New Rent Reduction Laws Proposed in New York May Be Better for Landlords, But May Still Be Challenged

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As discussed in prior updates (here and here), lawmakers in New York previously introduced bills that would, if enacted, temporarily suspend rent payments for certain residential and small business commercial tenants unable to pay rent due to the COVID-19 pandemic.  The prior bills would also provide limited relief to landlords who suffer “financial hardship” due to the lost rent payments, but only by suspending mortgage payments for those landlords.

Now, New York legislators have introduced new bills in the New York Senate and New York Assembly (as with the prior bills discussed, the Senate and Assembly bills are identical to each other) that would reduce, rather than fully suspend, rent and afford broader relief to impacted landlords.[1]  Specifically, residential tenants and small business commercial tenants[2] who lose income or have to restrict their business activities due to the pandemic would only need to make rent payments of up to 30% of their current income or 30% of their contractual rent, whichever is lower, for 90 days following the law’s effective date.[3]  If enacted, the bills would apply retroactively to March 7, 2020, meaning that the 90 days could run retroactively from March 7.[4]

The new bills would require affected tenants to provide their landlords with proof of income, at which point the tenants would be “absolve[d]” of any obligation to pay the full rent, unless a tenant “later receives additional income,” at which point “such rent obligations shall be recalculated.”[5]  And if the tenant’s lease expires while the state of emergency declared by New York remains in effect, the rent reduction bills would allow the tenant to extend that lease for up to 90 days after the state of emergency expires.[6]  These bills would also prohibit landlords from collecting late fees, interest, “or other penalties” during the existence of the state of emergency.[7]

The new bills would further prohibit landlords from filing non-payment actions until more than 30 days from the end of the state of emergency, while also tolling the statute of limitations for commencing such proceedings.[8]  If a landlord later filed a non-payment proceeding, the tenant’s payment of reduced rent in accordance with the legislation could be raised as a defense.[9]  If there was a dispute about whether the tenant paid the appropriate amount based upon the tenant’s income, certain documents, such as pay stubs, would be presumptively admissible in the proceeding and deemed prima facie evidence of the tenant’s income.[10]

However, the rent reduction bills would provide relief for affected landlords as well.  Specifically, these bills provide that any landlord who loses rental income as a result of the legislation – whether or not the landlord suffers “financial hardship,” as in the prior proposed bills – and is not “fully compensated by emergency federal, state, or local assistance” can apply for emergency COVID-19-related aid from the New York Homes and Community Renewal department, up to the amount of lost rental income.[11]  Unlike the prior rent suspension bills, which limited the relief provided to landlords to suspending certain mortgage payments, the relief funds here could be used by landlords for any purpose, such as property tax payments or insurance premium payments.

These rent reduction bills indicate that the New York legislature is trying to strike a balance between aiding tenants without shifting all of the burden onto landlords.  Nonetheless, the new rent reduction bills, if enacted, may still be subject to court challenges, including the types of constitutional challenges described in our prior update.  Among other things, as currently written, the bills would retroactively forgive failures to fully pay rent due on April 1, rather than simply limiting rent payments going forward, which could provide fodder for legal challenges.  As with the other pending bills, the real estate and legal industries will be watching these new rent reduction bills closely.

 

[1] SB 8139, available at https://www.nysenate.gov/legislation/bills/2019/s8139; AB 10247, available at https://nyassembly.gov/leg/?bn=A10247&term=2019.

[2] “Small business” are defined as businesses that are ““resident in this state, independently owned and operated, not dominant in [their] field and employ[] one hundred or less persons.”  SB 8139 § 1(e) and AB 10247 § 1(e) (citing NY Econ. Dev. L. § 131).

[3] SB 8139 § 2(a)(i) and AB 10247 § 2(a)(i). 

[4] Id. § 6.

[5] Id. § 2(a)(ii). 

[6] Id. § 2(b).

[7] Id. § 2(c).

[8] Id. § 4.

[9] Id. § 2(a)(iii)

[10] Id.

[11] Id. § 3.