Landlords sound alarm on commercial rent regulation bill | The Real Deal

Council member Stephen Levin (iStock, New York City Council)

Landlords are once again gearing up for a fight over whether the city should regulate retail and office rents.

The City Council’s Committee on Small Business plans a hearing Friday on a bill to create a rent guidelines board that would limit rent increases on small commercial spaces. The board would have jurisdiction over small retail and office spaces — up to 10,000 square feet — as well as manufacturing establishments up to 25,000 square feet.

As with the residential Rent Guidelines Board, the mayor would appoint the nine members, who would be a mix of landlord, tenant and public representatives.

Since introducing the bill in 2019, Council member Stephen Levin has secured more than 20 co-sponsors, according to his office. He said that the measure is aimed at creating stability for businesses in rapidly gentrifying neighborhoods.

“it is not intervening in an existing lease. But what it does is take away the incentive for landlords to rent to multinational chains that have deep pockets,” Levin said. “It takes away their incentive to hold space open, to wait for a chain store.”

The Real Estate Board of New York argues that the opposite is true. REBNY says in order to avoid rent regulation, landlords would hold out for tenants who can lease more space all at once.

The trade group also says co-op buildings with ground-floor retail would be harmed as they would not be able to control those rents, which can help stave off increases in owners’ maintenance fees.

Real estate professionals say Levin’s law would hit at a most inopportune time, as the pandemic has driven down rents and devastated many property owners.

“Here, in 2021, in the wake of Covid, in the wake of shutdowns, in the wake of every expanding reach of online retail, which is ravaging so many brick-and-mortar retailers, the rationale for enacting commercial rent regulation now is completely backwards.” said Alexander Lycoyannis, a real estate attorney with Rosenberg & Estis.

Others have said free-market commercial leasing keeps commercial strips from becoming dated by keeping aging businesses in place, denying space to new, more dynamic ones. In the office sector, competition and the prospect of higher rents inspires some landlords to modernize their spaces — an incentive that would be reduced by government rent control.

The city had commercial rent control from 1945 to 1963, enacted through state laws in response to “complaints about excessive rents and evictions from New York City commercial tenants” post-World War II, according to a 1983 article that appeared in Washington University’s “Urban Annual Law.” During that time, commercial rent increases were only permitted through a written agreement between the landlord and tenant, arbitration or court order.

The new bill faces political obstacles — efforts to pass commercial rent control in New York City have failed for decades — as well as constitutional ones.

Steve Kirkpatrick, a partner at Romer Debbas who represents property owners and commercial tenants, believes the city lacks the authority to regulate commercial rents, given that the state had previously overseen a form of commercial rent control in the city.

Various forms of rent control have been proposed and debated over the past 30 years. During his State of the City address in February 2020, Mayor Bill de Blasio announced the formation of a commission to study the legality of enacting some form of commercial rent control, but the effort was halted when the pandemic hit.

But some real estate interests fear there may be enough political will this time to get commercial rent regulation over the finish line.

“This has been going on for literally decades. Who knows where it will go, but the timing is really unfortunate,” Kirkpatrick said. “Owners are hurting.”

But Paula Segal, a senior staff attorney with TakeRoot Justice, noted that some landlords have tried to include steep rent increases, two or three years into a lease, in order to make up for losses during the pandemic.

“We have an opportunity for a reset in the pandemic,” she said.

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