Site Map
Sign up for
Email Alerts

Translate This Page

An Introduction to the NYC Rent Guidelines Board
Table of Contents

DUTIES OF THE RENT GUIDELINES BOARD
(PART I)

Go To:
(Part I) (Part II) (Part III)

Establishment of basic rent adjustments for renewal leases: Apartments, Hotels and Lofts

The one decision of the Rent Guidelines Board that has, by far, the greatest impact on owners and tenants is the annual establishment of lease renewal guidelines. Since 1983 tenants have had the option of choosing between one and two year renewal leases.143 An estimated 80% of all stabilized tenants have a renewal lease, 10-12% move or 'turn over,' approximately 7% report having no lease, and about 1% pay no cash rent. Approximately one third of all stabilized tenants with leases regularly sign one-year leases leaving some two thirds of tenants who sign two-year leases. Approximately half of those choosing two-year leases remain unaffected by any given guideline - being in the second year of a two-year lease signed under the previous guideline.144 Consequently, about 53%, or approximately 540,000 of the 1,021,000 rent stabilized households are directly affected by the adoption of any single set of annual renewal guidelines.

The economic impact of these guidelines on the City's housing stock is enormous. Given current rent levels, any 1% increase in average rents raises aggregate rent rolls by about 90 million dollars per year. An average annual increase of 4.4% in rent rolls for each of five years from 1996 through 2000 for the stabilized apartment inventory as a whole (including an estimated impact of the statutory vacancy allowance)145 amounted to approximately two billion dollars in cumulative added rent - an average of about $2,000 in total added rent per rent stabilized household. Guideline renewal increases account for most of this growth.

Two major caveats are in order. First, not all of the increases authorized by the Board are collectible. Increases in renewal guidelines may not be passed on to tenants who occupy one of the growing number of units renting at market -- particularly outside of Manhattan. The second major caveat (which may more than countervail the first) is that the impact of administrative rent adjustments authorized by the Division of Housing and Community Renewal is largely unknown. The effect of thousands of major capital improvement and individual apartment improvement rent increases is not and cannot presently be measured in the rent index prepared by the RGB staff each year. Therefore, these increases are not reflected in the above estimates.

The vast majority (about one million) of tenant households affected by these guidelines are apartment dwellers.

Approximately 38,000 units fall within the hotel stabilized group which presently includes (according to the 1999 HVS) class "B" hotels (8,100), single room occupancy units (9,200), rooming houses (8,700), lodging houses (few units/no data) and "apartment hotels" (11,500).146 The number of stabilized hotel units has declined dramatically in recent years as a result of building demolitions and conversions and from an increase in transient (and thus unregulated) hotel rentals.

The Board reviews the economics of hotel buildings separately from apartments pursuant to §26-510(e) of the RSL (included as part of Appendix A). It also holds separate hearings for hotels and adopts separate hotel orders. These orders have historically differed significantly from those given for apartments and lofts. While one year renewal increases for apartments and lofts averaged around 3% between 1996 -2000, increases for the hotel sector averaged about 1% over the same period.

A sound estimate of the number of loft units currently affected by the Board's loft guidelines pursuant to §286 of the Multiple Dwelling Law is difficult to calculate.147 As these units are "legalized" and move from interim multiple dwelling status to class "A" multiple dwellings some may be deregulated while others may fall under apartment rent stabilization.

While the Rent Guidelines Board does conduct an independent review of the economics of loft buildings, because of significant similarities with apartments in operating cost changes over the years the Board's loft orders have generally paralleled its apartment orders. In 1999, however, lofts were given a slightly lower increase (1% for one-year leases and 2% for two-year leases) compared to apartments (2% and 4%, respectively). In 2000 a similar lower increase was granted for lofts (3% for one-year leases and 5% for two-year leases) compared to apartments (4% and 6% respectively).

Useful Appendices for Reference:

  • A complete summary of apartment and hotel increases adopted over the years is contained in Appendices M and M1, respectively.
  • A copy of the most recent apartment guideline order (also covering lofts) is attached in Appendix N.
  • The explanatory statement for this order follows in Appendix N1.
  • A copy of the most recent hotel guideline order is contained in Appendix N2 followed by the order's explanatory statement in Appendix N3.

Special Orders

Sublet Allowances

As discussed in the section describing the Rent Regulation Reform Act of 1997, the vacancy allowance is now established by statute, although the RGB is not precluded from adding an additional vacancy increase. The Board may, however, promulgate a special vacancy allowance for apartments occupied by subtenants, known as the 'sublet allowance.' Section 2525.6(e) of the Rent Stabilization Code provides that "the legal regulated rent payable to the owner effective upon the date of subletting may be increased by the vacancy allowance, if any, provided by the Rent Guidelines Board Order in effect at the commencement of the date of the lease, provided the lease is a renewal lease." Under Order #32, the Board authorized a 10% sublet allowance.

Supplemental Rent Adjustment

The supplemental rent adjustment is a fixed dollar amount in addition to renewal and vacancy increases which is added to rents the Board has regarded as exceptionally low. This adjustment has been one of the most controversial components of the Board's past rent orders. Owners have strongly urged the continuance of the adjustment to remedy what is viewed as unfairly low rents. Tenant advocates, on the other hand, have regarded it as a "poor tax" upon the hardest hit class of tenants and a cause of homelessness.

As shown in the following chart, the first supplemental adjustment was adopted in 1983 as part of order #15. From 1990 through 1993 no supplemental adjustment was added. In 1994 the Board reinstituted the allowance and in 1999 a minimum rent of $215 was imposed. In 2000 the Board added $15 for rents under $500 and continued the minimum rent provision.

According to the 1999 Housing and Vacancy Survey, fewer than 9% of rent stabilized apartments now rent for less than $400.148 About one-fifth or 20.4% rent for less than $500.

Special Guidelines and Decontrolled Units

As discussed in the section concerning fair market rent appeals (supra, here) apartments in buildings with six or more units vacated by a rent controlled tenant will fall under rent stabilization. If the first stabilized tenant chooses to challenge the rent, the DHCR will consider the special guidelines adopted by the Board pursuant to §26-513 of the RSL (See Appendix O) in making its determination as to whether the new rent is "fair". As noted previously, in addition to this advisory guideline the DHCR will permit the owner to submit information on "rents generally prevailing in the same area for substantially similar housing accommodations." If presented with such information, the current DHCR practice is to average the rent calculated in accordance with the special guideline with the average rent for qualified comparable units.

In establishing the special guidelines, at one time the Board's policy was generally to close the gap between rent controlled rents and rent stabilized rents, the latter often being much higher. From 1974 through 1986 the Board adopted special guidelines which ranged between 15% to 20% above the maximum base rent ("MBR") established under the rent control system. In 1987 the Board took notice of information provided by the most recent Housing and Vacancy Survey which indicated that median rent stabilized rents in pre 47 buildings were approximately 35% above median rent controlled rents. Consequently, the Board increased the special guideline to 35% above the MBR in its 1987 rent orders. The following year tenant representatives argued that since the Board's stated aim for the special guideline was to close the gap between rent controlled and rent stabilized rents, and since the gap reflected in the HVS figures is really a gap between Maximum Collectible Rents149 and stabilized rents, the special guideline should be added to the MCR and not the MBR. Acknowledging some value in retaining the MBR as the minimally desired rent, the Board's 1988 and 1989 special guidelines consisted of a 45% increase above the MCR or a 25% increase above the MBR - whichever increase was greater. In 1990 the Board moved to a fixed increase of 35% above the MCR. In 1991, responding to arguments that the MBR is a minimally sufficient rent to run a building, the Board returned to the MBR as an appropriate base from which to calculate adjustments by simply adding 15% to the MBR. This approach was continued in 1992. In 1993 the Board once again returned to the "closing the gap" approach by adding 40% to the MCR.

In later years the Board again added a minimum increase above both the MBR and the MCR. Thus, in 1995 the special guideline consisted of the greater of 35% above the MBR or 45% above the MCR. In 1996 and 1997 the numbers were 40% and 50% respectively. In 1998 the Board increased the special guideline to the greater of 80% above the MBR or a minimum of $650. In 1999 and 2000 the Board adopted a complex special guideline consisting of the greater of 150% above the MBR plus the fuel cost adjustment, or the Fair Market Rent for existing housing established by the U.S. Department of Housing and Urban Development.

Notably, according to the 1999 Housing and Vacancy Survey, the median rent controlled rent (the "MCR") is $477 while the median rent stabilized rent is $650 -- a 36% difference.150 Because the MBR is always equal to or greater than the MCR, the Board's most recent minimum adjustment of 150% above the MBR would raise a typical decontrolled unit to well over $1,100 per month.

It should be added that the Board's special guideline orders also affect buildings which have been decontrolled pursuant to section 2(f)(15)(c)&(d) [now §2200.2(f)(15)(iii)&(iv)] of the New York City Rent and Eviction Regulations. These sections concern apartments with past rent levels that made them high rent or "luxury" apartments in the mid-1960's. These units may still be decontrolled on a case by case basis pursuant to a court order. While this type of decontrol rarely occurs today, the Board's orders continue to provide protection for newly stabilized tenants who move into one of these previously controlled units. These decontrol guidelines have historically been identical to the special guidelines for rent controlled units which are voluntarily vacated.

Electrical Inclusion Adjustment

Approximately 86% of stabilized tenants pay for their own electricity while some 14% have the cost of electricity included in their rent. If the cost of electricity rises at a faster rate than the average increase in operating and maintenance costs and the Board does not compensate owners for this difference in its rent orders, owners who supply electricity would be at a disadvantage. Similarly, if the price of electricity were falling relative to other expenses, owners who supply electricity would reap a windfall unless the Board adjusted rents accordingly. Recognizing this, the Board has included special adjustments - both up and down - where the rate of increase for electricity costs has not paralleled changes in other costs. These "electrical inclusion adjustments" were common in the mid-1970's to the early-1980's but have not been added to any rent order since 1983 when a one percent reduction for master metered buildings was included in order #15. Master metered buildings are still analyzed separately in the Board's annual review of operating cost changes, however, and there is no indication that electrical inclusion adjustments will not be included in future rent orders.

Buildings with J-51 or 421-a Tax Abatements

As mentioned previously, owners of property completed or substantially rehabilitated after January 1, 1974 may avail themselves of 421-a (new construction) or J-51 (rehabilitation) tax abatements or similar abatements. A condition of entering these programs is acceptance of rent stabilized status for a prescribed period. The period of stabilized status and conditions for deregulation vary by program. Relevant portions of these regulations are attached as Appendix P.151

Owners of buildings receiving 421-a benefits may charge initial rents according to a formula which accounts for development costs and operating expenses, and, during the period of gradual diminution of their 421-a tax exemption, may only charge guideline rent increases plus 2.2% of the original rent per annum.152 Owners of buildings with J-51 tax benefits do not receive this additional 2.2% increase.

Stabilizers

Stabilizers, according to a 1982 staff review, "have been authorized to take into account the yield of rent stabilized buildings relative to other investments and increases in capital costs for such buildings". They have consisted of separate additional rent increases ranging from 1% to 1/2% in orders 2, 3, 4 & 6c. They have also been explicitly "included" in the standard increases in orders 5,7,8,9,10 & 11. While the stabilizers enacted in these years are incorporated into base rents in accordance with subsequent rent orders, no additional stabilizers have been added in recent years.

Other - Fractional Terms, Escalator Clauses

Although the RSC §2522.5 provides that rent stabilized tenants have a right to choose only a one or two year renewal lease, under certain rare circumstances a lease term may be a fraction of these periods. If that is the case, the Board's orders provide that lease terms of up to one year shall be deemed a one year lease for the purposes of determining the appropriate rent adjustment. Similarly, a lease term of more than one year and up to two years in length is deemed a two-year lease.

Escalator clauses are provisions in lease agreements permitting periodic rent adjustments that are generally fixed or pegged to some economic indicator. Under the RSC §2522.5(e) most escalator clauses are no longer permitted in stabilized leases. According to the Board's orders, where escalator clauses continue to be permitted, the amount of any increase due under such clause must be offset against the guideline increases.

Exemptions to Orders

Warehousing Exemptions

As far back as 1972, under hotel order #3, the Board began adopting orders denying rent increases to owners of hotel buildings which contain a large number of units deliberately withheld from the market. It has long been argued that owners who deliberately deprive themselves of additional rents by withholding units from the market should not be heard to complain that existing rents for the remaining tenants are inadequate to produce a fair return on their investment. This view may be distinguished from attempts to eliminate warehousing on public policy grounds through the imposition of fines or other penalties. The anti-warehousing provisions of recent Board orders are an attempt to distinguish between buildings in economic terms and to adopt guidelines accordingly - not to penalize owners who choose to utilize their properties in a manner that some might find offensive.

In 1985, an anti-warehousing provision was added to an apartment order for the first time. Order #17 deprived owners of vacancy allowances in buildings of 50 units or more in which more than 10% of units were deliberately withheld from the market. Anti-warehousing provisions have not been retained in the Board's recent apartment orders.

Registration Exemption/Hotels

The stabilization provisions governing hotels are distinct from those governing apartments in one fundamental respect: vacant hotel units may be rented to transient tenants who are generally not protected by the rent stabilization laws.153 Prior to 1983, rents in hotel units that became vacant were allowed to go to market. They were thereafter re-stabilized if the unit became occupied by a permanent tenant. In 1983 the language permitting market rents upon vacancy was deleted. New tenants were not automatically given rent stabilized status under this legislation, however, and are still required to request a lease or reside in the unit for six months before becoming "permanent" (and thus stabilized) tenants. Upon becoming a permanent tenant, the DHCR will require that the rent be rolled back to the level that existed under the last stabilized tenancy, plus any renewal increase. Consequently, the hotel stabilization laws continue to permit several classes of tenants within a single building: those who are long term stabilized tenants, those who are transient tenants and as such pay open market rents, those who reside units with rents which exceeded $350 per month or $80 per week on 5/31/68 and thus were never stabilized,154 and those new tenants who request leases or reside in their unit for six months and thereby become rent stabilized.155 It is easy to see that owners have significant incentives to rent only to transient tenants and the Board has received testimony that such practices are commonplace.

Recognizing that owners who reap market rentals from transient tenants may have less of a need for rent increases from other tenants, the Board, in its last 3 hotel orders (28, 29 & 30), adopted special exemptions for buildings which show limited occupation by rent regulated tenants. Because rent registration data compiled by the DHCR indicates the number of stabilized units and those not stabilized in a given hotel or SRO, the Board uses this ratio to establish the criteria for implementing its "registration exemption". The current provision (under Hotel Order #30) allows for no rent increase if fewer than 70% of the residential units in a building are occupied by permanent rent stabilized or rent controlled tenants paying no more than the legal regulated rent.

In 1991 the RGB staff compiled data on operating expenses and registration levels in the stabilized hotel sector. As the report indicated, it appeared that at least 40% of the hotel stabilized universe of buildings had never been registered with DHCR. The most severe non-registration problem appears to be with rooming houses in the outer boroughs. In 1992 the staff added to the report by compiling data which indicated, among other things, that the transient problem is largely confined to Class B hotels - where [in hotels registered with the DHCR] an average of only 57% of units were registered as stabilized. Copies of these two staff reports on hotels are included in Appendix Q and Q1.

In addition to the registration exemption, the RGB has refused rent increases to owners who fail to provide new hotel occupants with a copy of the "Rights and Duties of Hotel Owners and Tenants, pursuant to Section 2522.5(c)(2) of the Rent Stabilization Code." Thus, while hotel owners received a 2% rent increase under Order #30, they received a 0% adjustment if they failed to provide this required notice. Among other things, this notice apprises incoming tenants of their right to the protections of rent stabilization.

Resolutions

The Board is often called upon to adopt advisory resolutions with respect to the legislative design or administration of the rent stabilization laws, and has, on occasion adopted such resolutions. In 1992 the Board adopted a resolution calling upon the DHCR to look in to possible violations of the Board's hotel orders. In 1988 the Board adopted two resolutions, one requesting an examination of the process by which hardship increases are granted and a second requesting an examination of a proposal from City Council President Andrew Stein to deny rent increases to owners who have outstanding uncollected judgments for housing code violations. (Corporation Counsel later advised that this latter policy, or any policy linking rent increases to code compliance or energy conservation efforts, may not be within the Board's discretion.) In the Summer of 1993 the Board adopted an extensive resolution on distressed properties

DUTIES OF THE RENT GUIDELINES BOARD
(Part I) (Part II) (Part III)

An Introduction to the NYC Rent Guidelines Board
Table of Contents

Footnotes

143 Prior to the enactment of the Omnibus Housing Act of 1983 tenants were given the additional option of choosing three year leases.

144 See note 22 following Table 8 in the Explanatory Statement for Apartments (Appendix N1) for further explanation of these estimates.

145 This is an average of the last five entries in the Board's rent index contained in table 8 of the Explanatory Statement for Order #31.

146 1999 HVS, Table 15

147 A copy of §286 of the Multiple Dwelling Law is contained in Appendix L.

148 1999 Housing and Vacancy Survey, Tabulation Package, Series 1A, Table 30.

149 "MCR" = the amount rent controlled tenants are actually required to pay which may increase by no more than 71/2% per year. The MBR is a rent ceiling which reflects the amount theoretically required to maintain the unit and produce a fair return. The MCR never exceeds the MBR.

150 1999 Housing and Vacancy Survey, Tabulation Package, Series 1A, Table 30.

151 See also RSC 2520.11 (o) &(p).

152 See RSC 2522.5(e)(2).

153 Such tenants may have the right to become permanent and thus rent stabilized tenants pursuant to §2522.5(a)(2) of the RSC, as well a right to be notified of the protections afforded by rent stabilization [RSC §2522.5(c)(2)], but these protections may have been thwarted to some extent by the use of "short-stay" agreements and by other actions designed to deprive tenants of legal process (required under NY Admin. Code § 26-521) prior to being locked out.

154 See RSL §26-506.

155 See RSL §26-510(e).


NYC.gov Always Open Go to: NYC.gov Home | Contact Us | FAQs | Privacy Statement | Site Map