$2000: A Rent Odyssey

A Year After the Rent War, Prices Orbit out of Control

Karen stomps around her Upper East Side apartment sounding like a hawker for Home Depot. "Look at this," she says in her galley kitchen. "You got a new refrigerator, that's $269. You got a new sink in the bathroom, that's $69. A new shower door? Another $69, maybe a little more."

Surveying her cookie-cutter one-bedroom unit, Karen tallies up a hypothetical bill for the "improvements" her landlord made before she moved in this January. Even being generous—for instance, she prices out a fancy tile bathroom instead of the peel-and-stick linoleum that her landlord installed, and a builder's kitchen instead of the worn cabinets and used dishwasher he left her—she figures the bill would be $7500. "Tops. Total. That's it," says Karen, a former real estate broker who knows the cost of such things.

There's no way the bill could reach $40,000, Karen insists. But that's how much the landlord—one of Manhattan's biggest—would have to have spent to legally charge the rent he wanted: $2500 for an apartment where the last tenant had paid $800. As a favor to Karen—who herself was brought in by a broker—the landlord offered her a "deal" for $2200.

Since state lawmakers profoundly revamped the rent law one year ago this month, it has become almost irrelevant to landlords whether the first rent they get on a recently vacant apartment is $2500 or $2200. That's because the magic number is $2000—the level at which vacated apartments leave the rent-regulation system and enter the world of market-rate rents, where a landlord is free to charge as much as a tenant is willing to pay.

It's unclear just how many apartments have flown from rent regulation since the law was signed last June 20. The state Division of Housing and Community Renewal (DHCR) is still compiling data, and a study that might have measured the phenomenon, commissioned by the city's Rent Guidelines Board, was squashed last week by RGB chair Ed Hochman, who said the study is faulty and awaits revised data. But tenant advocates say it's not unusual for apartments to be deregulated because landlords have hiked rents above $2000—not always legally.

"It's a very, very common practice in Manhattan for anything bigger than a studio," says Michael McKee of New York State Tenants & Neighbors. "In effect, most of Manhattan is vacancy decontrolled."

Sam Himmelstein, a private attorney who represents tenants in disputes with their landlords, says, "The incentive to get rents over $2000 is palpable. I'm seeing a lot of apartments where the initial rent is over $2000 and renovations that were done are suspect."

Renovations are key because landlords are allowed to tack one-fortieth of the cost of renovations onto the rent bill of a new tenant. Regulated rents also rise annually through RGB-issued hikes. In addition, last year Albany granted landlords a 20 per cent hike on vacant, stabilized apartments. Landlords combine these factors and try to reach a $2000 rent.

In Karen's case, for example, the landlord could raise the rent 24 per cent, from $800 to $992, by combining the state and city vacancy hikes. To reach $2000, the landlord would have to spend just over $40,000 on renovations, charging one-fortieth of the cost—or about $1000—to the monthly rent.

"There's just no way he spent that," says Karen. "I mean, landlords are entitled to make money. They are not entitled to this kind of wholesale thievery and ripping people off."

Unless a tenant complains, no one keeps an eye on whether landlords' claims are legitimate, so units may be wrongly deregulated with no consequence to the owner. DHCR will investigate complaints, but it relies on tenants to initiate the process. To begin a challenge, a new tenant must inquire from DHCR how much rent the previous tenant paid and question exorbitantly different rates—especially in the absence of obvious major renovations.

"Anybody who thinks they have a problem should file a complaint with us," says Harry Ryttenberg, a spokesman for DHCR.

Just last December, Upper West Side tenant Sandra Prangley filed a DHCR complaint alleging that her landlord, Maurice Herman, was overcharging her at $2100 a month. DHCR records showed the last tenant had paid $1625. Herman claimed that the hike was justified in part because he had installed new windows. Prangley hired an architect who concluded the windows were not at all new—a fact so obvious, Prangley says, "a six-year-old could figure it out.

"If you just look at the windows, you can see that they're crumbling," says Prangley, who is being represented by Himmelstein and attorney Maddy Tarnofsky. "There's air-conditioner holes, and I don't have an air conditioner. There's at least four colors of paint. Why my landlord didn't claim something a little less obvious is beyond me."

Herman disputes Prangley's claim as "lunacy," saying her downstairs neighbor complained about noise from Prangley's apartment. "We don't want problem tenants, so we told her we're not going to renew her lease, and all of a sudden, surprise! She files the overcharge complaint. It's retaliatory in nature."

Prangley denies she makes excessive noise and notes that she filed her DHCR complaint several months before she got papers from Herman saying he would not renew her lease. On May 27, DHCR issued a preliminary order against Herman, and is proposing to roll back Prangley's rent to about $1900. Herman insists the windows were installed just prior to Prangley's tenancy. He plans to rebut DHCR's preliminary order.

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