Since the passage of the Statewide Housing Security and Tenant Protection Act of 2019 (the “2019 Act” or “Act”) [see https://bit.ly/2xA6lth] on June 14, 2019, the Hudson Gateway Association of Realtors, Inc. has been receiving many inquiries regarding the act. Among some of the commonly asked questions relate to: (1) whether the 2019 Act applies only to rent-regulated apartments or all apartments (i.e., one-to-four family residential properties); (2) whether a tenant can be required to reimburse a landlord for the rental fee; (3) whether a landlord is able to request from a tenant advance payments of rent (e.g., last month’s rent); (4) whether additional pet security deposits can be collected by a landlord and (5) the requirements for the return of security deposit.
The 2019 Act is causing widespread confusion amongst real estate professionals. Landlords and property management companies are not happy, to say the least, about the extensive changes introduced by the act to both rent-regulated and free market rental units. On July 15th, several landlords filed a lawsuit [see https://bit.ly/2KsEQZK] claiming that they have been “…deprived of their property without due process of law in violation of the Due Process Clause of the Fourteenth Amendment of the Constitution” and have further been “…deprived of their right to possess, use and dispose of their real property without just compensation in violation of the Takings Clause of the Constitution.” The 2019 Act will likely have negative impacts on property values and the rental and sale market as a whole.
Some of the New Rental Law Provisions Impact All Property Types
As pointed out in the July article in Real Estate In-Depth [see https://bit.ly/2ZWhb9w], the 2019 Act makes significant changes with respect to rental laws relating to non-rent regulated properties. The act also makes significant changes to various sections of the Real Property Law, the Real Property Actions and Proceedings Law and the General Obligations Law, many of which affect lease transactions involving non-rent regulated one-to-four family residences, as well as multi-family dwellings.
The Definition of ‘Rent’ and Landlord’s Ability (or Inability) to Charge
Newly added Section 702 of the RPAPL defines “rent” in a residential dwelling as “…the monthly or weekly amount charged in consideration for the use and occupation of a dwelling pursuant to a written or oral rental agreement.” Section 702 further provides that “[n]o fees, charges or penalties other than rent may be sought in a summary proceeding pursuant to this article, notwithstanding any language to the contrary in any lease or rental agreement.”
However, in some limited instances, the act does allow a landlord to collect “…utility charges payable directly to the landlord under the terms of the lease or tenancy…” as an additional rent item.
In light of the above, whether a landlord may collect from a tenant the rental payments in advance (e.g., last months’ rent), which is common (especially in circumstances where a landlord would take into consideration credit risk), or whether a landlord is permitted to request an additional fee or deposit in connection with having a pet in the premises, are areas of concern.
Can a Tenant be Required to Pay Rental Fee?
It is clear from the act that the landlord is restricted from charging and collecting application fees or other similar fees under a lease in addition to rent. However, the act does not specifically restrict a tenant from being required to pay a rental fee or commission to the real estate agent in connection with a lease transaction. If there exists a listing agreement, commission agreement or other arrangement, which requires a tenant to pay a rental fee or commission, then it seems it would be permissible. It is recommended that the tenant pay the rental fee directly to the real estate broker rather than as a reimbursement to the landlord.
Advance Rent and Security Deposits of More Than One Month Are Prohibited
Section 7-107 of the New York General Obligations Law specifically prohibits a landlord from collecting a “deposit or advance” equal to more than one month’s rent. The 2019 Act makes this restriction applicable to all rentals, whether rent regulated or not, including one-to-four family dwellings. Therefore, all landlords should be aware that collecting more than one month’s security deposit or requiring that a tenant pay any advance rent for a future month (e.g., last month’s rent) is strictly prohibited.
Return of the Security Deposit at the End of Lease Term
The 2019 Act requires that the landlord return the security deposit to the tenant within 14 days after a lease terminates or after the tenant vacates an apartment, whichever is later. However, if a landlord wishes to retain any portion of the security deposit, the landlord is required to provide the tenant with a detailed written statement of the cost of repairs and expenses due to tenant’s occupancy. The statement must be provided to the tenant before expiration of the 14-day period. This process should be clearly spelled out in any lease agreement so that the parties are aware of these requirements. Newly added Subdivision 1-a of Section 7-108 of the GOL provides as follows:
“The entire amount of the deposit or advance shall be refundable to the tenant upon the tenant’s vacating of the premises except for an amount lawfully retained for the reasonable and itemized costs due to non-payment of rent, damage caused by the tenant beyond normal wear and tear, non-payment of utility charges payable directly to the landlord under the terms of the lease or tenancy and moving and storage of the tenant’s belongings. The landlord may not retain any amount of the deposit for costs relating to ordinary wear and tear of occupancy or damage caused by a prior tenant.”
While the act does not specifically provide for how the itemized statement should be provided to the tenant, it is recommended that the lease clearly spell out this procedure as well. The act indicates that written notice is sufficient, but the lease should specifically provide that e-mail, facsimile, or overnight delivery (e.g., Express Mail, UPS or FedEx) are all acceptable methods of delivery of any such statement. It is recommended that the lease provide specifically that e-mail notice is acceptable, in case a forwarding address is not available, and it should explicitly contain both the tenant’s and landlord’s e-mail addresses. If the landlord fails to deliver the statement to the tenant in a timely manner, the landlord can be assessed with punitive damages equal to twice the amount of the security deposit, and further, the landlord will forfeit the right to retain any portion of the security deposit in any eviction proceeding.
The Pet Deposit
Another common question relates to whether a landlord is able to collect an additional “pet security deposit” for damage a pet causes or for cleaning an apartment at the end of the lease term due to the pet. The costs incurred by a landlord resulting from allowing a pet can be extensive. As indicated above, the landlord is strictly prohibited from collecting more than one month’s security or other additional rent under the lease. As a result, landlords will likely prohibit pets altogether, except for service or emotional support pets, as required by law.
The act, however, does not mention or specifically restrict a landlord’s right to enter into a separate and distinct agreement relating to the pet and charge a separate monthly fee to allow a pet to occupy the premises. As part of that agreement, the landlord can require that a specified amount or deposit be held in connection with any damage or costs arising from the pet occupying the premises. Landlords should explore this alternative with their legal counsel, as this would not be part of the tenant’s lease agreement. The landlord may be able to bring a separate action against a tenant in small claims court to recover any costs or damages related to the pet occupancy agreement. Another possible alternative is for landlords to simply charge a higher monthly rent to allow a pet to occupy the premises, subject, of course, to all legal restrictions relating to service or emotional support pets.
Inspection of the Premises at Lease Commencement and Lease Termination
The 2019 Act requires that a landlord offer a tenant the opportunity to inspect the premises prior to the commencement of the tenancy and conduct a walkthrough inspection of the premises at the end of the lease term at the time the premises are vacated. As amended, Section 7-108 of the General Obligations Law provides as follows: “[a]fter initial lease signing but before the tenant begins occupancy, the landlord shall offer the tenant the opportunity to inspect the premises with the landlord or the landlord’s agent to determine the condition of the property.”
Real estate licensees, landlords, property management companies and attorneys need to ensure that a tenant is provided with advance notice that he or she has the right to inspect the premises.
It is recommended that specific inspection provisions and reference to the relevant provision of the act be included in lease agreements. Landlords may also want to consider having a separate formal “disclosure” form prepared by their legal counsel, which specifically informs the tenant of this inspection right. Any such form and/or lease agreement should also include detailed waiver language whereby a tenant is able to acknowledge, in writing, that he or she elects not to have an apartment inspected prior to the commencement of any tenancy and, further, waives any right to claim that there existed any issues at the commencement of a lease.
If the tenant elects to have the premises inspected, then a detailed form acknowledging the condition of the premises, and itemizing, as clearly and fully as possible, all of the issues that may exist, must be prepared. A landlord is strongly urged to take photos of the premises and incorporate them as a separate exhibit or schedule in any acknowledgement signed by the parties. If the landlord fails to provide the tenant with this inspection opportunity, it can be used as a defense by the tenant in any eviction proceeding. This acknowledgment will provide specific evidence as to the condition of the premises so that if there is any issue at the time the tenant vacates the apartment, it can be used as evidence in a later dispute.
The Need for Guidance from NYS and NYC
Generally, when legislation of this magnitude is enacted, a “Frequently Asked Questions” section is prepared and made available in advance and provided to offer interpretive direction to the general public. While New York State did issue a news release on June 14th [seehttps://bit.ly/2KiY2KD], providing a bullet point list of the major changes introduced by the act, there has been no additional guidance provided as of yet. In New York City, the Rent Guidelines Board website provides that it is in the process of being updated and that the public should contact the Home and Community Renewal Agency, the agency in charge of enforcing the rental laws, directly with any inquiries, and provides a link [see https://hcr.ny.gov/office-rent-administration-ora]. The areas covered in this article are only a few and it is recommended that landlords and other real estate professionals seek the advice of legal counsel for guidance