Recently Passed Real Estate Nightmare Legislation
A review of some of the most noteworthy landlord-tenant related legislation of 2023 and early 2024 involving criminal background checks, stopping short-term tenancies, flood histories and rent regulation.
While readers with differing interests will disagree about the cost/benefit effects of recent enactments (both legislative and regulatory) regarding the landlord-tenant relationship, all can agree that these enactments have the purpose of restricting real estate profitability for owners and further limiting a landlords’ rights of self-determination in managing their own property. While federal law has been relatively quiet in landlord-tenant enactments, of late, both New York State and New York City have been quite active.
Along with these, however, there have been a few enactments that have had the effect of moving landlord liability for tenant illegality to more focused tenant liability for that same misconduct. Thus, this article reviews some of the most noteworthy landlord-tenant related legislation of 2023 and early 2024.
Where the law remains in complete disarray, at the moment, is with respect to legalized marijuana, legalized at the state, but still not yet at the federal level. Under New York State law, nearly any building may house a legal (for state purposes) marijuana dispensary.
There have also been substantial new regulations and legislation enacted in regard to rent stabilization.
Criminal Background Checks
To take effect on Jan. 1, 2025 is The Fair Chance For Housing Act (New York City Administrative Code 8-102a et seq), in which the New York City Council enacted restrictions on the use of criminal background checks in renting residential property. In the broadest terms, the law prohibits a landlord from barring from a rental those whose criminal cases did not result in a conviction, misdemeanor convictions that are older than three years, and felony convictions that are older than five years. Landlords may nonetheless bar housing to those who are on sex offense registries. Also barred from being refused housing are those who have received a pardon, a certificate of relief from disabilities, or some other vacatur or nullification of the conviction.
One thing uniting all of these categories of exemption from rental discrimination is that for none of them is there an assurance either that the prospective tenant did not actually do the illegal conduct nor that the prospective tenant is unlikely to commit such conduct again.
One needs to remember that even an out and out acquittal after trial only adheres to the criminal concept of the presumption of innocence for criminal purposes. Many have been the examples through history of those found criminally not-guilty, but nonetheless civilly liable.
The criminal bar for conviction is “beyond a reasonable doubt,” a tough standard. The civil bar for a finding of civil liability is normally “fair preponderance of the evidence,” a relatively relaxed standard. Thus, it may be more likely that a person did the bad things without it having being enough for the prosecutor to get a criminal conviction, but with it being a reason for a landlord to believe that this person presents a danger to the building.
Under this provision, a landlord may not run a criminal background check at all until after having made a binding rental offer that can only be revoked based on a criminal background check conducted in accordance with the fair chance housing process set forth in subparagraph (5), or upon an unrelated material omission, misrepresentation, or change in the qualifications for tenancy that was not known at the time the conditional offer.
Thus, it will be exceedingly difficult for the prospective landlord who said “no” because of the results of the criminal background check to demonstrate that there was something else that motivated the refusal.
We understand the City Council’s desire to give someone a fresh start. But we also understand landlords’ desire to protect their property and the well-being of their other tenants. This provisions applies to all units in multiple dwellings in New York City, regardless of whether they are rent regulated or not.
The complexities of the law are such that any landlord not seeking to run afoul of it will need to contract the services of a company that does compliant background checks for a living. However, the law requires the landlord to check the legitimacy of that third-party provider, but does not say how such a check is to take place. The enactment does not create or even allude to a licensing process for such third party providers.
Transient Occupancy
In 2023, New York City’s law (Administrative Code §26-3101 et seq) requiring registration of apartments to be rented for fewer than 30 consecutive days. Previous enforcement by NYC against short term rentals had been against landlords, leaving it to them to find the means to stop their tenants from engaging in using the internationally famous short-term rental agencies. These enforcement efforts proved extraordinarily difficult for landlords: catching the tenants in advertising and renting the places out. The hotel industry was up in arms against these uses of apartments as de facto hotel rooms and advocates of rent stabilization were equally outraged as tenants were receiving, on a monthly basis, often three times or more the legal rent they were to be paying their landlords. In numerous instances, the tenants were not actually tenants at all, but were only using the apartments for hoteling.
Landlords faced tens of thousands of dollars in penalties under the old system. But according to all reports, it was not the revenue the City was seeking from these violations, but the actual cessation of the short term rentals. This, to a substantial extent, §26-3101 et seq has achieved. The penalties are severe.
Under §26-3101 et seq, the tenant seeking to do short term rentals has to register the premises with the City for such purposes. Under the provisions, in order to effect such registration, the tenant must show that he has a lease that allows such use of the apartment. No commercially available lease has such allowance. All commercially available residential lease forms prohibit any subletting, thus, effectively, foreclosing these kinds of transient rentals. All such rentals fall well within common law understandings of sublets.
Further, the City announced that it will not register any rent regulated apartments for short term use.
While 2023 did not see the complete elimination of short term, transient use of conventional apartments, 2024, it appears, will go far to completing the process.
Flood Zones
Effective June 21, 2023, under RPL §231-b, all leases in New York regardless of the rent regulatory status, regardless of whether it is a single family home on up to a huge apartment house, all residential leases must advise tenants the flood history of the leased premises.
For this purpose, New York Homes and Community Renewal has provided at //hcr.ny.gov/system/files/documents/2023/08/2023-c-4-new-york-state-real-property-law-section-231-b-compliance.pdf not only an announcement of the new requirement, but a model form for compliance. There is little remarkable in the form as it recites the statute approximately verbatim.
Much of the statute (and the form) is absolutely straightforward. It requires disclosing whether the premises (or part of them) are in a floodplain, 100-year floodplain, or 500-year floodplain. Since all of these designations, under the statute, are with specific reference to FEMA maps, there is no ambiguity with regard to these provisions. This is important because recent history is teaching that floods are occurring more often than the names of the floodplains would imply. Whatever disputes there may be about the science of the causes of the more frequent flooding, the increased frequency is readily documentable.
However, both within the statute and the form is a requirement for disclosure that, “The leased premises has experienced flood damage due to a natural flood event, such as heavy rainfall, coastal storm surge, tidal inundation, or river overflow, which is detailed as follows.”
The problem is that the statute never defines “natural flood event,” except, to the extent that it be considered a definition of sorts, with the ensuing phrase “such as.” What immediately follows the “such as” is four items, three of which are essentially regional in nature, “coastal storm surge, tidal inundation, or river overflow,” even if only for a relatively small region such as, for example, a single city block. However, there is nothing intrinsically regional in “heavy rainfall,” at least, when that phrase follows “the leased premises has experienced flood damage due to.” Here, the question is not whether neighboring buildings have also experienced damage from heavy rain, but only whether this building has.
While regional floods of the kinds described in the statute are never the fault of individual landowners, floods to particular buildings caused by a heavy rain can be where, for example, the building is in serious need of repointing, has defective gutters or leaders, or has broken windows. Those kinds of conditions, put together with a heavy rain can indeed effect heavy flood damage.
And those kinds of conditions appear to be included within the scope of the statute. Unlike the FEMA map provisions of the statute which clearly speak to the current FEMA map and not historical ones, this local flood provision of the statute speaks entirely to history.
What the statute leaves completely unanswered is how long that history is. There is nothing about the disclosure of history that has some kind of limitations period associated with it. There is nothing in any other statute that gives some kind of definition to it.
The only conclusion one can draw is that the statute, as written, calls for a complete history from the beginning of the universe, since the word “premises” is not restricted to the current building. Naturally, in construing statutes, one is to avoid absurd results. The absurdity is easily relieved here by restricting the landlord’s obligation to disclose what the landlord does know or by the exercise of some kind of standard (reasonable application, due diligence, or some other standard a court may find) should know.
There are no cases construing this statute. We therefore simply do not know what the standard of inquiry, if any, is. Taking this interpretation in its most conservative form, we would recommend that even if landlords are disclosing some historical event, they should include the qualifier “and nothing else to the landlord’s knowledge.” If there is no event being disclosed, then the form should be filled out with the phrase, “nothing to the landlord’s knowledge.”
Since we do not know the standard of inquiry about the history of the building, we cannot advise whether contracts for sale or residential rental properties should or should not include representations about the flood history of the property.
The statute, by its terms, only seems to refer to original leases, but the DHCR Advisory suggests using the Rider on renewals as well. This should not be a violation of the rent stabilization requirement that all renewals be on the same terms and conditions because there is nothing in this Rider that is a term or a condition. It is only a disclosure. By the same logic, any leases landlords entered since the effective date of this statute, should be repaired by the owner sending out the rider now, if it had not been done previously.
Cannabis Dispensaries
The law and its enforcement when it comes to cannabis is still in a state of disarray. While New York is one of about half the American states to legalize marijuana for recreational use, the Federal government has not legalized it and shows little reason to believe that it will legalize it before a higher proportion of states have done so.
However, federal authorities seem to be taking no action against individuals. New York, however, enacted Article 222 of the Penal Law, largely focused on setting forth what is legal. Also enacted is The Cannabis Law which sets forth who may sell marijuana (previously called “marihuana” in New York law and currently called “cannabis.”)
The unauthorized sale of cannabis is the problem landlords are facing. Under the Cannabis Law, New York State licenses dispensaries for the sale of cannabis. Sale through any other means is illegal. However, under the original program, New York was limiting its licenses to those who had previously been convicted of marijuana related offenses. This led to extreme difficulty in obtaining a dispensary license and a pair of lawsuits that essentially shut the process down until the end of 2023. However, reports are that the State is now issuing those dispensary licenses.
Outside of that system, local district attorneys are calling upon landlords to shut down these illegal dispensaries by means of RPAPL 715-A, a new statute, crafted for this very purpose, but largely modeled on RPAPL 715, an old law originally created for the purpose of shutting down houses of prostitution, with relaxed standards of proof compared to those of other eviction proceedings.
Unlike other summary proceedings, it has a provision allowing for treble damages to the landlord, relatively liberal discovery provisions against the tenant, and allows for the landlord’s attorneys’ fees, provided, of course, the landlord succeeds in the proceeding. The final sentence of the statute allows for the possibility of the landlord also bringing a proceeding under RPAPL 715.
However, since this law came into effect less than a year ago, there are no officially reported decisions construing it. However, there are unreported cases adding some further common law requirements to the proceeding:
1. That there was more than one unauthorized sale;
2. That the tenant knew of the sale taking place; and
3. That there is not other meaningful business activity taking place at the premises other than the illegal sale of cannabis.
The courts have thus far indulged the presumption that if there is only one sale, both of these criteria fail because of a failure to meet a standard of ongoing conduct and because an employee of the tenant may be running their own illegal dispensary unknown to their boss. Under this reading, the tenant’s liability is not absolute.
The third criterion we listed applies only to 715-a proceedings. RPAPL 715 has no requirement of “solely or primarily” regarding the illegal activity in order to sustain a proceeding.
While this area is so new, it is hard to predict what the authorities will do to make 715-a more effective. The police could work harder to show the ongoing activity and the named tenant’s acquiescence. The District Attorney could decline to push for these cases (which consume considerable governmental resources) except in the most strident circumstances. The Legislature could relax the requirements. This is clearly a law that is in a state of flux.
Rent Stabilization
On Nov. 8, 2023, the state’s Division of Homes and Community Renewal (DHCR) adopted massive amendments to the Rent Stabilization Code, too numerous to be confined to this single article. On Dec. 22, 2023, the governor signed into law a statute that is a bit of a grab bag of new enactments, all of them anti-landlord, some of which further codify the provisions of the Nov. 8 DHCR provisions.
When the State Legislature enacted the Housing Stability and Tenant Protection Act in 2019, it, at a stroke, rendered many provisions of the Rent Stabilization Code obsolete. Much of the Nov. 8 DHCR enactment simply codifies into the Code the abolition. Thus, as one of many examples, the enactment deletes all of the provisions for luxury decontrol of normal rent stabilized apartments. Many others are the codifications of 2019 law into the 2023 Rent Stabilization Code.
One major question left open by the 2019 law was what would happen with apartments that were some form of recombination of earlier existing apartments. This process came shortly to be known in the industry as “Frankensteining Apartments.” The upshot of both the new regulations and the new statute are that if an owner does anything to rearrange the allocation of square footage of the various apartments in a building, all apartments that had their footprint changed come under Rent Stabilization.
The laws then go on to give a method for recalculating the rents for the various apartments in a purely mathematical fashion. There is, under the design of the law, no need for DHCR intervention and no use for comparing these apartments to any other apartments. The recalculations have the net effect of the rent roll of the building as a whole not moving upwards.
Thus, unless there is an issue of necessary reconfiguration for some other kind of building code compliance, the owner has no financial incentive to do the reconfiguration.
Also addressed in the new laws are different ways of looking at “fraud” than the prevailing case law had indicated, for purposes of determining tenants’ rights when an owner took luxury decontrol while a building was undergoing J51 or 421-a. However, the interpretation, enforceability, and durability of those new interpretations are so subject to question at the present juncture as to be far beyond the scope of an overview article such as this.
Conclusion
This article examined a variety of new enactments, including one not yet in effect. It is clear that all of these enactments require a greater body of case law to clarify their metes and bounds. Indeed, case law may not be enough. The legislatures themselves may need to polish these laws a bit and litigation challenging the rent regulatory laws will soon be filed.
The damage that the majority in the State Legislator has completed may be a record of poor governing and as a result the real estate economy has entered chaos. Rent regulatory apartment rents can barely be raised and many building owners cannot afford to maintain their buildings or pay for repairs. Most of these buildings are worth a fraction of their sales price from the day before these laws were originally passed. Thousands of construction jobs have been lost and even more developers have left New York to find safer places to plant their money.
Adam Leitman Bailey is the founding partner and Dov Treiman is the landlord-tenant managing partner of Adam Leitman Bailey, P.C.