New York’s rental regulations have produced all kinds of weird ways of thinking about real estate. So while a recent court decision doesn’t necessarily improve the city’s housing market in any way, it at least makes a previously implicit result explicit.
The case, as reported by Bloomberg (1), concerned a New York woman who filed for bankruptcy in 2012. A federal judge determined that the value of the lease of her regulated rental apartment was part of the bankruptcy estate. and therefore the landlord could buy the lease from the trustee. The landlord had previously sought to buy from the tenant, who was not interested.
The tenant appealed to the Manhattan-based Court of Appeals for the Second Circuit. The federal appeals court, in turn, asked the New York Court of Appeals (the highest court in the state) to assess whether tenant privileges under the rental regulations are assets subject to bankruptcy proceedings.
The state court concluded last November that they are not and that a bankruptcy administrator cannot sell them. This decision was made in the Second Circuit ruling last week, which stated that “a below-market lease is exempt from creditor claims as a public benefit.” (1)
Think about it. Rent-regulated apartments in New York are owned by individuals, but the right to live in them is now considered a “public benefit” granted by the state, which has never bothered to actually pay for what it gives to. Some. of its luckiest citizens.
Opponents of New York’s rental regulations, which have been on the books in various forms since 1947, have argued in the past that the rules amount to an expropriation of private property without compensation. Previously, the state resisted this characterization. But now the state is arguing on public policy grounds that a tenant’s right to lifetime renewals of a rent-stabilized apartment lease, along with the right to transfer that contract to members of the tenant’s household, is in fact a benefit that the government is granting him. . The state court called rent stabilization rights a form of public assistance, and the Second Circuit followed suit by characterizing them that way.
This, of course, is what New York property owners have always known. But in this particular case, the real loser is not the tenant’s landlord, who at least understood the deal when he bought the property and offered it for rent. Despite the argument of the Rent Stabilization Association of New York City Inc., a group of homeowners who called the state court’s decision a “radical interpretation,” (1) it is effectively normal business for homeowners shackled by restrictions on ownership. rental. The real losers are the tenant’s other creditors, who must absorb a loss due to the tenant’s bankruptcy because the landlord cannot buy the tenant’s lease and thus indemnify the creditors. Also in that sense, New York grants benefits to tenants at the expense of individuals: in this case, several creditors.
“Public benefit” thus joins “housing emergency” in the list of phrases that mean something substantially different in the context of New York than in the rest of the country. Rent stabilization can benefit individual members of the public, but the state has nothing to do with providing it other than enforcing laws that require private landlords to offer the “public” benefit to tenants. Elected officials love giving public benefits that don’t require them to raise taxes or approve a budget line.
All of which explains why the rental regulations of 1947 and those that followed remain a political, if not practical, necessity. It’s the reason no one wants to build rental housing for the New York masses when the state commissions that housing to provide a benefit to tenants at the expense of landlords. And it’s why a “housing emergency” that grew out of the construction slowdown of the Great Depression and then the return of WWII veterans to city housing continues to this day.
Fountain:
1) Bloomberg, “New York City Landlords Can’t Touch Rent-Controlled Flats: Bankruptcy”