Redefining the Meaning of Free Market Apartment Rentals

New York State Passes Good Cause Eviction Law

New York State Passes Good Cause Eviction Law

What is the Good Cause Eviction law?

On April 20, 2024, New York State enacted new residential tenant protections affecting many market rate apartments under a framework referred to as “Good Cause Eviction.” In general, this regulation restricts a landlord’s ability to evict a tenant or elect not to renew a lease except in the event of the following “good causes”:

  • Tenant’s failure to pay rent, provided that the rental rate increase upon any renewal is no more than what is “reasonable” (i.e., no more than (x) 10% or (y) 5% plus the increase in the Consumer Price Index (CPI), whichever is less, subject to landlord evidencing a reasonable basis for a higher rental increase, as further discussed below).
  • Tenant’s violation of substantial lease obligations.
  • Tenant’s commission of a nuisance or substantial damage to the unit or building.
  • Tenant’s occupancy violates a law, which subjects landlord to civil or criminal penalties, provided that a state or municipal agency has ordered the tenant to vacate.
  • Tenant is using or permitting the unit or building to be used for an illegal purpose.
  • Tenant has unreasonably prohibited the landlord from accessing the unit to make necessary repairs or improvements required by law or to show the unit to a person with a legitimate interest, such as a prospective purchaser or lender.
  • Landlord seeks in good faith to recover possession of a unit for landlord’s own personal use and occupancy as landlord’s or landlord’s family’s principal residence if no other suitable unit is available in the building. However, this scenario does not qualify as “good cause” if the tenant is at least 65 years old or is a disabled person.
  • Landlord seeks in good faith to demolish the unit or withdraw the unit from the housing rental market.
  • Tenant fails to agree to reasonable changes to the lease upon a lease renewal, so long as landlord provided to tenant written notice of the changes no less than 30 days, but no more than 90 days, prior to lease expiration.

The Good Cause Eviction law is effective immediately in New York City. New York municipalities outside the City may elect to opt-in and adopt the Good Cause Eviction legal framework.

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There are several exemptions to being subject to compliance with the Good Faith Eviction law, notably the following:

  • Landlords who own no more than 10 units in New York State.[1]
  • Owner-occupied housing accommodations with no more than 10 units.
  • Sublet units where the sublessor seeks in good faith to recover possession for personal use and occupancy.
  • Units where the possession, use or occupancy is solely incident to employment and such employment has been terminated.
  • Units subject to rent regulation laws.
  • Units subject to affordable housing laws.
  • Condominiums and co-ops.
  • Housing accommodations within and for use by a religious facility or institution.
  • Multifamily buildings in which a temporary or permanent certificate of occupancy was issued on or after January 1, 2009 (the exemption lasts for 30 years after issuance of the certificate of occupancy).
  • Units for which the monthly rent is greater than 245% of the fair market rent published by HUD. For New York City, the exemption does not apply above the following monthly rents: Studio: $5,846; 1BR: $6,005; 2BR: $6,742; and 3BR: $8,413.

The regulation also adds notice requirements, whereby landlords are required to disclose in new leases or lease renewals that Good Cause Eviction protections apply. In addition, if a landlord elects not to renew a lease, the landlord must notify the tenant of the non-renewal and the reasons for the non-renewal (which reasons must constitute a “good cause”). These notice requirements go into effect on August 18, 2024.

Landlords and tenants are prohibited from negotiating or waiving Good Cause Eviction rights in a lease, as any waiver is deemed void against public policy. The law expires in 10 years, on June 15, 2034.

What is the Impact of Good Cause Eviction on Free Market Apartment Rentals?

The most material element of this regulation is that the tenant is, as a matter of law, entitled to a renewal lease upon the expiration of the lease term at a rental rate increase of no more than what is “reasonable”. A reasonable rent increase is presumed to be an increase of no more than (x) 10% or (y) 5% plus the increase in CPI, whichever is less. To determine whether any rent increase above this threshold is reasonable, a court must consider the landlord’s property taxes (and any increases) and it may consider a landlord’s fuel, utilities, insurance, and maintenance costs. A court may also consider whether the rent increase resulted from “significant repairs,” which means replacing or substantially modifying any structural, electrical, plumbing, or mechanical system that requires a permit from a governmental agency, or abating hazardous materials, such as lead-based paint, mold, or asbestos. However, “significant repairs” do not include repairs that resulted from the landlord’s failure to properly maintain the building or unit, nor do they include cosmetic improvements, such as painting and decorating.

It remains to be seen what the impact of this law will ultimately have on the real estate market. Most obvious, landlords are capped on rental increases, notwithstanding the then state of the rental market. In particular, even where the landlord is attempting to cover increased operating costs or the costs of improvements, there is now some level of risk for a landlord to increase rents above the presumed reasonable rental increase (i.e., the lesser of (a) 10% or (b) 5% plus the increase in CPI). In situations where a landlord desires to undertake an extensive renovation or a redevelopment, it is possible that the landlord will be faced with the need to offer the tenant a lease buyout to obtain possession of the apartment unit. In some cases, landlords may be reluctant to fill vacancies by offering leases to tenants at below market rents, knowing that future rent increases will be calculated based upon such below market rents. In the end, this regulation can certainly have a material impact on the value of market rate apartments in New York City.

As the courts provide their interpretation of the Good Cause Eviction law through future eviction proceedings, the Tannenbaum Helpern Real Estate Group will issue updates of any material guidance on this new law.

[1] With respect to landlords who are entities (such as a limited liability company, limited partnership or corporation), the statute provides that the number of units owned by such landlord includes all units in New York State owned by the natural persons who have a direct or indirect beneficial ownership interest in such landlord. However, the statute is ambiguous as to how this calculation will be made.

Source: JD Supra by Tannenbaum Helpern Syracuse & Hirschtritt LLP