 1985, Chap. 907, section 1 (formerly section YY51-6.1[a], as added by the Laws of 1985, Chap. 888, section 8), provides authority to the Division of Housing and Community Renewal (DHCR) to amend Section 2522.3 of the Rent Stabilization Code (RSC).

The Emergency Tenant Protection Act of 1974 (ETPA), Laws of 1974, Chapter 576, section 10a provides authority to DHCR to amend the Tenant Protection Regulations (TPR).

2. LEGISLATIVE OBJECTIVES

The proposed rule making is necessary to clarify the parameters of the initial rent adjustment remedy contained in Section 26-513a of the New York City Rent Stabilization Law (RSL) and Section 2502.3 of the TPR.

3. NEEDS AND BENEFITS

In addition to the Legislative Objectives detailed in item 2 above, the subject amendments are also urgently necessary to ensure the continued availability of affordable housing in New York City and the surrounding counties of Westchester, Rockland and Nassau by protecting low- and middle-income tenants from unduly burdensome initial rent stabilized rents in buildings withdrawing from other forms of governmental regulation, including buildings withdrawing from the Mitchell-Lama program (Private Housing Finance Law, Art. II).

To date, twenty-four applications filed by owners seeking initial rent adjustments to 4,486 former Mitchell Lama units based on unique and peculiar circumstances are pending with DHCR. These owners have made the calculated business decision to exit the Mitchell-Lama program and apply to DHCR for substantial rent increases on the basis that their unilateral decision to forego the benefits of below-market financing and substantial tax exemptions qualifies as a “unique and peculiar” circumstance under the RSL and the ETPA. According to current DHCR and New York City Department of Housing Preservation and Development (HPD) records, 49 developments (which were built prior to 1974) encompassing 13,444 units are currently subject to either the Mitchell-Lama program (48 developments with 11,860 units) or the Limited Dividend Housing program (one development with 1,584 units). These 13,444 units are exclusive of the 4,486 former Mitchell-Lama units which are the subject of the twenty-four pending DHCR proceedings mentioned above. If these developments leave the Mitchell-Lama and Limited Dividend programs, they would fall under the jurisdiction of either the RSL or the ETPA and would most likely be the subject of additional applications for initial rent increases based on unique and peculiar circumstances.

There is no support in the RSL or the ETPA for the proposition that an owner's voluntary withdrawal from a regulatory program resulting in the loss of financial benefits to the owner constitutes a unique and peculiar circumstance. In the past, the “unique and peculiar” rent adjustment remedy has been sparingly applied by DHCR only to sui generis situations. As such, regulations were never adopted by any of the agencies responsible for the administration of the RSL and were never clarified in the TPR. Recently numerous tenants were confronted with the dilemma of their building owners leaving the Mitchell-Lama program and seeking “unique and peculiar” rent increases. Rather than face the uncertainty caused by the lack of regulatory guidance for unique and peculiar applications, these tenants chose to negotiate and then agree to modest rent increases.

The RSL and ETPA set forth specific exemptions from regulation, including, inter alia, housing supervised by DHCR (which accordingly falls under the PHFL). The RSL and ETPA also set forth various methods of determining the initial rent when apartments become subject to rent stabilization. The statutes use different formulas for vacant housing accommodations previously subject to rent control (another statutory exemption), as opposed to all other accommodations. For all other accommodations, the initial rent is “the rent reserved in the last effective lease or other rental agreement” (RSL 26-512(b) and paragraph 2 of subdivision b of Section 6 of the ETPA). If the Legislature had intended another formulation for the initial rent based exclusively on a loss of another exemption other than rent control, it could have, and would have, created one.

To the extent owners are simply claiming that there are certain economic and financial shortfalls attendant with dissolution, DHCR regulations already have a remedy for such shortfalls, which are hardship rent increase applications pursuant to RSC Sections 2522.4(b) and (c) and TPR Sections 2502.4(c) and (d).

In 2000, DHCR, in amending its regulations, made the hardship remedy more accessible for these formerly regulated buildings by amending RSC Section 2520.11(c). The amendment repealed a provision which, in effect, made an owner ineligible for a hardship increase for three years after a voluntary dissolution, termination or reconstitution pursuant to the PHFL or other State or Federal law.

According to the 2005 New York City Housing Vacancy Survey, the median and mean total household income figures for Mitchell-Lama tenants are $22,000 and $33,183, respectively. Thousands of apartments have already left the Mitchell-Lama program and more are expected in the coming years. According to the New York City Rent Guidelines Board publication entitled “Housing NYC: Rents, Markets and Trends 2006”, 103,000 Mitchell-Lama units remain in New York City and 21,000 remain elsewhere in the State. More importantly, since 1985, in New York City alone, more than 33,000 Mitchell-Lama units have been lost due to buyouts. This report further discloses that the “pace has accelerated in the past couple of years, with 14,477 units bought out between January 2003 and April 2006. In the first four months of 2006 alone, almost 3,000 units have lost their Mitchell Lama status and the New York City Comptroller's Office recently reported that another 11,363 Mitchell Lama units are pending buyout.” In the first month of 2007, 3,042 State Mitchell-Lama units within the City of New York were bought out of the program. This phenomenon requires that clear and fair parameters be created on the setting of the initial legal regulated rents so that an affordable housing stock remains in New York City and the surrounding counties of Westchester, Rockland and Nassau and to ensure that tenant displacements do not occur due to abruptly high initial rents.

DHCR has crafted a rule that most accurately takes into account that it is the nature of the rental history of the individual apartment and whether there may have been some unique and peculiar arrangement between the owner and previous tenant that makes the current rent inappropriate to be established as the legal regulated rent and thus eligible for a rent adjustment under law. The proposed rule also rejects the unsupported position that an owner's decision to terminate its participation in a government regulatory program is a building wide unique and peculiar circumstance as contemplated by the law.

In sum, owners and tenants benefit by having a regulatory mechanism to obtain increases to initial rents where those initial rents are comparatively low due to compelling circumstances which were not due to the owner's negligence and/or malfeasance and which were not due merely to the fact that their building had previously participated in some governmental rent regulation program.

4. COSTS

a. The regulated parties are residential tenants and the owners of the rent stabilized buildings in which such tenants reside.

Neither tenants nor owners are expected to experience any unduly burdensome increase in costs associated with implementing these regulations. On the contrary, the intent of these amendments is to permit both parties to apply for an adjustment to the initial legal regulated rent, provided said application is properly documented and warranted and in the interests of equity and fairness.

b. DHCR costs are expected to be negligible. Otherwise, no additional costs are expected to be incurred by state or local governments as a result of adopting the proposed amendments.

c. Existing laws, regulations, agency policies and procedures form the basis upon which the above analysis is based.

5. LOCAL GOVERNMENT MANDATES

The proposed rule making will not impose any new program, service, duty, or responsibility upon any level of local government.

6. PAPERWORK

It is anticipated that the proposed amendments may result in a slight increase in paperwork.

7. DUPLICATION

The proposed amendments do no duplicate any known State or Federal requirements.

8. ALTERNATIVES

The proposed amendments of the RSC clarify a statutory provision not yet reflected in the Code and create additional parameters for adjustments to initial rents not yet reflected in the regulations. Additionally, the proposed amendments preserve the housing stock, serve the interests of equal treatment, equity, and do not violate due process rights. As indicated and discussed in the “NEEDS AND BENEFITS” and “COSTS” sections, absent theses proposed modifications, there are no other significant viable alternatives.

9. FEDERAL STANDARDS

The proposed amendments do not exceed any known minimum Federal standards.

10. COMPLIANCE SCHEDULE

It is not anticipated that regulated parties will require any significant additional time to comply with the proposed rules. If the parties need to amend or supplement their submissions in pending administrative proceedings before DHCR based on these regulations, applications may be made in those administrative proceedings. Should the DHCR determine that delayed implementation is appropriate, section 2527.11 of the RSC and section 2507.11 of the TPR authorize the agency to take such action.

1. EFFECT OF RULE

The Rent Stabilization Code (RSC) and the Emergency Tenant Protection Regulations (TPR) apply only to rent stabilized housing units in New York City and in those communities in Westchester, Rockland and Nassau Counties. The class of small businesses affected by these proposed amendments would be limited to small building owners, those who own limited numbers of rent stabilized units. The amended regulations are expected to have no burdensome impact on such small businesses.

These amendments to the RSC and TPR, which apply exclusively in New York City and in the aforementioned communities in Westchester, Rockland and Nassau Counties, are expected to have no impact on the local governments thereof.

2. COMPLIANCE REQUIREMENTS

To support an application for an adjustment to the initial legal regulated rent based on the existence of unique and peculiar circumstances, owners and tenants must submit supporting financial and/or other relevant documentation. It is expected that existing forms will be satisfactory. However, in any event, existing forms can be updated and amended where necessary.

The proposed amendments do not otherwise require regulated parties to perform any additional recordkeeping, reporting, or any other acts. There are no new compliance requirements placed on local governments.

3. PROFESSIONAL SERVICES

The proposed amendments do not require small businesses to obtain any new or additional professional services.

4. COMPLIANCE COSTS

There is no indication that this action will impose any significant costs upon small businesses or upon local governments.

5. ECONOMIC AND TECHNOLOGY FEASIBILITY

Compliance is not anticipated to require any unusual new or burdensome technological applications.

6. MINIMIZING ADVERSE IMPACT

These proposed amendments do not impair the rights of small business owners, and therefore, have no adverse economic impact on such parties or the local governments. Consequently, it was not necessary to consider the approaches suggested in SAPA section 202-b(1).

7. SMALL BUSINESS AND LOCAL GOVERNMENT PARTICIPATION

The issue of what types of applications are eligible under the section of law which authorizes DHCR to increase rents to address unique and peculiar circumstances has been the subject of extensive public and legal debate. Owners seeking these rent increases and tenants faced with these significant rent increases have taken diametrically opposite views. Owners, in the absence of any regulatory guidance, have taken the position that their agreement to accept rents under the Mitchell-Lama program and subsequent business decision to forgo the benefits of the Mitchell-Lama program entitles them to raise tenants' rents to cover any loss of revenue occasioned by their decision.

There are currently 24 applications pending with DHCR which were submitted by building owners who voluntarily exited the Mitchell-Lama program and claim that their decision has created a unique and peculiar situation which qualifies for an increase in the rents currently collected from the 4,486 tenants living in these buildings. These owners cite no specific legislative history, judicial precedent or housing policy in support of their interpretation of the law regarding rent increases for unique and peculiar circumstances.

The tenants potentially impacted by these 24 applications espouse the concept that owners of buildings which were formerly under the Mitchell-Lama program may never claim unique and peculiar circumstances after leaving the Mitchell-Lama program. These tenants cite no specific legislative history, judicial precedent or housing policy in support of their interpretation of the law regarding rent increases for unique and peculiar circumstances.

DHCR has carefully reviewed and considered each parties' public statements and the parties' public documents regarding their interpretation of the law regarding rent increases in unique and peculiar circumstances.

In addition, a Regulatory Agenda will be placed on DHCR's website, reflecting these proposed rules, thereby providing all interested parties with an opportunity to comment. All issues raised by concerned parties will be carefully reviewed and considered by DHCR.

Finally, prior to the final adoption of any permanent rules, a public hearing will be held during which all interested parties will have an opportunity to comment. Comments will be reviewed for possible inclusion where appropriate.

The proposed rules are not anticipated to impose any new adverse reporting, recordkeeping or other compliance requirements on public or private entities in any rural area that is subject to these regulations.

It is apparent from the text of the rule that there will be no adverse impacts on jobs and employment opportunities.