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High-Income Deregulation Applications and the Impact of the Housing Stability and Tenant Protection Act of 2019

By Niles Welikson, Esq. of Horing, Welikson, Rosen & Digrugilliers

By now, owners are no doubt aware that among the numerous detrimental aspects of the newly enacted Housing Stability and Tenant Protection Act of 2019 (HSTPA) is the elimination of luxury deregulation. The Act repealed both high-rent vacancy decontrol and high-income, high-rent decontrol effective as of the date of its enactment, June 14, 2019. While it is anyone’s guess why the Legislature and Governor thought it prudent to allow wealthy individuals to take advantage of the type of public welfare benefit provided by rent regulation and thus keep apartments off the market for those who may actually need this type of assistance, questions remain as to the impact of the repeal on matters still pending before DHCR and even on deregulation orders that have already issued. 

The procedures for high-income deregulation were set forth in now repealed Rent Stabilization Law, §26-504.3 (provisions of the Emergency Tenant Protection Act applicable outside the City were also repealed). These procedures prescribed the time periods: (1) for when an owner was permitted to send the tenant an income certification form (on or before May 1st of each year) and when the tenant was required to respond; (2) for filing the certification with DHCR and for DHCR to issue the deregulation order; (3) for the owner to petition DHCR if the tenant failed to return the certification timely.

These procedures also set forth the time periods for Department of Finance and Taxation to determine and notify the parties whether the income exceeded the threshold, along with a comment period. Ultimately, after the expiration of the comment period, the law also required that DHCR, where appropriate, was required to issue an order deregulating the unit as of March 1 of the year after the filing of the owner’s petition with DHCR.

All of the above time periods are important since many owners’ petitions that should have been the subject of DHCR orders either granting or denying deregulation have, instead, languished with the agency well in excess of the statutorily prescribed time periods and thus should have been determined prior to the repeal of deregulation. This raises the question of how DHCR should process petitions that were timely filed prior to the June 14th repeal of high-income deregulation and what action owners should take if the agency denies deregulation based on the repeal.

An indication of what is to come is illustrated by DHCR’s recently issued document entitled “Explanatory Addenda to Order” that supplements previously issued orders of deregulation. One that our firm just received pertains to a deregulation order issued in April, 2019, which is beyond the date the tenant could challenge it by filing a PAR. The pertinent language of the “Addenda” is the following: “If the lease in effect on the day the Rent Administrator’s deregulation order was issued expired before June 14, 2019 the housing accommodation is deregulated. If the rent stabilized lease in effect on the day the Rent Administrator’s deregulation order was issued expires on or after June 14, 2019, the housing accommodation remains regulated to (sic) the Rent Stabilization Law or ETPA and pursuant to HSTPA is not deregulated.”
As of the date this article was written, it is unknown whether DHCR will allow deregulation of apartments for which it has yet to issue an order. However, if such orders are issued, they will undoubtedly be accompanied by language similar to that in the Addenda and, thus, in many instances will not accomplish deregulation.

Owners who are denied deregulation as a consequence of the Addenda or by orders that are based on the repeal of the prior law should consider filing a PAR and, if that is denied, proceeding to court by commencing an Article 78 proceeding.

There are numerous arguments that can be made on a PAR, some of which are fact-specific. The following are issues that should be considered in challenging DHCR’s actions:

1. What right does DHCR have to issue the Addenda in the first place? Rent Stabilization Code, §2527.8, entitled “Modification or revocation of orders” allows DHCR to modify orders on its own initiative where it “finds that such order was the result of illegality, irregularity in vital matters or fraud.” The Addenda does not comport with these criteria, and for this reason alone, it is objectionable.
2. Whether DHCR failed to comply with the above-mentioned time constraints pertaining to processing the owners petition and/or issuing the order of deregulation. In many instances, but for the agency’s failure to timely issue an order, the apartment would have been deregulated. That failure should not inure to the tenant’s benefit so as to invalidate the owner’s rights. Moreover, where an administrative agency deliberately or negligently delays processing of an application the courts have held there is a right to have it determined under the earlier law.
3. The United States Supreme Court has held there is a presumption against statutory retroactivity, which is founded upon elementary considerations of fairness dictating that individuals should have an opportunity to know what the law is and to conform their conduct accordingly. The question of whether a new statute would have a retroactive effect requires the court to consider whether it would impair rights a party possessed.

Undoubtedly, there are many instances in the past where DHCR erroneously dismissed owners’ petitions pertaining to deregulation and, as a consequence of a PAR or Article 78 proceeding, the matter was eventually remanded to the Rent Administrator for a new determination. Delays caused by DHCR’s errors should not be allowed to vitiate owners’ rights to high-income deregulation; nor should administrative delay or DHCR’s failure to comply with statutorily mandated time limits as to the issuance of orders. Therefore, owners are strongly encouraged to consult with their attorney in the event they receive an unfavorable ruling on deregulation that is based on the new laws. 

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