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Itkowitz PLLC Teaches Seminar for Columbia Society of Real Estate Appraisers - How Rent Stabilization Affects Value in Multi-Family Buildings in N.Y. and on L.I.

On September 15, 2015 Itkowitz PLLC taught a three hour seminar for the Columbia Society of Real Estate Appraisers - How Rent Stabilization Affects Value in Multi-Family Buildings in N.Y. and on L.I.

This was our second well-attended and well-received seminar for this group, whereby the appraisers received professional credit.  We have such respect for this group.  The Columbia Society of Real Estate Appraisers is an excellent resource and advocacy group for New York appraisers.  We are returning in January 2015 to speak about regulatory issues for appraisers.

Below are two small samples from the September 15 course, one on succession rights and another on J-51.

NON-PRIMARY RESIDENCE -- SUCCESSION

Landlord may be able to evict the tenant of record for non-primary residence, only to find that a family member of tenant remaining in the premises has succession rights.  72A Realty Associates v. Kutno, 15 Misc.3d 100 (AT1st 2007).

DHCR Fact Sheet # 30 has an excellent treatment of this subject and I borrow largely from it here.

For Rent Stabilized (and rent controlled apartments) throughout New York State, a "family member" of the tenant may have the right to a Rent Stabilized renewal lease or protection from eviction in an apartment under rent control when the tenant dies or permanently leaves the apartment.  

A family member has the right to a renewal lease or protection from eviction if he or she resided with the tenant as a primary resident in the apartment for two (2) years immediately prior to the death of, or permanent departure from the apartment by the tenant.  The family member may also have the right to a renewal lease or protection from eviction if he/she resided with the tenant from the inception of the tenancy or from the commencement of the relationship.  If the family member trying to establish succession rights is a senior citizen or disabled person, then the minimum period of co-occupancy is reduced to one (1) year.

"Family member" is defined as either a spouse, son, daughter, stepson, stepdaughter, father, mother, stepfather, stepmother, brother, sister, grandfather, grandmother, grandson, granddaughter, father-in-law, mother-in-law, son-in-law or daughter-in-law of the tenant or permanent tenant.

The definition of "family member" also includes any other person(s) residing with the tenant or permanent tenant in the housing accommodation as a primary resident, who can prove emotional and financial commitment and interdependence between such person(s) and the tenant.

The following are to be considered in determining whether emotional and financial commitment and interdependence between the tenant and such other occupants existed:

longevity of the relationship
sharing of or relying upon each other for payment of household or family expenses, and/or other common necessities of life;
intermingling of finances as evidenced by, among other things, joint ownership of bank accounts, personal and real property, credit cards, and loan obligations, sharing a household budget for purposes of receiving government benefits, etc.;
engaging in family-type activities by jointly attending family functions, holidays and celebrations, social and recreational activities, etc.;
formalizing of legal obligations, intentions, and responsibilities to each other by such means as executing wills, naming each other as executor and/or beneficiary, granting each other a power of attorney and/or conferring upon each other authority to make health care decisions each for the other, entering into a personal relationship contract, making a domestic partnership declaration, or serving as representative payee for purposes of public benefits, etc.;
holding themselves out as family members to other family members, friends, members of the community or religious institutions, or society in general, through their words or actions;
regularly performing family functions, such as caring for each other's extended family member and/or relying upon each other daily for family services;
engaging in any other pattern of behavior, agreement, or other action which evidences the intention of creating a long-term, emotionally committed relationship.

The determination is not limited to any one factor, and in no event would evidence of a sexual relationship between such persons be required or considered.

On the DHCR Form “Notice To Owner Of Family Members Residing With The Named Tenant In The Apartment Who May Be Entitled To Succession Rights/Protection From Eviction” (DHCR Form RA-23.5), the tenant may at any time, inform the owner of the names of all persons (other than the tenant), who are residing in the apartment.  

Or, the owner may at any time, but no more than once in any twelve months, request from the tenant the names of all such persons.  This is a wise procedure for a landlord to follow.

EXCEPTIONS TO RENT STABILIZATION STATUS WHERE THE BUILDING IS OR WAS PART OF A TAX BENEFIT PROGRAM, SUCH AS J-51, 421-A, OR THE PRIVATE HOUSING FINANCE LAW

History and Overview

New York Real Property Tax Law § 421-a, designed to encourage new construction of New York City residential housing, provides for a partial real-estate tax exemption over a period of at least 10 years.  

J-51 is a property tax benefit program (“J-51”) for property owners who renovate and/or rehabilitate their residential and/or mixed use apartment buildings.   (See J-51 Guidebook, A publication of the City of New York Division of Tax Programs and Policy Tax Incentive Programs Unit (“J-51 Guidebook”), p.1.)  The Program also grants tax benefits to owners of non-residential buildings who convert their buildings to residential use.   Id.  The benefit varies depending on the building’s location as well as the type and extent of improvements -- although it generally comes in the form of tax abatement and/or a tax exemption.  

The Program is known as "J-51" because of the name of the relevant statute before the New York City Administrative Code (“NYC Admin. Code”) was renumbered in 1989 Id.;   Today, it is authorized by § 489 of the New York State Real Property Tax Law (“RPTL”) and § 11-243 of the NYC Admin Code and is administered by the Tax Incentive Programs Unit of the New York City Department of Housing Preservation and Development (“HPD”).   HPD determines eligibility for the program and the Finance Department administers the benefit.  HPD has published rules governing the Program, codified in Chapter 5 of Title 28 of the Rules of the City of New York (“RCNY”). See http://rules.cityofnewyork.us/codified-rules?agency=HPD.   

The Program expired on December 31, 2011.  Since its expiration, New York City has not been able to grant any new J-51 subsidies.  However, existing J-51 benefits are not affected, and owners with benefits in place will continue to pay fewer taxes until their benefits expire.  

Condition Imposed In Exchange for Benefits

In return for tax programs like these, landlords must submit the building to rent regulation for the duration of the tax-benefit period, even when a building is constructed after 1974, and would otherwise be exempt from rent regulation.

Rent Stabilization goes away when the tax abatement burns off, but only under the following circumstances:

Housing accommodations subject to the law remain regulated until a vacancy occurs, at which time free-market rents may be charged.

Alternatively, decontrol may occur upon the expiration of a tenant’s lease after the tax benefits expire provided the tenant’s initial lease and each renewal thereof contain a notice, in at least 12-point type, informing the tenant that the unit’s protected status would eventually lapse. In 254 Pas Prop. LLC.  v. Gamboa, 16 Misc.3d 131(A) (App. Term 1st Dept. 2007), the lease rider in question failed to set forth the requisite notice of the “approximate date on which such benefit period is scheduled to expire,” inasmuch as it specified an expiration date of June 30, 1991, when, in fact, the actual expiration date of the abatement was June 30, 1997.  The court rejected landlord's claim that this six-year discrepancy was de minimus, especially given the landlord's improper tender of a fair market lease in 1995.  Although in Mayflower v. Deri, 36 Misc.3d 128(A) (App. Term 1st Dept. 2012), the court says that, “[t]he notice provision contained in the parties' July 2, 2009 lease rider was not rendered invalid by any minor misstatement as to the approximate date on which such (tax) benefit period is scheduled to expire,”  the problem is that this case does not indicate how far off the date was.



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