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  • September 5, 2019

Changes in Management Responsibilities for Landlords

Cheat Sheet

Changes in Management Responsibilities for Landlords

Changes in Management Responsibilities for Landlords of Free Market Residential Leases in NY as a Result of the NY Housing Stability and Tenant Protection Act of 2019

CLARIFICATIONS

The Housing Stability and Tenant Protection Act of 2019 remains fluid and subject to different interpretations as guidance and clarification is coming down from a myriad of sources. Please check back regularly for new updates.

On September 12, 2019, the New York Department of State (the “DOS”) issued Guidance for Real Estate Professionals Concerning the Statewide Housing Security and Tenant Protection Act of 2019 (the “Guidance”) to provide guidance on certain aspects of Part M of the New Law (as hereinafter defined) (i.e., the section applicable to free market leases). Note that until a judge issues a ruling or the legislature amends the law with regards to any of the following items, they are still subject to interpretation. With that said, the DOS issued guidance and interpretation on the following items:

      1. The restrictions on application fees (See Paragraph 12 below) applies to licensed real estate brokers and salespeople acting as an agent of the landlord.
          • A licensed agent that collects a fee greater than $20.00 or fails to advise the landlord that such fees are prohibited may be subject to discipline by the Department pursuant to RPL §441-c.
          • The restrictions do not apply to licensed agents representing prospective tenants.
          • The restrictions also do not apply (a) when a property is being sold, including within a Condo or Co-op, or (b) to application fees imposed by a Condo or Co-op board.
      2. The restriction on a landlord’s use of past or pending landlord-tenant actions against prospective tenants applies to licensed real estate brokers and salespeople acting as an agent of the landlord.
      3. The restrictions on late fees (See Paragraph 13 below) applies to licensed real estate brokers and salespeople acting as an agent of the landlord.
      4. The requirements of when a security deposit has to be returned to a tenant (See Paragraph 5 below) applies to an agent who is working for a landlord and is holding a security deposit.

Please find the full Guidance issued by the DOS below.

Putting aside the fact the Housing Stability and Tenant Protection Act of 2019 (the “New Law”) has already created (or soon will create), during the hot and humid dog days of the summer of 2019, a big chill on the sale of multi-family buildings (along with disincentivizing multifamily owners to spend little if anything on the improvement of their properties), the New Law will, to some of this asset class’s owners, make them newly appointed members of the real estate middle class, not to mention creating opportunity for investors ready to pounce on their distress and among other things, greatly and negatively impact NYC’s transfer tax revenue budget given that sales of buildings in 2019 are on pace to be 60% of what they were in 2018. Until state agencies issue substantive guidance and/or, playing off of the old Rowan & Martin’s Laugh-In recurring skit “Here Comes The Judge” made famous by Sammy Davis Jr., Pigmeat Markham and Flip Wilson back in the late 1960’s, our New York housing courts lay down how the New Law will be applied, a major takeaway is that the New Law is fluid, subject to different interpretations, and quite sadly, will cause opposing parties to a residential leasing transaction to some extent become the equivalent of dance partners Courtney Cox and Bruce Springsteen in that classic music video “Dancing in the Dark” back from 1984.

With kudos out to Bob Dylan, the New Law is a prime example of how “The Times They Are A-Changin’” and that for better or worse, when the New York State Legislature recently pretended they were 1970’s new wave band The Cars by deciding they needed to “Shake It Up” with regards to the world of residential leasing in New York, they rocked the world of many when it came to altering the rules for rent stabilized and free market leases in New York … creating an even greater need for brokers, landlords, tenants and property managers alike, if they aren’t already, to become “masters of their leasing domains” before entering into a residential lease transaction.

With that said, the following is a fairly exhaustive list of the primary changes in management responsibilities for landlords of free market residential leases in New York as a result of the Housing Stability and Tenant Protection Act of 2019. As a teaser for points 1 and 2 that follow pertaining to limitations on upfront rent and security deposits, you may want to use as a learning mnemonic the title of The Notorious B.I.G. song “Mo’ Money Mo’ Problems.” You will soon see why.

 

1. Upfront Rent

See the New Law Part M, §25 amending GOB §7-108

 

As much as landlords would prefer to play off the lyrics from a song called “All Good” by Chaka Khan and De La Soul, namely that of “a little bit more upfront,” the reality is that tenants are no longer allowed to prepay, and landlords are no longer allowed to collect, more than one (1) months’ rent. There are those out there currently trying to push the bounds of the four corners of the envelope when it comes to various ways of getting around this requirement, but it is our firm belief that if you attempt to go that route, like the title of the Keb’ Mo’ song goes, to do so may leave you holding a “Suitcase” full of troubles.

 

2. Security Deposit 

See the New Law Part M, §25 amending GOB §7-108

 

The amount of the security deposit cannot exceed one (1) months’ rent.

Note #1 Regarding Landlords; Co-ops and Condos: As a general rule, when it comes to leases you can no longer collect any other type of additional security deposit (e.g., a pet security, move-in, or maintenance deposit). Although not yet clear until the laws are applied in practice, although we do NOT believe is it allowed under the New Law, some landlord advocates feel that if you are renting out an apartment fully furnished with expensive art, you may be able to secure a separate deposit for that; once again, we do NOT endorse this position! In the interim, consider having landlords increase their insurance policy limits and require tenants to do the same.

Note #2 to Landlord Advocates: Be aware that for any lease that you’re renewing where you’re holding a security deposit in excess of one (1) months’ rent, you are now obligated to return the amount of the deposit over one (1) months’ rent to the tenant upon the renewal of the lease. Crazy I know! Note that this only applies to leases that are being renewed; you do not need to give back the security deposit over one (1) months’ rent for leases entered into before June 14, 2019 that are in the middle of the term.

Note #3 to Landlord Advocates: Given that a landlord can no longer collect more than one (1) months’ worth of rent and security deposit, in the context of a common qualifier for leasing out an apartment requiring an annual income forty (40) times that of the monthly rent, it may become more common practice to require a guarantor(s) for the tenant. If the tenant does not have a person who is financially able or willing to guarantee the lease, there are companies that the tenant can pay to guarantee the lease. Landlords should note further that you are not allowed to require the use of a specific guarantor company, so with that said, please provide a multitude of guarantor companies that you would be willing to accept as “approved guarantors.”

 

3. Pre-Occupancy Inspection

“The P!nk and ‘Get The Party Started’ Requirement”
See the New Law Part M, §25 amending GOB §7-108 

 

After initial lease signing but before the tenant begins occupancy, the landlord is required to offer the tenant an opportunity to inspect the premises with the landlord or landlord’s agent to determine its condition. 

  • If the tenant requests such inspection, the landlord and tenant are required to execute a written agreement before the tenant begins occupancy attesting to its condition and specifically noting any existing defects or damages. 
  • When the tenant vacates the premises, the landlord may not retain any amount of the security deposit due to any condition, defect, or damage noted in such agreement. 

Note to Landlord Advocates: The aforementioned pre-occupancy inspection agreement is only able to be used as evidence of the condition of the premises at the beginning of occupancy, in proceedings related to the return or amount of the security deposit.

 

4. Post-Tenancy Inspection 

“Willie Nelson and ‘Turn Out The Lights (The Party’s Over)’ Requirement”
See the New Law Part M, §25 amending GOB §7-108

 

Within a reasonable time after notification of either party’s intention to terminate the lease, unless the tenant provides less than two (2) weeks notice of tenant’s intention to terminate, the landlord must notify the tenant in writing of tenant’s right to request an inspection before vacating the premises. 

  • Subject to the foregoing, if the tenant requests such inspection, the inspection must be made no earlier than two (2) weeks and no later than one (1) week before the end of the tenancy. 
  • The landlord is required to provide at least forty-eight (48) hours written notice of the date and time of the inspection. 
  • The tenant has the right to be present at said inspection. 
  • After the inspection, the landlord must provide the tenant with an itemized statement specifying repairs or cleaning that are proposed to be the basis of any deductions from the tenant’s security deposit. 
  • If the tenant requests such inspection, the tenant must be given an opportunity to remedy any identified conditions prior to the end of the tenancy.

 

5. Return of the Security Deposit 

“The Elvis Presley ‘Return to Sender’ and Carole King, Duran Duran and Louis Jordan ‘Point of No Return’ Requirement”
See the New Law Part M, §25 amending GOB §7-108

 

Within fourteen (14) days after the tenant has vacated the premises, the landlord must provide the tenant with an itemized statement indicating the basis for the amount of the tenant’s security deposit being retained, if any, and must return any remaining portion of tenant’s security deposit to the tenant. If the landlord fails to provide the tenant with the statement and remaining security deposit within fourteen (14) days, the landlord forfeits any right to retain any portion of the tenant’s security deposit.

CLARIFICATION: Pursuant to the Guidance issued by the DOS, the requirements of when a security deposit has to be returned to a tenant applies to an agent who is working for a landlord and is holding a security deposit.

Click here for a link to the full Guidance issued by the DOS for an update on the foregoing.

6. Notice of Rent Increases Greater than 5% or of Non-Renewal of the Lease

“The Stevie Wonder Rent ‘Too High, Higher Ground’ and The Sly and the Family Stone ‘I Want to Take You [and Your Rent] Higher’ – Donald Fagen-Steely Dan ‘Goodbye Look’ Prerequisite” 
See the New Law Part M, §3 amending RPL §226-c

 

In the event that (i) the landlord intends to offer to renew the Lease with a rent increase equal to or greater than five (5%) percent above the then current rent, or (ii) the landlord does not intend to renew the Lease, the landlord must provide the tenant written notice as follows:

  • If the tenant has occupied the premises for less than one (1) year and does not have a lease term of at least one (1) year, the landlord must provide at least thirty (30) days’ notice; 
  • If the tenant has occupied the premises for more than one (1) year but less than two (2) years, or has a lease term of at least one (1) year but less than two (2) years, the landlord must provide at least sixty (60) days’ notice; or 
  • If the tenant has occupied the premises for more than two (2) years or has a lease term of at least two (2) years, the landlord must provide at least ninety (90) days’ notice.

Note #1 to Landlord Advocates: If you fail to provide timely notice in accordance with the above, the occupant’s lawful tenancy will continue under the existing terms of the tenancy from the date you give the actual written notice until the required notice period expires.

Note #2 to Landlord Advocates: Provided the tenant has occupied the premises for less than two (2) years, a lease with a term of exactly one (1) year would fall under subparagraph ii. (i.e., requiring sixty (60) days’ notice).

 

7. Notice to Terminate a Month-to-Month Tenancy in NYC 

“The Beatles ‘Hello, Goodbye’ and Pat Benatar ‘Goodbye to You’ Notice Requirement”
See the New Law Part M, §6 amending RPL §232-a 

 

The time periods in Paragraph 6 above also apply to the notice that a landlord must provide a tenant to terminate a month-to-month tenancy in NYC.

Note to Landlord Advocates: The above notice needs to be served via a process server in the same manner in which a notice of petition in summary proceedings is served, not by mail (See RPAPL §735).

 

8. Duty to Mitigate Damages

The Mark Zuckerberg-Facebook ‘We Also Have a Responsibility to Mitigate The Darker Things’ Obligation”
 See the New Law Part M, §4 amending RPL §227-e

 

If the tenant vacates the premises in violation of the lease, the landlord is required to take “reasonable and customary” actions to rent the premises at the lower of (i) the fair market value, or (ii) the monthly rent under the lease.

If the landlord rents out the apartment, once the new tenant’s lease is in effect, the previous tenant’s lease is deemed terminated and the rent collected from the new tenant must applied against what the previous tenant owes the landlord.

 

9. Duty to Provide a Written Receipt for Rent Payments

“The Lil Wayne ‘Receipt’ Requirement”
See the New Law Part M, §9 amending RPL §235-e

 

  • If the tenant pays the rent in any form other than a personal check, upon receipt of payment, the landlord or landlord’s agent must provide the tenant with a written receipt containing:
    • The date;
    • The amount;
    • The identity of the premises and the period for which the payment was made; and
    • The signature and title of the person receiving the rent.
  • If the tenant pays the rent via personal check, the tenant can nonetheless request in writing that the landlord provide a receipt as provided for in subparagraph “a” above.

Note to Landlord: You are required to maintain a record of all cash receipts for rent for at least three (3) years.

 

10. 5 Day Notice for Failure to Pay Rent

“The Public Enemy ‘Notice (Know This)’ Bad Boy or Girl Notice”
See the New Law Part M, §9 amending RPL §235-e

 

If a landlord, or agent of landlord authorized to receive the rent, fails to receive a base rent or additional rent payment within five (5) days of the due date, the landlord (or landlord’s agent) is obligated to send the tenant a written notice, via certified mail, notifying the tenant of landlord’s failure to receive the rent (the “Non-Payment Notice”).

Note to Landlord Advocates: If you fail to send the required Non-Payment Notice, the failure to do so can be used as an affirmative defense by the tenant in an eviction proceeding based on the non-payment of rent. Yes, one of many landlord buzzkills that the New York State Legislature served up to landlords in June of 2019! 

 

11. 14 Day Rent Demand 

“The Phish ‘Demand’ Pre-Commencement, Black Eyed Peas ‘Let’s Get It Started’ Notice”
See the New Law Part M, §11 amending RPL §702

 

Separate and in addition to the requirement to send the Non-Payment Notice, the landlord must provide the tenant a written demand for any unpaid rent or additional rent with at least fourteen (14) days’ notice before the landlord can commence an action or summary proceeding seeking the payment of the unpaid rent or additional rent.

Note #1 to Landlord Advocates: The fourteen (14) day notice must state the amount of the rent due and the period of time for which the amount is due, together with a demand that the total amount be paid within fourteen (14) days after service of the notice.

Note #2 to Landlord Advocates: In an action premised on a tenant defaulting in the payment of rent, payment to the landlord of the full amount of rent due at any time prior to the hearing on the petition must be accepted by you and ends the proceeding.

 

12. Limitation on Fees (Background checks)

“The Eagles You Can’t ‘Take It To The Limit’ Background and Credit Check Ceiling”
See the New Law Part M, §10 amending RPL §238-a

 

The landlord is prohibited from charging any fee before the tenancy except for reimbursement for a background or credit check, which amount is capped at the lesser of (i) the actual cost of the background or credit check, or (ii) $20.00.

Note #1 to Landlord Advocates: You can’t collect the fee for the background or credit check unless you provide the prospective tenant with (i) a copy of the background or credit check, and (ii) the receipt or invoice. Furthermore, if the prospective tenant provides landlord a copy of a background or credit check conducted within the past thirty (30) days, you can’t collect the fee for the background or credit check you perform.

Note #2 to Landlord Advocates: If accepting a tenant supplied background check, given that you truly can’t verify the accuracy of the prospective tenant’s provided background or credit check, you should still perform your own background or credit check (even if you can’t charge the prospective tenant for doing so).

Note #3 to Landlord Advocates: Please remember that the background or credit check you run cannot include a tenant’s housing court history.

Note #4 to Co-ops; Condos; Management Agents and Brokers: Although there are varying opinions on the following as of a few days before Labor Day 2019, given that the many “alphabet regulatory agencies” have not opined in writing on the subject, it is still not clear with one hundred percent (100%) certainty under the New Law if a co-op corporation or condominium board can collect any fee for a leasing transaction from a tenant (e.g., an application, processing or move-in fee) beyond being reimbursed for performing a background or credit check (up to the $20.00 cap) as just discussed. The same applies to management agents and brokers. It’s my as well as the vast majority of professionals that co-ops cannot collect fees beyond the $20 given their “landlord-tenant relationship,” but given the foregoing, the conservative approach is for all of the above parties to assume that the New Law applies to them with regards to taking any type of application fee (and thus should avoid doing so). Until state agencies have issued substantive guidance and/or NYS housing courts issue a decision on the matter, each party should act on their own accord.

CLARIFICATION TO NOTE #4: Pursuant to the Guidance issued by the DOS, the restrictions on application fees applies to licensed real estate brokers and salespeople acting as an agent of the landlord. Furthermore:

    • A licensed agent that collects a fee greater than $20.00 or fails to advise the landlord that such fees are prohibited may be subject to discipline by the Department pursuant to RPL §441-c.
    • The restrictions do not apply to licensed agents representing prospective tenants.
    • The restrictions also do not apply (a) when a property is being sold, including within a Condo or Co-op, or (b) to application fees imposed by a Condo or Co-op board.

Click here for a link to the full Guidance issued by the DOS for an update on the foregoing.

Note #5 to Landlord Advocates: As of August 2019, the jury is still out on whether you can take a separate $20 fee per individual for leases where there are more than one (1) individual tenant (e.g., taking three (3) $20 fees for background checks on three (3) individual tenants signing a lease). The ultra-conservative approach is to only charge one (1) $20 fee no matter how many individual tenants are signing the lease and chalk it up to the cost of doing business.

CLARIFICATION TO NOTE #5: Pursuant to the Division of Housing and Community Renewal Emergency Tenant Protection Act (ETPA) Standard Lease Addenda For Rent Stabilized Tenants updated as of September 2019 (the “Rent Stabilized Lease Rider”), for rent stabilized leases, fees cannot be charged to the tenant for a background check on a prospective roommate or additional family member. Although the Rent Stabilized Lease Rider is not applicable for free market leases, it is another reason why we advise taking the ultra-conservative approach of only charging one (1) $20 fee in the aforementioned scenario.

Click here for a link to the full Guidance issued by the DOS for an update on the foregoing.

13. Maximum Late Fee 

“The Mel Gibson-Tina Turner-Mad Max Conundrum”
See the New Law Part M, §10 amending RPL §238-a

 

The landlord can’t charge a late fee until at least five (5) days after the unpaid base rent or additional rent is due and the late fee can’t exceed the lesser of (i) $50.00, or (ii) five (5%) percent of the unpaid rent.

CLARIFICATION: Pursuant to the Guidance issued by the DOS, the restrictions on late fees applies to licensed real estate brokers and salespeople acting as an agent of the landlord.

Click here for a link to the full Guidance issued by the DOS for an update on the foregoing.

Tips to Help Prepare REBNY Free Market Residential Leases

Dive into our free market residential lease form checklists.

Please consult the applicable checklist depending on your leasing needs.

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