Buyout do happen but landlords now have fewer incentives to pay the big sums they did in previous years.

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Question:

I live in a rent-stabilized apartment in Bushwick and I am thinking of moving. How can I get the best buyout possible?

Answer:

“Unfortunately your chance of getting a significant buyout on your apartment is slim, but there may still be opportunities for you,” says Steven Wagner, a real estate attorney at the Manhattan law firm Wagner, Berkow & Brandt who represents co-op and condo owners and their boards and has decades of experience negotiating buyout deals on behalf of renters.

Wagner says your first step is to speak to a lawyer about your particular situation. However, he says, “the golden days of tenant buyouts ended with the adoption of greater protections for tenants against large rent increases and the elimination of the most common ways to deregulate rent-stabilized apartments.”

A change in the law

Since the adoption of the Housing Stability and Tenant Protection Act of 2019, landlords have not been able to increase the rent significantly when a stabilized apartment becomes vacant. Previously, a landlord could improve the apartment and raise the rent by a percentage of the cost of the improvements. The percentage was dependent on the size of the building.  

Landlords were also entitled to increase the rent by approximately 20 percent, which was a combination of a vacancy allowance and whatever annual rent increases were allowed by the Rent Guidelines Board. “It was well worth it for landlords to pay rent-stabilized tenants to leave their apartments because through these individual apartment improvements and other permitted increases, they could deregulate the apartment and get a fair market rent,” Wagner says. 

Deregulation could result in an increase of several thousand dollars per month for the landlord over the rent paid by the tenant in a stabilized apartment and would eliminate restrictions on rent increases in the future. 

However, the Housing Stability and Tenant Protection Act of 2019 severely limited rent increases for individual apartment improvement. In addition, Wagner says the deregulation of stabilized apartments is no longer available when the rent is increased above a certain amount. “Therefore, a landlord's incentive to pay a significant amount of money to a tenant to vacate a stabilized apartment is severely impaired by this law,” he says.

Buyout scenarios still exist

There are still some opportunities for buyout, Wagner says. If your apartment is in a building that was previously converted to a co-op or a condo, the landlord would likely be willing to offer a buyout. 

“This is because co-ops and condos are usually exempt from regulation once the non-purchasing tenant vacates,” Wagner says. The landlord could make money by selling the apartment after the tenant is gone.

Other opportunities for a buyout exist if, for example, the building is part of an assemblage for a new development and the building is going to be demolished. Another route is if your building is in need of major comprehensive upgrades. “This might mean the building qualifies for deregulation due to a substantial rehabilitation performed by the landlord,” Wagner says.  

Another possible opportunity for a buyout is if the landlord is able to combine your apartment with another in such a way that entitles the owner to establish a new “first rent."   

“First rent” refers to the very first rent the landlord can charge for a newly configured apartment that has never been on the market before. It will inevitably be higher than the rent charged for the original apartment. However, currently first rent is the subject of proposed legislation that would eliminate this loophole for landlords and further eliminate any incentive a landlord might otherwise have to buy out a tenant.  

There’s another scenario where you might get a buyout: If you’re a tenant in a building that is receiving tax benefits from the city, your landlord must provide you with a rider attached to the lease—and each subsequent renewal—telling you that when the tax benefits end, the apartment will no longer be stabilized. 

“If you don’t receive this rider each time the lease is renewed, your rights under the rent-stabilization law will not end,” Wagner says. 

He recently had a case where the tenant did not receive the rider each time the lease was renewed. Wagner successfully established the tenant’s stabilized rights and negotiated a buyout of $1.5 million. 

New York City real estate attorney Bonnie Reid Berkow is a founding partner of Wagner, Berkow & Brandt with more than 30 years of experience litigating in state and federal courts in New York state, including cases involving breach of contract, fraud and breach of fiduciary duty, in addition to real estate disputes and commercial actions. To submit a question for this column, click here. To ask about a legal consultation, send an email or call (646) 780-7272.

 

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