New York lawmakers have dropped efforts to cap rent increases on ground-lease co-ops, but owners aren’t celebrating.
The state legislature is instead moving forward with an amended bill that gives residents of a co-op — where ownership of the building and land are split — the first crack at buying the ground lease if the owner decides to sell. It also includes rules for setting rents for co-op units in the event that a ground lease is not renewed and the co-op reverts to rent-stabilized housing.
The original bill sought to limit annual rent increases on ground leases to 3 percent or the Consumer Price Index, whichever is greater. Those provisions were eliminated from a new version of the bill, sponsored by Assembly member Linda Rosenthal, that advanced to the Rules Committee this week. An identical measure, sponsored by Sen. Liz Krueger, was on the Senate floor calendar as of Wednesday.
“Residents of these buildings will finally have protections against displacement upon the expiration of their ground lease and may remain in their homes as rent-stabilized tenants,” Rosenthal said in a statement.
The Real Estate Board of New York opposed the original measure. It says the latest version of the bill is also unconstitutional because it still interferes with private contracts. REBNY’s Zach Steinberg described the amended bill as “bad policy” and “a windfall for some of the richest New Yorkers.”
Under state rules, if a co-op is dissolved because a ground lease expires and is not renewed — or a new lease is approved but the residents are unable to pay the new rent — the building is converted to rent-stabilized apartments. The latest version of the bill requires owners to set initial rents at whatever the last regulated rent was before the building became a co-op, plus any rent increases approved by the city’s Rent Guidelines Board since that time.
If the owner can’t figure out what that rent was, the state’s housing regulator will determine the rent.
Such a requirement flies in the face of a 2019 Court of Appeals decision, which found that provisions of the Housing Stability and Tenant Protection Act could not be applied retroactively, said Fried Frank partner Anita Laremont.
The HSTPA expanded the lookback period for stabilized tenants seeking to calculate their legal rent and determine how much landlords were overcharging them. The law extended that window from four to six years. The state’s highest court determined that the new lookback period couldn’t be applied to rent overcharges that occurred prior to 2019, when the HSTPA was passed.
Ground leases at co-ops are long-term agreements, meaning that finding the last regulated rent would require documentation dating back decades, well beyond six years. REBNY maintains that this bill raises a similar issue as the 2019 decision: The legislature is trying to retroactively require landlords to have records that date back decades to calculate an initial rent. At the time of their ground lease agreement, no such rules existed to require landlords to hold onto this documentation.
Owners also didn’t anticipate having to offer stabilized leases at such depressed values, Laremont said.
“You have this agreement, that agreement doesn’t say anything about what happens when the ground lease is terminated,” she said. “That’s an insertion that wasn’t bargained for at all.”
Similar issues were raised related to a pair of bills approved in 2023 that made it easier for tenants to prove overcharge cases by consulting older rent histories and required landlords to dig up ages-old records to show that their buildings were deregulated legally, through substantial rehabilitation. Gov. Kathy Hochul subsequently vetoed the first measure and amended the latter to take out the provisions most feared by landlords.
Proponents argue the bill would save co-op owners from massive ground-lease rent hikes, preserving a rare affordable option for homeownership as the city grapples with extremely low vacancy rates. REBNY says the measure provides a windfall for wealthy co-op shareholders who were able to buy into their buildings at a steep discount precisely because of a looming increase in the ground rent.
“It is just mindboggling to me, why so much effort would be put into this,” Laremont said. “The population that is being protected here is not really the population that needs protection.”
A group backing the co-op bill, the Ground Lease Co-op Coalition, called the amended measure “a critical lifeline in the midst of our city’s ongoing housing crisis.” The coalition pushes back on the narrative that the measure would only benefit Billionaires’ Row, arguing that more than half of the ground lease co-op units are located in the outer boroughs.
One co-op group is especially fighting for these changes. The board at Carnegie House, as well as an entity that owns the retail co-op in the building, have spent thousands of dollars lobbying in support of the measure.
The Ground Lease Co-op Coalition includes board members from the co-op at Carnegie House, which is fighting landowners Ruby Schron and David Werner over rent increases at the co-op. The ground lease expired in March, and residents fear a multimillion-dollar increase in annual rent.
The board filed a lawsuit to halt rent negotiations, arguing that the state must first sort out the co-op’s rights if it becomes rent stabilized, but a judge dismissed the case in March.
The legislation offers another lifeline.
“For too long, residents in our buildings have fought back displacement without adequate tenant protections,” Richard Hirsch, president of the Carnegie House Board, said in a statement.
The measure also grants co-ops the right of first refusal if an owner decides to sell the land under the building. Owners have argued that such requirements slow down the selling process and scare away would-be buyers. The bill also makes it easier for co-ops to borrow money.
The legislature is considering a separate measure that would freeze ground rent obligations for some homeowners of Battery Park City. The arrangement there is different from the private contracts that would be affected by the other bill: A state public benefit corporation has a master lease with the city and buildings in the area in turn lease from the state entity.
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