How Can Landlords Stay Ahead of The Rent Reform

Posted by: TheGuarantors on June 24, 2019

New York Rent Regulation Limits Security Deposits and Prepayments, While Potentially Doubling The Length of Eviction Proceedings

blog main article

  • Key Details:
    • Security deposits and prepayment capped at 1 month for all units, including market rate
    • Increased eviction timelines with greater opportunities for delays and extensions
  • Key Takeaway:
    • Defaults will become considerably more costly for landlords, at the same time as landlords have less ability to self-protect against the risk of default

 

What’s Going On?

You have probably already heard the news (here, here, and here): there are new rent regulations in New York. The fight may not be over yet (especially if you ask REBNY), but the regulations are here, they are real, they are serious, and the governor signed them into law.

So what do they say? We won’t bore you with the full rundown⁠—that’s what your lawyers are for⁠—but there are at least two key components that we know will require a strategic response:

 

1. No Extra Security Deposit & No Prepayment

The new regs have extended the 1 month cap on security deposit to all units, including market rate units. They have also made it abundantly clear that the cap applies not just to security deposit, but any “advance” on rent, i.e. prepayment.

That means that the absolute maximum a landlord can do (without a third party solution) to protect themselves againstquote (1) default—in both stabilized and market-rate units—is hold 1 months’ rent. That’s it. No extra deposit and no huge chunks of prepaid rent, even if that’s what the renter wants. If you have any concerns about a renter’s ability or willingness to make good on their lease, you had better hope that the default costs you no more than one months’ rent... unless of course, you find other means of protection (more on that below).

 

2. Eviction Proceedings Just Got A Lot Longer

Without going through them one-by-one, nearly all of the time limits and deadlines around eviction proceedings have been extended. The law also gives courts even more room to grant extensions and stays (to the already lengthened proceedings). In short, defaulting renters will have more time to respond, more time to show up in court and more time to ask for more time.

As you know, when a renter stops paying rent, the very best thing to do is gain possession of the unit (using eviction, if necessary) so that you can find a new renter to start paying rent. The longer that takes, the greater the arrears, and the greater the loss (not to mention the legal fees).

verbiage 3

Well, under the new laws, it’s almost certainly going to take a lot longer. To state the obvious, that means that the potential downside to a risky renter just got a lot worse. Arrears will pile up while an eviction proceeding grinds its way through the slow(er) gears of justice, and there won’t be a lot landlords can do, but wait (and pay legal fees).

 

Putting it All Together: More Risk + Less Protection = New Strategy

The new rent regulations have done a lot of things (again, check with your lawyers), but one of the things they have done is make it harder for landlords to self-protect against default risk, at the same time as they have made that risk much more costly.

So what should landlords do? We’re biased, but you might give us a try. TheGuarantors program offers customized protection that helps mitigate the risk of renter default, without slowing down your leasing staff - all while ensuring landlords are covered, so everyone wins.

Our New DLG

Our new Dynamic Lease Guarantee enables landlords to calibrate their protection level from as little as 3 months rent to the traditional 12 months rent (or more for longer leases). We can include a security deposit add-on, to cover that piece, as well. Landlords can use predetermined criteria to set coverage levels, or make the call on a case by case basis. We leverage our own superior data and risk expertise to advise on coverage levels, but ultimately it’s up to the landlord to decide.

quote 1This reduces risk, opens doors, and lowers move-in costs. Daniel Rivera, a Managing Director at Bridgeline Management, points out that, “With the passed legislation, our clients will have to alter their current business models to be successful. However, leasing activity will still remain strong as we have services like TheGuarantors that we can offer to protect us from these changes. It’s essential to have strategic alliances in such a dynamic political landscape.”

Bigger picture, extra security deposit and prepayments are now off the table. We think insurance alternatives can help mitigate the risk that landlords used to be able to mitigate on their own. Even under the old regulations, many landlords have already turned to TheGuarantors and our team of experts to help. Miguel Inacio, Senior Asset Manager at Spitzer Enterprises noted that, “At 420 Kent we leverage TheGuarantors program and expertise to broaden our pool of applicants and approve more renters without affecting our bottom line."

quote 2

Marc Kaplan, Managing Director at First Service Residential similarly weighed in: “In order to address the new legislation and before then, we plan to continue to utilize TheGuarantors program in our portfolio. It’s helped us lower move-in costs, without sacrificing on risk, which helps us remain confident because we know we will maintain a high volume of applicants.”

Final Thoughts:

Bob Schmidt Co-Founder and Managing Director at TheGuarantors adds, “We recognize that this reform will be a bit of a shock to landlords and their overall operations, however as partners, it’s our goal to find creative and innovative solutions to address whatever the market throws our way. We’re proud to have a program that offers just that.”

 

Want to learn more? Get in touch with a member of our team here.