Bill Proposed To Exempt Summer Rentals From New York State Housing Law - 27 East

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Bill Proposed To Exempt Summer Rentals From New York State Housing Law

Brendan J. OReilly on Feb 21, 2020

The New York State Legislature’s monumental housing reform enacted last year cast a wider net than planned — and Hamptons summer rentals were caught in it.

A provision in the Housing Stability and Tenant Protection Act of 2019, an omnibus bill that comprises many measures pertaining to the landlord-tenant relationship, prohibits landlords from collecting an advance or security deposit in excess of the equivalent of one month’s rent.

It had been common practice on the South Fork for homeowners to collect payment for an entire season upfront when renting out their houses for the summer. That’s now illegal.

However, Assemblyman Fred W. Thiele Jr. is floating clarifying legislation that would cut out an exception for seasonal and vacation rentals, which he says were never supposed to be subject to the provision in the first place.

“This was a very comprehensive housing reform bill last year, and there are a few issues that were created that need to be cleaned up, Mr. Thiele said late last month.

He said the 75-page bill largely deals with rent control and rent stabilization in New York City, but there are provisions that have statewide impacts. The provision pertaining to advances and security deposits is one of them.

The cap on advances and deposits was intended to apply to primary residences, not seasonal and vacation rentals, according to Mr. Thiele.

“Whether I’ve talked to the attorney general’s office or the Division of Housing and Community Renewal, or the Assembly Housing Committee, or the Assembly speaker’s office, I haven’t found a single person yet who said, ‘Yeah, we meant to cover them,’” he said. “The intent of these provisions is for tenancies that are of a much more permanent nature.”

But the law did not explicitly exclude short-term rentals.

“The new law that was adopted is silent on that point — which allows for a variety of different interpretations,” Mr. Thiele said. “So the bill that we put in would make it clear that seasonal rentals — and we define that as 120 days or less — those kinds of rentals would not be subject to the provisions of the law relating to advances and security.”

A traditional season-long rental on the South Fork runs from Memorial Day weekend to Labor Day, about 100 days.

The legislation, which Senator Kenneth P. LaValle cosponsors in the State Senate, clarifies that the section of the housing reform applies only to “permanent dwelling units” and excludes “tenancies for temporary or seasonal use” for 120 days or less.

The 120-day cutoff will “cover a wide variety of vacation, seasonal rentals,” Mr. Thiele said.

Appeals had been made for the attorney general’s office to issue an interpretation of the housing reform that excluded seasonal rentals, but no such guidance was offered.

“Certainly, the real estate industry would have appreciated having some guidance, and it might have been helpful in any legal action that is brought,” Mr. Thiele said. “But, ultimately, it is the responsibility of the legislature to make it clear that these kinds of housing arrangements were not intended to be covered by the law.”

In guidance for real estate professionals published on January 31, the New York State Department of State explicitly stated that when arranging a short-term rental an agent must advise the landlord or prospective tenant that “an agreement calling for upfront rent payments (e.g., the full-term rent) prior to the end of the tenancy or a security deposit larger than the pro rata portion of one month is void.”

Mr. Thiele’s bill has no cosponsors yet, and he noted that it is a fairly short list of regions in the state that are directly impacted: “Quite frankly, on eastern Long Island it’s been most apparent.”

Regardless of how many cosponsors eventually come on board, the success of the legislation will hinge on the backing of the legislature’s leadership, including Assembly Speaker Carl Heastie.

“I’ve had two conversations with the speaker’s director of legislation and policy, who is the speaker’s chief person when it comes to things like this,” Mr. Thiele said, adding that the response to his clarifying legislation was very positive. “Everybody agrees that this is not what the law was intended to regulate.”

It remains to be seen if the bill will eventually advance as standalone legislation or be combined with other measures meant to clarify who the housing reform applies to.

For example, Mr. Thiele noted that residential co-ops, in which homeowners buy shares that allow them to lease a residence, would be excluded from the housing reform under another clarifying measure.

Mr. Thiele has no preference on how his fix for seasonal rentals gets done. “My goal is to pass it,” he said. “Whether it passes as a standalone bill, or it becomes part of an omnibus that addresses a number of issues that needed to be resolved after this bill was passed last year, doesn’t matter to me.”

Michael Kelly, the director of government affairs for the New York State Association of Realtors, agreed that short-term rentals were not the intended target of the housing law, and their inclusion is detrimental to the industry.

“My members tell me, most times people pay their season rental fee all upfront, so it’s difficult when the law says, ‘You can only do your first month’s, security, one month upfront.’”

The issue is far from the only objection his association has to the law. “The legislation that was passed was a reaction to years of pent-up desire by tenant advocates, and with an all-Democratic legislature they were able to get it passed,” Mr. Kelly said.

Critics of the law, like NYSAR, have said it swung the pendulum too far in the favor of tenants, at the expense of property owners. But it may also have unintended consequences on those struggling to find housing.

One concern Mr. Kelly shared related to the new cap on advances and security deposits: specifically, that it may harm people who have bad or no credit. “If a person had bad credit, the landlord would be willing to take that person in but wouldn’t do it for one month’s security,” he said, suggesting that an arrangement with more security would at least make a rental possible in that case. “ … The law won’t permit that now.”

He said the law also will harm multifamily housing investment in New York State.

“We believe in private property rights, and we believe in encouraging people to invest in real estate,” Mr. Kelly said.

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