NEW YORK, NY - Landlords of rent-regulated apartments in New York City have been abusing a rule that allows them to raise rents after making improvements to vacant homes, according to a report by a tenant advocacy group.
The report criticizes the state's housing agency for failing to monitor how landlords have been applying the rent increases to some of the city's 1.06 million rent-regulated apartments. In eight cases in the report, landlords were accused of claiming to have spent $12,000 to $60,000 on improvements in vacant apartments, performing few if any upgrades and then doubling or tripling the rent for new occupants.
While the report reinforces long-held suspicions among many tenant advocates, the city's largest landlord group denounced it as misleading, and one of the property owners in the report defended the cost of the improvements that the tenant had claimed were exaggerated.
The two forms of rent regulation in the city — rent stabilization and rent control — limit the rent increases that landlords can charge. One of the few ways owners are permitted to significantly raise rents is through the apartment improvement rule.
It allows a landlord to increase services, install new equipment or make other improvements to a vacant apartment and to add one-fortieth of the renovation costs to the monthly rent. A landlord who spent $40,000 on renovation work, for example, could add $1,000 to the rent. Painting and basic repairs are not considered improvements, but kitchen and bathroom modernizations are.
The report on the so-called one-fortieth rule was prepared by the Association for Neighborhood and Housing Development, which is made up of nonprofit housing and community development groups. Its scheduled release on Wednesday comes amid growing criticism of the one-fortieth rent increases.
Last week, the State Assembly speaker, Sheldon Silver, introduced legislation to change the formula to one eighty-fourth of the renovation costs and to give the state's housing agency, the Division of Housing and Community Renewal, the authority to approve or reject the rent increases.
Currently, the agency, which oversees rent-regulated apartments, does not require a landlord to submit documentation or obtain its approval before making a one-fortieth rent increase. Only when a tenant challenges an increase by filing an overcharge complaint does the agency begin an inquiry.
"It really encourages fraud and misconduct," Irene Baldwin, executive director of the Association for Neighborhood and Housing Development, said of the lack of oversight.
The landlord group, the Rent Stabilization Association, said it was unaware of any owners who had abused the one-fortieth rule. It said the rule was a necessary tool to preserve the city's private housing, most of which was built before World War II. Landlords have invested hundreds of millions of dollars in improvements in recent years, the group said.
"If you don't want housing to fall down around you, you've got to keep pumping money into it," said Jack Freund, executive vice president of the association, which represents 25,000 New York City property owners and managers.
Jim Plastiras, a spokesman for the state housing agency, said it aggressively investigated all fraud complaints.
Of the eight cases in the report, five of the tenants had filed complaints with the agency. It found that one of those tenants, a resident of Upper Manhattan who questioned $12,000 in improvements, had been illegally overcharged. It has not yet made a decision in the four other cases.
One of the other cases went to trial in Bronx Housing Court in 2007. In that case, a judge found that a landlord had failed to prove that improvements were made, and awarded the tenant $35,000 for overcharge in rent, interest on the overcharge and damages.
The 11-page report does not include any statistics on fraud beyond the case studies, stating that because of lax oversight of the one-fortieth rule, it was difficult to find data to indicate the scale of the problem. The Rent Stabilization Association criticized the report for failing to provide data to support its claim of widespread fraud by landlords.
"Our report is not the exhaustive study on this, but it highlights what we've been hearing from community organizing groups on the ground for years," Ms. Baldwin said.
According to the report and housing advocates, abuse of the one-fortieth rule has led to a rise in the deregulation of apartments. If a tenant vacates an apartment and the landlord makes enough improvements to increase the rent to more than $2,000, the apartment becomes deregulated and the owner is free to charge market-rate rents.
The one-fortieth increase, combined with the amount a landlord is allowed to automatically raise the rent on a vacated apartment, enables landlords to reach the $2,000 threshold fairly easily. The city's 2008 Housing and Vacancy Survey found that the number of rent-controlled units decreased by 3,000 from 2005 to 2008, and rent-stabilized units dropped by 17,000 in the same time period.
In one case in the report, Barbara Kopcho, 30, said she was skeptical that the landlord of her one-bedroom apartment in Elmhurst, Queens, had spent $42,100 on improvements, so she filed an overcharge complaint in August. "My rent was increased an additional $1,000 above what it legally should have been," she said.
Ms. Kopcho's landlord, Vantage Properties, said it had made substantial renovations that justified the increase, and submitted an invoice for $42,100 from a construction company to the state agency. The invoice included $12,000 for a bathroom renovation, $4,200 for kitchen cabinets and $4,000 for the installation of new electrical wiring, among other work. Vantage said it paid the full amount on the invoice. Ms. Kopcho disputed its accuracy, saying it included some work that was not done.
"In the absence of provisions within the code such as the one-fortieth rule, no landlord would have either the incentive or the economic ability to make crucially needed investments in New York's deteriorating housing stock," said Neil Rubler, chief executive of Vantage.
Source: NYtimes.com