Introduction
Rent regulation laws have long been a cornerstone of the New York City and New York State housing markets, enacted to combat excessive rent increases that risked pricing out low- and middle-income tenants. On June 14, 2019, the New York State Legislature enacted the Housing Stability and Tenant Protection Act (HSTPA), which brought sweeping changes to New York’s rental laws, including regulated and unregulated buildings. The HSTPA significantly expanded tenant protections across New York State, and specifically in New York City, which currently has one of the highest monthly rent medians in the country. The passage of the HSTPA was the realization of long-fought-for goals by New York’s Democratic lawmakers and tenants’ rights advocates, which were, among other things, to “provide permanent rent regulation protections to covered buildings” and “extend tenant protections statewide.”
The HSTPA faced fierce opposition from landlords prior to its passage and has continued to be the subject of litigation across New York since its enactment. Real estate groups and landlords argue that better tenant protections, such as those provided by the HSTPA, are an “existential threat” to landlords that “will lead to disinvestment in the city’s private sector rental stock” and to an “erosion in the quality of housing” throughout New York. While that has not happened in the years since the enactment of the HSTPA, litigation has not let up. These intense and coordinated attacks by landlords threaten to upend the hard-fought wins that the HSTPA has ushered in for tenants. Already, parts of the Act have been chipped away by legal challenges.
The most successful challenges to date against the HSTPA have involved claims against its retroactive application. In 2020, the New York Court of Appeals held in Regina Metropolitan Co. v. New York State Division of Housing and Community Renewal that Part F, which established a new formula for calculating damages that landlords owe for overcharging tenants in rent-regulated units, could not be applied retroactively to pending or past cases. In its decision, the Court of Appeals articulated a new and more restrictive test that the New York State Legislature must meet when seeking to apply laws retroactively. The court required that the Legislature expressly state the temporal effects of each part of a statute, and that if it intends a part to be applied retroactively it must state so within the text of the law. Additionally, the New York Legislature must provide a rational basis on par with the degree of retroactive effect and state that it considered the potential for the retroactive application of that part of the law to have harsh impacts or effect “settled expectations,” but that it chose to apply the law retroactively nonetheless. Cases citing the Regina standard seeking to overturn other parts of the HSTPA soon followed. One such case was Harris v. Israel, where the Appellate Division held that Part I, which limits an owner’s ability to retake units for personal use to no more than one unit, could not be applied retroactively under the standard set by Regina because the Legislature failed to indicate that it had “considered [the] harsh and destabilizing effect on [petitioner’s] settled expectations.”
Challenges under the same theory have ensued to limit other parts of the HSTPA. This Note focuses on potential and ongoing claims invoking Regina against the retroactive application of Part K, which governs Major Capital Improvements (MCIs). MCIs are building-wide enhancements or replacements that are considered “essential for the preservation, energy efficiency, functionality, or infrastructure of the entire building.” They are one of three ways in which landlords may increase regulated base rents during a lease term beyond what has been set by the Division of Housing and Community Renewal (DHCR) or Rent Guidelines Boards (RGB). MCIs were created to incentivize landlords to keep rent-regulated residential buildings in good repair by allowing them to not only pass off the cost of those improvements to tenants but also to make a profit by adding an additional fee to the capped rents. However, landlords have long abused these allowances by making unnecessary and expensive alterations that they can pass onto tenants, such as building luxury lobbies, and sometimes by making improvements that allowed buildings to be removed from regulation altogether. Even beneficial improvements have led to extreme rent increases that make apartments unaffordable. The new MCI regulations under the HSTPA seek to resolve many of these issues.
Under the old legal regime, MCI increases were permanent once added to rent, allowing landlords to not only recoup, but to profit significantly and indefinitely beyond the capped rent from low- and middle-income tenants. In enacting the HSTPA, the New York State Legislature moved to mitigate the cost of unexpected rent increases that MCIs can create by lowering the monthly increases, limiting what qualifies as an MCI, and ending the increase after thirty years. However, with MCI increases already attached to many New York apartments, the retroactive application of Part K of the HSTPA is the only way to ease the burden of previous MCI fees already placed on these units.
Landlords have recently sought to overturn Part K’s new tenant protections. While these arguments have not yet succeeded at invalidating Part K, the barrage of claims have yet to let up and have some merit. Regina itself claimed that many other parts of the HSTPA—Parts A through D and Parts G through O—would not fall to the same challenge as Part F because the plain text of the other parts of the statute was purely prospective and the temporal reach was clear. But the timing provisions of Part K are anything but clear.
Therefore, to overcome these very plausible challenges to the retrospective reach of the law, the Legislature must make their intent that the law be applied retroactively crystal clear. Currently, the plain text of Part K is ambiguous as to when its provisions are to apply to past, pending, or prospective MCIs, and fails to comport with the heightened Regina standard. If Part K is applied only prospectively, many buildings will remain subject to the old legal regime, allowing increases to remain permanent, and hindering the Legislature from correcting the problem of housing instability across New York. To clarify the timing provisions of Part K of the HSPTA, and to comport with the requirements of retroactive lawmaking laid out in Regina, the New York Legislature should clearly define the retroactive reach of Part K, state its rational basis for applying it retroactively, and explain that it has considered the degree of the impact of the retroactive law on “settled expectations.” These steps would allow tenants to receive the full benefits of the law.
Part I of this Note will provide a background on rent regulation in New York, with a focus on New York City, and discuss intensified tenant protections brought about by the passage of the HSTPA. It will then provide an explanation of MCIs under prior law, and changes to MCIs under the HSTPA. Part I will finish with a discussion of the United States Supreme Court standard for the retroactive application of law and the new standard that the New York Court of Appeals laid out in Regina. Part II will discuss the prospective and retroactive timing issues associated with the current MCI provisions of the HSTPA found in Part K and its vulnerability to litigation. It will analyze the intent of the New York Legislature and conclude that Part K must be applied retroactively to comply with the purpose of the law. Part III will propose that the New York Legislature amend the MCI provisions of the law to clarify that its temporal reach should be retroactive when applied to past and pending MCIs to ensure that MCI increases are eventually phased out of base rents. Part III will also suggest how this may be done in a manner that comports with Regina.