Did the Door Just Open to Reforming Rent Control?

In 2011, Mary Veronica Santiago-Monteverde filed for bankruptcy protection. She had been living in her East 7th Street apartment since 1963. She pays $703 per month for her two-bedroom apartment that she lives in with her son. As part of her bankruptcy, the owner of the apartment building she lives in offered to purchase her lease rights from the trustee and allow her to live in the unit for the rest of her life. However, the purchasing of the lease rights by the owner would have invalidated the rights for the son to “take over” the lease upon her death. The trustee agreed to the transaction.

A bankruptcy court and then a Federal District Court sided with the trustee and were willing to let the deal to sell the lease proceed. Mrs. Santiago-Monteverde appealed to the U.S. Court of Appeals. The federal court deferred to the state court on the issue of whether the lease was an asset of the bankrupt estate subject to liquidation or whether the lease should be exempt under New York law.

The U.S. Bankruptcy Code permits the debtor to exempt certain specified property from the estate, however, it also provides latitude for states to establish their own list of exemptions. By a 5-to-2 margin, the New York State Court of Appeals decided that a rent-stabilized lease was exempt from a bankruptcy estate on the grounds that it is a public assistance benefit.

“It is evident that a tenant’s rights under a rent-stabilized lease are a local public assistance benefit,” wrote Judge Sheila Abdus-Salam for the majority. She went on to say, “Affordable housing is an essential need.”

For a long time one of the excuses tenant advocates and politicians have used against means testing of regulated tenants is that it is not the tenant that is the subject of the regulation, it is the apartment unit itself that is regulated (it should be noted that in the overwhelming majority of cases, elected officials simply respond “no” when asked if they would support means testing as opposed to providing any meaningful answer at all). This decision clearly links the benefit to the tenant (as opposed to the unit) and opens the door for action on the means testing front.

So, now we have the highest court in our state equating rent regulation subsidies to welfare. Would the state provide welfare benefits without determining if people qualified? How about food stamps or any other public assistance benefit? Clearly, the answer is, “they wouldn’t.” So why do they let this type of public assistance slip through the cracks?

There is no question that the city needs affordable housing for folks at every range of the income scale. And I don’t think many participants in the commercial real estate market want to see tenants who cannot afford to pay more get evicted from their homes. However, to have wealthy people receiving rent welfare seems outrageous. Tens of thousands of apartments could be freed up if means testing were adopted. The word “affordable” should actually have to have something to do with affordable housing. Find out if the housing is affordable or not. It would be straightforward to do.

Advocates who claim it would be too cumbersome to administrate means testing don’t see the benefits. Tenants who qualify to receive rent welfare would not have to worry about litigation from owners who have no other way to find out how much the tenant earns. Roll into the process proof of primary residency and the amount of “harassment” would drop exponentially. How could anyone not see this as fair? In order for a tenant to qualify for virtually any other type of housing subsidy, they need to demonstrate need. To exempt rent regulated tenants from having to do the same is patently unfair and promotes a gross misallocation of our desperately tight housing stock.

Bob Knakal is the chairman of Massey Knakal Realty Services and has brokered the sale of nearly 1,600 properties having a market value of approximately $11.5 billion.