If you find a large apartment—the result of combining two rent-stabilized apartments—you may notice the rent for the combination apartment is proportionally higher than other units in the building.
That's because the landlord has set a "first rent," which refers to the amount a landlord can charge for a newly combined apartment that has never been on the market before.
Combining or changing the configuration of units is a way for landlords with rent-stabilized apartments to increase the rent they can generate from a building—it's one of the few routes that remain thanks to changes in the housing laws.
After the Housing Stability and Tenant Protection Act of 2019, it became more difficult for landlords to cycle affordable apartments out of the program. Now there are fewer incentives for landlords to offer tenants a buyout in order to turn a rent-stabilized apartment into a market-rate apartment.
But creating a combination apartment is one way to hike the rent and so a landlord may offer a buyout if they can combine your place with another one. This would allow a landlord to charge a new, higher rent, a first rent. There is no cap on what that new rent is, so the apartment can be rented out at whatever rate the landlord chooses. That rent becomes the legal rent.
The apartment would still be subject to rent regulation, says James Marino, partner at Kucker Marino Winiarsky & Bittens.
"Because the unit is located within a building that is subject to rent stabilization and because high-rent deregulation was eliminated in 2019, even if the landlord charged a very high rent for the resulting apartment—which they are allowed to do under the policy—it would not serve to deregulate the unit," he says.
That means any renewal could only raise the rent in line with annual increases set by the Rent Guidelines Board. As a tenant you will have all the protections offered to tenants in rent-stabilized apartments, including automatic lease renewals.
The same first rent situation would apply if a landlord split a larger apartment into two or combined a large amount of common space like a hallway into an apartment—a landlord can establish first rents for these apartments when the layout is substantially changed.
When the law changed in 2019, there was a lot of talk of landlords warehousing apartments in order to combine neighboring units and increase rents but Marino doesn't think the strategy was nearly as prevalent as many feared. "Every building is different but when it came to marketing the apartment, it may have been felt it wasn’t worth it," he says.
Even so, there's still interest from housing advocates in eliminating this loophole and trying to keep first rents below the market rate. It is currently the subject of proposed legislation. Marino says he's not expecting changes to happen very soon.
"I think there's a lot of competing ideas about how to change the formula, which I think is why we haven't seen any of the ideas advance," he says.
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