Philadelphia Skyline

Just Under the Wire – The Last Tenant Buyout Before the Statewide Tenant Protection Act of 2019

June 16, 2019

Last fall, I began representing a Rent Stabilized tenant.[FN1]  Landlord was a new owner of the building and had offered tenant a $125k buyout. Tenant wanted to leave the apartment but was not sure she was getting a good deal. Thus, I was hired by tenant to do a Tenant Buyout Analysis

I did the analysis and found that the building had been illegally deregulated during a J-51 tax abatement, then re-regulated. I did not agree that the rent was correctly set when the building was re-regulated, thus, I believed that landlord actually owed tenant a rent overcharge. Using this as leverage, I wrote a letter to landlord, asking for more money. The offer quickly increased by $50k; landlord was now offering tenant $175k.

This is where I often get into trouble on this work. Tenant was so impressed and delighted that I was able to get landlord to increase the offer by 40% with a letter, that surely, she insisted, another letter would get her even more. As anyone who does this work regularly will tell you, it almost never works that way. Nevertheless, I eventually sent landlord a heartfelt and well-reasoned email, and after several months, got my tenant-client another $25k – for a total of $200k. This was now unsatisfactory to my client, and both parties stepped back and ceased negotiations for a handful of months. 

The winter turned into spring, and we all knew the rent laws were going to change in Albany. Although no one knew how they would change. This put pressure on landlords and tenants everywhere to resolve their buyout negotiations. This particular landlord informed us that the deal would have to be done by June 14, 2019, the day before the rent laws were set to expire. One of my colleagues here at the firm, Isaac Tilton, and I told our client that it was time to decide, and that the deal may not be there on June 15 or ever again, depending on what the legislature did. Because this buyout was, ostensibly, worth a premium to the landlord because it might be one of the last it would ever do, my colleague Isaac Tilton successfully negotiated for another $10k for our tenant-client. Thus, the deal was struck. Therefore, we were suddenly faced with getting the final paperwork done and signed and the tenant moved out, before the governor signed the law in three days’ time.  

The very next day, the State Legislature passed the Statewide Tenant Protection Act of 2019 (“STPA”), which took away the incentive for a landlord of a Rent Stabilized unit to seek a vacancy. There is no longer a rent-increase pathway to deregulation. Moreover, the legislature severely limited a Rent Stabilized landlord’s ability to increase the rent as a result of a vacancy. Read my blog post on the new laws here

It was a frenetic three days. Both parties knew there was no wiggle room – the deal had to get done. We conducted the surrender ceremony literally within hours of the governor signing the law. The tenant was happy, she had plans to move out anyway. 

What’s the lesson? The lesson is, as I have written in these pages before, when you think the law is in flux, it is seldom my advice that either side should wait around, counting on being the beneficiary of the change. In this case, had we not completed the deal before June 14, 2019, the tenant would have lost her buyout forever and the landlord may have lost a market-rate apartment. You simply never know what’s happening next, much less how such changes will play out. 

There is no doubt that the 2019 STPA will preserve Rent Stabilized housing by discouraging landlords from seeking tenant turnover. As I have opined elsewhere, the law did what it needed to do. An unintended loser under the new laws, however, are those individual tenants who were counting on selling their positions in their units someday. By far, such tenants are not the majority of tenants. But I mention them here, because many such tenant have been my clients over the years. For tenants who were intending on moving anyway (for a job in another city, to follow a spouse with a job in another city, to buy a home, or after retirement), tenant buyouts often represented once-in-a-lifetime opportunities. There are still some opportunities for tenant buyouts, but they will be far fewer than before the STPA. And that’s life in the big city. 

Respectfully submitted,

Michelle Itkowitz

[FN1] Some of the details have been changed to protect the innocent. 

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