Expect Good Cause Eviction in 2024
Expect Good Cause Eviction in 2024
+ Hochul signs Senate Bill S2980C
2024 will likely be the year that the 421a tax break comes back, and that Good Cause Eviction passes in some form. If these predictions are correct, nearly every property owner with a property larger than four apartments will be impacted. That’s a big deal.
But first, breaking news. Governor Kathy Hochul has signed NY Senate Bill S2980 (I wrote about the bill here). This does three key things, sorted by levels of importance:
Creates de-facto ban on combining apartments to obtain a first rent (still possible but rent increases will be severely reduced).
Makes it so that substantial rehabilitations performed after January 1st 2024 will require formal applications submitted to DHCR to weigh in on the validity of the applications (this is my interpretation. Whether that is exactly right, the broader consequence is that not all vacant buildings will be eligible for sub rehabs).
Create a new definition of fraud for landlords when rent being charged to tenants is higher than the RS formula calls for. Additionally: lowers the tenant’s burden of proof for succession rights + raises the fines for late registrations to DHCR.
This bill has closed and restricted the last two methods owners used to significantly raise apartment rents, via the combination of apartments and the substantial rehabilitation of properties, respectively – all while promising specific, broader definitions of fraud for landlords who may charge higher than allowed rent figures. Though these older policies both enabled landlords to charge higher rents, one rule reduced the supply of apartments, while the other served as incentive to increase supply. It’s a bit odd to treat both similarly punitively. This is not good for owners of property in NYC. The bill was agreed on by members of the house and senate in NY in early June. The governor’s signature isn’t a surprise, just confirmation of the expected outcome.
Should property investors in NYC be worried about the prospect of Good Cause?
The pressure is on to pass Good Cause Eviction. Rental data is cooling in NYC, with rents decreasing from highest average and highest median rents respectively in Manhattan in the spring. Still, that’s after two to three years of torrid rent growth post covid. Owners are ‘up’ and the NY government officials know it. Their solution is Good Cause Eviction, which I’ve talked about here and here. Essentially cap annual rent growth in a way that specifically would prevent the outcomes displayed on the graphs below from ever happening – no more decoupling of rent growth from inflation and wage growth.
Clearly defining where Good Cause Eviction starts and ends is a must for all parties involved. The number of unknowns in the Good Cause policy is *causing* investors, tenants, and everyone in between to substitute facts about the policy with perceived intentions behind the bill. Quantifying how damaging Good Cause will be to landlords will vary based on the way the policy is written. As Kathryn Brenzel of the Real Deal hates to say, ‘the devil is in the details.’
Mayor Adams famously said in February that he supports the intention behind Good Cause Eviction, but what intentions was he referring to? Tenant advocates might also ‘support the intentions’ of Good Cause, but what does supporting intentions really mean? This style of language is fast and loose, and it allows for ambiguity. The discourse around Good Cause has not evolved too much from that. Disagreements on the policy stem from moral considerations: should tenants have rights to stay in their homes indefinitely without seeing sharp rent increases, absent the trespassing of lease agreements or non-payment? Broadly, landlords say no, and tenants seem to feel that yes, they should. And if tenants didn’t outnumber landlords, or if tenant votes counted less than that of landlords, it would be possible that the conversation ended there.
Landlords have not been able to squash the Good Cause Eviction movement, and part of the reason for that is because the movement never advanced to the stage that would involve negotiating over specific conditions. This is the logical next step in the negotiation. Having a building owner forsake the bulk of his/her future profits from running a tight building operation to subsidize tenant rents probably will not work well. On the other hand, setting guide rails so that rent growth doesn’t exceed 2-3x wage growth might put tenants at ease without landlords feeling constricted, since most owners don’t raise rents on existing tenants more than 15% a year. More questions to double click into: what is the allowable rent increase every year? Is it a hard cap? Under what scenarios can expired-lease- tenants be asked to leave? How does the state compensate owners for the policy?
Defining the details of Good Cause matters because without doing so, it’s almost impossible to measure what’s tolerable for investors, tenants, and other stakeholders. This is especially the case now that legislators are openly calling for a horse trade between the 421a tax abatement, responsible for some 70% of housing development in NY from 2010-2022, and Good Cause Eviction.
Mayor Adams made some comments recently that are interesting to look at. First, he said “You could call it A-124, I could care less!” in reference to reviving a tax abatement for new development. In other words, let’s shift the names of these programs to allow our positions to soften and perhaps shift as well. This is smart. New Yorkers are so polarized (like they are with Good Cause) one way or another around the perceived value / detriment of the 421a tax abatement. Okay, so let’s just call it something else. Developers who use tax incentives to build will not care what the program is called. On the other hand, a contingent of the fiercely opposed- who view the program incorrectly as a tax break for the rich, may see some of the relative merits of the policy, now disassociated from all the negative commentary that they may have come to attach to the 421a name.
Second, when asked if he would support a dual bill that included Good Cause Eviction as well as the 421a tax break, Mayor Adams said he would support it, in order to incentivize building more apartment housing. Brett Kavanagh of the NY Senate proposed pairing both bills together. To see Mayor Adams admit that he would agree is telling of where things are headed. Developers getting their tax abatement back is conciliatory if Good Cause does pass, but what about owners who just own property and don’t develop – how do they avoid losing out?
So, should you be worried? It’s too early to tell. Good Cause might be a tough pill to swallow. Or it might be another policy to observe among the many already in place. For rules of the road and how to best position yourself ahead of these two legislative shifts, call my office. 212 658 1471.
Despite the challenges ahead, we must be optimistic and excited! I hope you have a fantastic New Year!
Source: NY Senate Bill 2980C, The Real Deal