Editor’s Note: This article has been updated to reflect a Correction.
The last 15 years have seen a marked decline in the number of holdover and non-payment proceedings filed in New York City Housing Court, especially in Manhattan, pushing many landlord-tenant attorneys to alter their practices to include new matters, like condo purchases and co-op conversions.
Filings for the city as a whole dropped 18 percent from 1994 to last year—to 274,931 from 337,230. The trend was most pronounced in Manhattan, where there were only 60,808 filings, representing a 38 percent decline from 94,213 in 1994.
The data does not distinguish between non-payment and holdover proceedings, but the vast majority of the new cases were holdover proceedings, according to Arlene Hackel, a spokeswoman for the Office of Court Administration.
“I can say that we actually don’t see as many rent-stabilized non-payments as we used to,” said Fern Fisher, deputy chief administrative judge for New York City courts, although she added that the court remains busy with non-payment proceedings.
Some real estate attorneys say that the institution of luxury decontrol by the state Legislature in 1994 had a major effect on the court—and their own practices.
Luxury decontrol allows a rent-stabilized apartment to become deregulated if its rent exceeds a certain threshold, currently $2,500—and if its tenant’s income exceeds another threshold, currently $200,000. It also allows an apartment to become deregulated if only the rent threshold is exceeded when it becomes vacant, and provides that apartments subject to the older, more stringent scheme of rent control become rent stabilized upon vacancy.
The effect of the luxury decontrol law has been a steady stream of apartments leaving rent stabilization, especially in Manhattan, the center of the city’s real estate boom. According to data collected by the city’s Rent Guidelines Board, more than 190,000 apartments, or about 15 percent of the total, left rent stabilization between 1994 and 2009, with the biggest drop being in Manhattan.
At the same time, some apartments have entered stabilization, as through the J-51 tax abatement program. However, because these units are generally not subject to luxury or vacancy deregulation, they don’t create the same incentive for landlords to evict tenants.
“We used to have a city of millions of rent regulated tenants,” said real estate attorney Adam Leitman Bailey. “What’s now happening is we’re turning into a very wealthy city. Rent regulation is dying.”
The law previously created an incentive for landlords to evict tenants by filing holdover proceedings in Housing Court, since once an apartment was vacant it could, in many cases, become deregulated. Partly for that reason, holdover proceedings have been bread and butter for real estate attorneys.
However, as the number of regulated apartments has steadily dropped, the incentive for landlords to file holdover proceedings has dropped as well, since more and more of their apartments are already deregulated.
The trend is only likely to continue, according to Bailey, since stabilized rents in most of Manhattan remain well below market rents.
“In Queens, they don’t care that they’re rent regulated because they’re close to the market rate anyway,” Bailey said.
“When a landlord is able to get a vacancy of a rent-stabilized apartment in Manhattan, if it’s in the right neighborhood, which most neighborhoods are these days…a lot of apartments are going to become market rents,” said William Gribben of Himmelstein, McConnell, Gribben, Donoghue & Joseph.
“Once luxury deregulation went into effect, it became a matter of time” before rent regulation is completely phased out, Gribben said.
Another reason for the drop in court filings, especially in the last five years, may be the weakening economy.
Lucas Ferrara of Newman Ferrara said that, while he sees a downward trend in filings, he doesn’t attribute it to a decline in rent-regulated apartments but rather to the weak economy.
“It’s no secret that there are considerable costs associated with any litigation, and holdover proceedings are no exception to that rule,” Ferrara said in an email. “And with legal fees broaching or exceeding six-figures, particularly in hotly contested cases, why would any rational landlord incur that kind of expense, unless they had no choice or there was a considerable upside?”
Fisher also said she believed the general economic slowdown, rather than just luxury deregulation, contributed to the decline in filings.
“There’s no one driving force. Everything contributes to housing in New York City,” she said.
Warren Estis of Rosenberg & Estis said that while the downward trend is noticeable, it is impossible to pinpoint a single cause.
“Quite frankly, there are some days where I come back to the office and I say, ‘Wow, there were only 18 or 20 cases in [court] part whatever,’ but there are lot of reasons for that,” he said.
Catherine Grad of Grad & Weinraub, who represents tenants, noted another change: “One of the things that’s different now for me than it was 10, 15 years ago is that every case is litigated. Almost nothing is settled.”
In the past, she said, landlords would often settle holdover disputes by agreeing to a new lease with the tenant. Now, the incentive to vacate an apartment in order to deregulate it is so strong that landlords will spare no expense in litigating, Grad said.
The drop in proceedings means many attorneys are finding they must diversify their practices.
One such area, according to Estis, is routine landlord-tenant disputes over issues like building maintenance, which apply to market tenants as well as to regulated tenants.
“Market tenants do have issues with their landlords,” Estis said. “They do have repair issues and others that come up with their landlords.”
In part, Estis said, real estate law will shift toward transactions and co-op conversions. His own firm has hired new attorneys to handle mostly transactional work, he said.
Still, Estis said that while he had noticed the drop in litigation over rent-stabilized leases, he does not think it will mean the end of traditional landlord-tenant practice.
Gribben said there will likely be a shift toward transactional and other kinds of work.
“Representing people who ended up either buying their apartments when they were rent regulated in their buildings or moving into a condo or co-op” have been a source of new business, he said. “I call them second-generation rent stabilized.”
Gribben said he believes the continuing phase-out of rent regulation will only boost that kind of business.
“If people end up being deregulated because they’re in a rent-stabilized apartment and they’re above income, and they’re facing market rents, or people are newly entering the market and they want a decent sized apartment in Manhattan, and then they look at co-op prices, they look at the tax advantages of owning… You put all that together and a lot more people are purchasing co-ops,” Gribben said.
Co-op conversions were on the rise immediately before the recession, and may become a source of more business as the economy picks up, Gribben said.
“At a certain income level in Manhattan, financially and to a certain extent emotionally, the balance is kind of tipping toward ownership,” he added.
However, not all real estate attorneys have shifted their business. Grad said her firm still represents primarily rent-regulated tenants, and has not noticed a drop in activity.
“We’re overwhelmed with work,” she said. “Judges are still overwhelmed.”
At the same time, Grad acknowledged that Housing Court seems less busy than in the past.
“The only thing I can say is that—and it never really even occurred to me why, because as a practitioner, you don’t really see it—it takes less time to get a trial these days,” she said.
Gribben said that even if rent-regulation litigation continues to decline, real estate lawyers will adapt.
“There’ll be the next thing on the horizon that will be the big generator of work for practitioners,” he said. “It always kind of happens. I don’t see any reason why it won’t continue.”
@|Brendan Pierson can be contacted at email@example.com.