Can I still get a buyout of my rent-stabilized apartment?
“New York’s rent laws got an overhaul in 2019 and there are now fewer incentives for landlords to pay tenants to leave their rent-stabilized apartments, but that’s not to say those opportunities don’t exist,” says New York City real estate attorney Steve Wagner, who has decades of experience negotiating buyout deals on behalf of renters.
When the law changed, tenants in rent-stabilized apartments got increased protections. It’s now much more difficult for a landlord to cycle a rent-stabilized unit out of the affordable housing program and turn it into a market rate apartment with a higher rent.
That means there are fewer buyouts, but there are situations in which landlords may be motivated to pay you a substantial sum for you to surrender your rent-stabilized lease, Wagner says.
“Your chances of getting a buyout will be higher if you are paying preferential rent, live in a building that’s already been converted into a co-op or condo, or if your building is in a prime spot for development,” Wagner says. He handles most buyout cases on a contingency-fee basis, only receiving payment if and when the buyout occurs. “Tenants in buildings where the landlord wants to do a substantial rehabilitation of the building might also secure a buyout,” Wagner says
Having an experienced buyout attorney will be important in identifying whether your apartment presents a buyout opportunity as well as in evaluating and negotiating the deal.
“It depends on the kind of property and whether the landlord will be able to raise the rent and make back their money after buying you out. It’s a unique combination of understanding the opportunities for landlords to deregulate or increase the rent and also familiarity with the laws and economics of zoning, development as well as knowing how condos, co-ops, and rental buildings operate,” Wagner says.
Here are the scenarios in which a landlord may want to buy out your rent-stabilized lease.
1. You’re paying a low preferential rent
If you signed a lease with a preferential rent—a rent that is lower than the maximum legal regulated rent for the units—a buyout may be a viable option. In the past a landlord could offer renters a low, preferential “teaser” rent to get them into the building and then substantially increase the rent (all the way up to the legal rent) at renewal time. That is no longer allowed and the preferential rent is in place for the entire tenancy subject to relatively small increases allowed by the Rent Guidelines Board.
If you vacate your apartment, however, your landlord will be able to raise the rent to the legal regulated rent for the next tenant and that’s why a landlord might be interested in buying out your lease.
“If there’s a substantial difference between the rent being paid and the legal regulated rent, that could form the basis of a significant buyout,” Wagner says.
2. You’re renting from the sponsor of a co-op or condo building
Landlords are looking for other ways to access the money tied up in their real estate now that stabilized apartments cannot be deregulated, Wagner says.
They can do that by offering a buyout of a non-purchasing, rent-stabilized tenant renting in a building that’s already been converted to a co-op or condo. In most cases, when the rent-stabilized tenant vacates the apartment, the owner of the apartment can sell it or re-rent it free of the rent-stabilized restrictions.
In this situation, a landlord can unlock the equity in the apartment, which is likely to be substantial. “That’s an opportunity for a tenant to negotiate a buyout,” Wagner says.
3. Your landlord wants to demolish your building
If you rent an apartment from the owner of a rental building that’s in a prime position to be part of an assemblage of properties for a brand new building, a developer might try to get the tenants to voluntarily surrender their apartments. That’s an opportunity for a buyout.
“In this situation, a sponsor would pay tenants to leave the building and then make a demolition application,” Wagner says. Often developers make the demolition application while the tenants are in place and if that’s the case, tenants can contest it.
“If the landlord wants to knock down the building, there is a big incentive to negotiate with the tenants and make sure they do not contest an application to deregulate the building," he says. These applications can take years to complete if contested. Approval from the Division of Housing and Community Renewal is required before the landlord may refuse to renew leases and evict the stabilized tenants.
In this scenario, tenants will vacate their apartments well before the time it may take to get the necessary demolition approval. “Time is money to developers,” Wagner says. Once a developer commits to redeveloping the property, he or she usually wants to move forward as quickly as possible. Wagner points out that’s where there’s the opportunity for a tenant to negotiate a buyout.
4. Your landlord wants to do a substantial rehabilitation
If your building is in need of major comprehensive upgrades, you may have an opportunity for a buyout. Substantial rehabilitation of a building that goes well beyond what’s called a Major Capital Improvement allows a landlord to remove an entire building from rent regulation.
For example, if the landlord wants to carry out a gut renovation where 75 percent of building-wide and individual housing accommodation systems are replaced, this may present a buyout opportunity.
”If you are one of the few remaining tenants there, the landlord could offer you a substantial buyout,” Wagner says.
5. Your apartment could be combined or reconfigured
The pandemic emptied out many apartment buildings as residents left the city. For some landlords this presents an opportunity to establish what’s called a “first rent” by substantially changing an apartment. “The term 'first rent' refers to the new rent agreed to by the parties,” Wagner says. He points out the apartment might not necessarily come out of rent stabilization but if the first rent is more lucrative for a landlord, there may be an opportunity for a buyout.
Perhaps your apartment is next to an empty unit or you live on the top floor and the landlord sees an opportunity to combine your place with another apartment or build upwards and create a duplex, Wagner says.
“To qualify for a first rent there has to be a very significant change to the apartment,” Wagner says. For example, an apartment where the square footage is substantially increased, the walls reconfigured and the perimeter is changed. “These are the types of situations where a buyout might be negotiated,” he says.
New York City real estate attorney Steven Wagner has more than 30 years of experience representing co-ops, and condos, as well as individual owners and shareholders. You can submit a question for this column or if you’d like to arrange a free 15-minute telephone consultation send Steve an email or call (646) 780-7272.