Zoe Alvarez
Rent stabilization laws were introduced in 1969 in New York City to regulate rent increases in response to a rapid increase in rents. These laws specify the fees a landlord can charge a tenant and limit the amount charged to maintain affordability. In New York, the landlord may increase the rent up to 7.5% every two years until the Maximum Base Rent is reached. In Los Angeles, the Los Angeles County Rent Stabilization and Tenant Protections Ordinance (RSTPO) limits annual rent increases based on changes in the Consumer Price Index (CPI). In Maryland, banking is capped at 10%. The cap expense limit for rent-stabilized buildings varies depending on the location of the building and the number of units in the building.
| Characteristics | Values |
|---|---|
| Location | New York City, Nassau, Rockland, Westchester counties, Maryland, Los Angeles County |
| Applicable buildings | Buildings of six or more units built before 1974 that are not subject to rent control |
| Rent increase cap | Up to 7.5% every two years until the Maximum Base Rent is reached |
| Maximum Base Rent calculation | Real estate taxes, water and sewer charges, operating and maintenance expenses, return on capital, vacancy and collection loss allowance |
| Rent increase for renovations | Up to $167 per month for a building with more than 35 units, or up to $179 per month for a property with 35 or fewer apartments |
| Rent Stabilization exemptions | Newly constructed units offered for rent for less than 23 years, units in licensed facilities for illness treatment, units in tax-exempt facilities for temporary shelter, buildings with only 2 dwelling units, one of which the owner occupies |
| Rent Stabilization protections | Tenants cannot be evicted without a valid reason, landlords must justify rent increases, tenants can challenge rent increases on grounds of building violations or excessive expenses |
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What You'll Learn
Rent increases for Individual Apartment Improvements (IAIs)
In New York, landlords of rent-stabilized apartments can increase rents when they make qualified Major Capital Improvements (MCI) or Individual Apartment Improvements (IAI). The landlord lobby argues that the IAI system encourages landlords to make modest physical improvements to vacant units before they are rented out again. However, critics say that the IAI system is open to rampant fraud and is fundamentally designed and legally used to drive speculation and displacement.
The IAI provision allows a landlord to raise the rent on a vacant, rent-regulated apartment by making physical improvements to the apartment. The owner can pass the cost of improvements to the next tenant by raising the monthly rent by an amount equal to 1/40th of the total cost of the improvements if the building has fewer than 35 units, or 1/60th of the total cost of improvements if the building has 35 units or more. For example, if a new tenant moves into an apartment in a 30-unit building where the legal rent is $1,000 a month, the landlord can increase the rent to $1,025 a month if they make $1,000 worth of improvements.
Physical improvements eligible under the rules can include new bathroom fixtures, new kitchen appliances, and new flooring. Costs associated with maintenance, such as plumbing, sanding floors, and painting are not considered improvements and cannot be counted towards an IAI increase. An IAI increase can be taken in addition to any other rent increase to which the landlord is statutorily entitled.
In most cases, a landlord could raise the rent up to $167 per month for a rent-stabilized apartment in a building with more than 35 units, or up to $179 per month at a property with 35 or fewer apartments. Previously, rent hikes were capped at $83 or $89 for $15,000 worth of improvements over 15 years, and those increases ended after 30 years. Apartments that have been vacant since 2022 or became vacant after a tenant of at least 25 years moved out could see higher rent increases.
Owners of rent-controlled and rent-stabilized apartments must notify DHCR of an IAI by filing a notification form and before-and-after photographs on the Owner’s Rent Regulation Application (ORRA) system. If the improvement is made in an occupied apartment, owners must also file a Tenant’s Informed Consent form.
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Maximum Base Rent (MBR)
In New York City, rent control operates under the Maximum Base Rent (MBR) system. A maximum base rent is established for each apartment and is updated every two years to reflect changes in operating costs. The MBR is calculated to ensure that the rent from rent-controlled units covers the cost of building maintenance and improvements. The formula reflects real estate taxes, water and sewer charges, operating and maintenance expenses, return on capital, and vacancy and collection loss allowance.
The MBR system was introduced in 1970 as a new method of rent control price calculation, adapting to the changing costs faced by landlords and allowing them to pass those costs on to renters. Under the MBR system, landlords may increase rents up to a specified limit every two years until the Maximum Base Rent is reached. This limit was 7.5% as of 2012. However, tenants can challenge these increases if they believe the building has violations or that the higher rent exceeds what is needed to cover expenses.
In addition to the MBR system, rent stabilization laws in New York also set maximum rates for annual rent increases. These laws specify the fees a landlord can charge a tenant and limit the amount charged to maintain affordability. Landlords can petition for a limited surcharge to pay for capital improvements or a higher increase if they are not receiving a fair return.
Rent stabilization laws also provide protections for tenants, such as regulating the services that landlords must provide. If a landlord fails to provide these services, the tenant may be entitled to a reduction in rent. The laws also outline the process for rent increases, requiring landlords to notify tenants of incoming rent adjustments and allowing tenants to file overcharge complaints if necessary.
The requirements for rent stabilization vary depending on the municipality and the specific regulations in place. In New York City, rent stabilization generally applies to buildings of six or more units built before 1974 that are not subject to rent control. It is important to refer to the specific laws and regulations in a given location to understand the precise requirements and protections provided by rent stabilization and the MBR system.
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Landlord expenses
Rent stabilization laws vary by location, but they generally aim to protect tenants from unreasonable rent increases and ensure landlords can cover their expenses and receive a fair return. Here are some details on landlord expenses in the context of rent-stabilized buildings:
Maximum Base Rent (MBR):
In New York City, rent-controlled units operate under the MBR system. The MBR is calculated to ensure rent covers building maintenance, improvements, real estate taxes, water and sewer charges, operating and maintenance expenses, return on capital, and vacancy and collection loss allowance. Landlords can increase rents up to 7.5% every two years until the MBR is reached. Tenants can challenge increases if the building has violations or if the landlord's expenses don't warrant them.
Individual Apartment Improvements (IAIs):
IAIs allow landlords to recover costs for renovating and upgrading individual apartments through permitted rent increases. In New York, the cap for IAIs was previously set at $15,000, but it has been raised to $30,000. This increase is permanent and applies to vacant apartments. The cap may increase to $50,000 under specific circumstances, such as after 25 years of prior occupancy.
Capital Improvements:
Landlords can petition for a limited surcharge to pay for capital improvements or apply for a substantial renovation exemption. They must provide documentation related to the improvements upon tenant request. If the capital improvement results in energy savings, those savings must be passed on to the tenants. Landlords may increase rents above the standard CPI-U + 3% or 6% if they can demonstrate that operating expenses require a higher rent to offset them.
Fair Return:
Landlords are protected by rent stabilization laws, which allow them to petition for rent increases if they are not receiving a fair return on their investment. In certain situations, landlords may increase rent beyond the allowable limit if they can demonstrate that their expenses are not adequately covered. However, these increases typically require prior approval from the local government or rent stabilization program.
Vacancy and Renewal:
Rent stabilization laws may impact lease renewals and vacancy rates. Landlords may seek to raise rents upon lease renewal to reflect completed significant repairs or improvements to the building. Additionally, rent-stabilized apartments that have been vacant for a certain period or became vacant after a long-term tenant moved out may be subject to higher rent increases.
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Capital improvements
In the context of rent-stabilized buildings, capital improvements refer to significant repairs or upgrades made to the property. These improvements are often necessary to maintain or increase the value of the building and can include renovations to individual apartments or the building as a whole.
In New York, for example, the Housing Stability and Tenant Protection Act of 2019 changed the amortization period for major capital improvements. This act made rent regulation permanent and provided protections for tenants in buildings that owners planned to convert into co-ops or condos. It also limited the use of "owner use" provisions and protected long-term tenants from eviction.
The state also raised the cap on rent increases for newly renovated rent-stabilized buildings, allowing landlords to increase rents in exchange for completing renovations. Previously, rent hikes were capped at $83 or $89 for $15,000 worth of improvements over 15 years. The new cap allows for increases of up to $167 or $179 per month, depending on the number of units in the building, for $30,000 worth of renovations over 15 years.
In Maryland, the rent stabilization law allows landlords to petition for a limited surcharge to pay for capital improvements. Landlords are required to provide documentation related to the capital improvements upon request by tenants. Additionally, if capital improvements result in energy savings, those savings must be passed on to the tenants.
In Los Angeles County, the Rent Stabilization and Tenant Protections Ordinance (RSTPO) limits annual rent increases for rent-stabilized units based on changes in the Consumer Price Index (CPI). While landlords can increase rents beyond the RSTPO limit if they can demonstrate they are not receiving a fair return, tenants can submit an Application for Adjustment to request a decrease in rent due to improper rent increases or habitability issues.
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Rent stabilization exemptions
Rent stabilization laws were enacted in 1969 in response to sharp increases in rent in many post-war buildings. These laws help to ensure that some units remain affordable. While rent stabilization laws vary by location, they generally apply to buildings with a certain number of units that were built before a certain year.
New York City:
In New York City, rent stabilization laws generally apply to buildings with six or more units built before 1974 that are not subject to rent control. The specific details of rent stabilization in NYC include:
- Every two years, landlords may increase the rent up to a certain percentage until the Maximum Base Rent (MBR) is reached. The MBR is calculated to cover building maintenance and improvement costs, including real estate taxes, water and sewer charges, and operating expenses.
- Tenants have the right to renew their leases and are protected from sharp rent increases.
- Landlords can petition for a limited surcharge to pay for capital improvements or for an increase greater than the standard annual increase if they are not receiving a fair return.
- Eviction protections are in place, and landlords must provide notice before choosing not to renew a lease for their own occupancy.
Los Angeles County:
The Los Angeles County Rent Stabilization and Tenant Protections Ordinance (RSTPO) limits annual rent increases for rent-stabilized units based on changes in the Consumer Price Index (CPI). It also protects tenants from eviction without a valid reason ("just cause") in unincorporated Los Angeles County.
Maryland:
In Maryland, a unit becomes eligible for rent stabilization on January 1st of the 23rd year after it was built. Exemptions to rent stabilization in Maryland include:
- Newly constructed units offered for rent for less than 23 years.
- Units in licensed facilities for the diagnosis, treatment, or mitigation of illnesses.
- Units in facilities owned or leased by organizations exempt from federal income taxes under specific sections of the Internal Revenue Code.
- Buildings originally designed to contain only two dwelling units, with one occupied by the owner as their primary residence.
These examples demonstrate the variability of rent stabilization exemptions across different locations. It is important for tenants and landlords to be aware of the specific laws and regulations that apply to their area.
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Frequently asked questions
The cap expense limit for rent-stabilized buildings in New York is $30,000 for up to 35 units and $179 per month for rent increases. The cap may go up to $50,000 under certain conditions, such as after 25 years of prior occupancy.
Yes, in certain situations, landlords may increase rent beyond the cap expense limit if they can demonstrate that they are not receiving a fair return on their property. They may also pass on costs related to property improvements, renovations, and certain expenses.
Tenants can submit an Application for Adjustment if they believe the rent increase is improper or if there are issues with the housing services or habitability. The department will review the application and make a decision.
