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The Renters: Situation Stabilizing

In deep distress over their suddenly rent-stabilized apartment-in-waiting, The Renters cried out for help. Stuck in traffic on the Long Island Expressway, Curbed readers answered the call:

My guess from the information provided is that the building is indeed stabilized;that their rent can go up $700 per month next year, and that the "Renters" should stop all their bitching already.

First, rent stabilization: new buildings in NYC that receive a real estate tax abatement (421-a) are subject to stabilization during the period of the abatement.

Second, legal rent: Because of rent stabilization vacancy adjustments, its very common for the legal rent on fairly new buildings to increase much faster than market rents. So, the landlord gives you a "discount" off the legal rent by only charging what the market would support. However, since the landlord can legally charge the full legal rent, expect any renewal to match market prices at that time.

After the jump, further analysis of why the renters should "stop bitching" and a couple more takes on their lease UPDATE including an analysis from an actual Gotham Court tenant ("They're just hedging for the day when all the new luxury hotels are built and the Upper Siders invade the neighborhood").

Our first correspondent continues:

Finally, these guys have to stop all their bitching. First, its "Oh, feel sorry for us, its so hard to find a one bedroom in the $2,500 price range." Haven't they ever heard of Stuyvesant Town? No fee, plenty of choices, and free utilities to boot. Next, its 'On no, its stabilized! Wait, can our rent go up?' Hey, if it wasn't stabilized, then it could go up MORE than $700.

My advice? Go back to D.C. - if they can't handle the move, they aren't cut out for NYC!"

Ouch. Where's the love? Another reader writes
I live in Battery Park City, in a rent-stabilized building. We have a rent-stabilization rider in our lease, too. Our rent is discounted $500 from the actual legal amount they could charge. I think it's the post 9/11 rent subsidy, but don't quote me. Anyway, we're not concerned. They won't jack our rent up more than the market will bear. Then again, BPC ain't the LES...
And finally, some more talk of 421-a's to get you in the mood for the weekend.
The new building probably qualifies for a 421-a (or similar) tax abatement. Under a 421-a abatement, rents increases going forward are stabilized for the duration of the abatement. However, the stabilization is based upon the initial maximum allowable rent, which is calculated per a HPD instructions and becomes the legal registered rent.

Going forward, the legal registered rent is increased each year by the annual rent increase approved by the rent stabilization board. Often times the legal registered rent is in excess of what the market will bear, in which case the landlord will rent the apartment for less than the maximum amount. However, landlords include rent stabilization riders that specifically state what the legal registered rent is in order to protect their right to increase rent up to this amount should market conditions permit.

It would seem in the renters case that the maximum amount the landlord can charge is $3,319. They are offering to rent the apartment for $2,600, but maintaing their right to permitted rent increases off of the $3,319. It is possible that the rent the following year could go up by $700, or more depending on what rate increase the rent stabilization board sets next year.

This is normal in newly constructed buildings that are subject to rent stabilization as a result of participation in tax abatement programs.

And this just in:
I live in Gotham Court. My wife is a former real estate attorney, and she vetted the lease. The long and the short of it: to get the property built, the landlord had to agree to "rent stabilization." (The community board hates the gentrification of the neighborhood...) Under the most recent "rent stabilization" scheme, there is no cap to starting rent. But any raises are subject to the rent stabilization annual increase.

Long and the short of it: the landlord wants to be able to be able to charge the maximum possible in the future. Every time a lease is up, they will raise to the maximum. And now, the interesting part: they can't get people to pay the crazy rent stabilized price. So they demand that the lease be at the higher price, and then offer the kick-back of a reduction to the market price. They're just hedging for the day when all the new luxury hotels are built and the Upper Sides invade the neighborhood. Rent stabilization doesn't work, but once you cross the $2000/month barrier, it starts to get even sillier.

On another matter: the subway is 1 1/2 blocks from Gotham Court. (Essex/Delancey) Subway not nearby? These people are not well informed. 2nd Avenue is three blocks away. Big deal.

· The Renters: Is the Lease Kosher? [Curbed]