New York Enacts Good Cause Eviction Law Significantly Impacting Landlords, Tenants, and Lenders

New York State has enacted a sweeping new law which significantly impacts the rights and obligations of landlords and tenants in New York. The new law, generally referred to as the Good Cause Eviction Law (the “GCEL”), took effect on April 20, 2024, and added Article 6-A of New York’s Real Property Law (“RPL”).  The GCEL limits evictions in certain cases and caps rent increases for most free-market rate apartments in New York City and potentially other areas of the state.  While directly affecting landlords and tenants, the new law also impacts lenders who make loans secured by multifamily residential properties now subject to the GCEL.

This advisory will provide background on rent regulation, discuss the key provisions of the GCEL, and note some open issues with respect to the law.

I. Introduction

In 1974 the New York Court of Appeals expressed dismay with the New York State legislature’s attempt to address the housing needs of the people through rent regulation laws.  In that opinion from 50 years ago, the chief judge of New York’s highest court wrote:

The patchwork of rent-control legislation in recent years has created an impenetrable thicket, confusing not only to laymen but to lawyers. [...T]he legislation contains serious gaps, not readily filled by interpretation based on intention, because there was none, or even by judicial construction to make reasonable and workable schemes that are self-abortive as designed. Because of the significant policies involved, they should be resolved by legislative action at the local or State level.” 89 Christopher, Inc. v. Joy, 35 N.Y.2d 213, 220 [1974] (emphasis added). 

The laws governing rent regulation have not been simplified over the years.  Since 1974, the legislature passed the Multiple Dwelling Law of 1982, commonly referred to as the Loft Law.  The Omnibus Housing Act of 1983 followed a year later, and was chased by the Rent Regulation Reform Act of 1993, the Rent Regulation Reform Act of 1997 (which was renewed in 2003), the Rent Act of 2011, and the Rent Act of 2015.  The “landmark” Housing Stability and Tenant Protection Act, enacted in June 2019, brought sweeping changes to all prior rent regulation statutes.  (Collectively, the foregoing referred to as the “Rent Stabilization Laws.”)

The commonality between each of the aforementioned laws is that each impacts rent controlled or rent stabilized apartments.  The GCEL changes that, bringing free market apartments under the regulatory microscope. 

II. The Good Cause Eviction Law

The GCEL’s stated mission is to provide greater security and fairness to residential tenants in New York City by preventing evictions without good cause.  For now, the GCEL covers certain New York City residential housing units, only.  However, any village, town, or city in the state may adopt the GCEL by acting through its local legislative body.

Affordable housing and tenants’ rights advocates praise the legislature’s effort.  Covered property owners are now required to demonstrate that the basis for any eviction falls under one of the GCEL’s enumerated “good cause” categories.  

Opponents argue that the GCEL goes too far and imposes significant restrictions on an owner’s ability to renew leases and/or increase monthly rents.  The opponents argue the GCEL operates as yet another rent regulation statute.  However, this time regulation affects free market apartments typically unbound by the Rent Stabilization Laws, unless the owner can demonstrate the housing unit qualifies for one of the GCEL’s important exemptions (for instance, an exemption for a certain property type, or for certain small landlords).

A. What is Good Cause?

Landlords subject to the GCEL are now prohibited from evicting a “tenant” (defined in Section 211(4) as a tenant, sub-tenant, sublessee, or any other person entitled to the lawful possession, use, or occupancy of any housing accommodation), not renewing a lease, or otherwise removing a tenant without establishing one of the following grounds as “good cause” for removal or eviction:

1. The tenant’s failure to pay rent, unless rent is unreasonable (§ 216(A));
2. The tenant’s violation of a substantial obligation of the tenancy (§ 216(B));
3. The tenant is committing or perpetrating a nuisance, or has maliciously or through grossly negligent behavior caused substantial damage to the building (§ 216(C));
4. The occupancy of the unit is in violation of law and an order to vacate has been issued, unless the landlord created the violation through neglect or deliberate action or failure to act (§ 216(D));
5. The tenant is using the unit or other building area, or permitting the unit or other building area to be used, for an illegal purpose (§ 216(E));
6. The tenant has unreasonably refused the owner access to the unit to make necessary repairs or improvements required by law, or to show the unit to another person having a legitimate interest (§ 216(F));
7. The unit is to be personally occupied by the owner or its close relatives as a primary residence (§ 216(G));
8. Demolition (§ 216(H));
9. Withdrawal from the housing rental market (§ 216(I)); or
10. The tenant fails to agree to reasonable changes to a lease, provided that such changes were given to the tenant at least 30 days, but no more than 90 days, prior to expiration of the existing lease (§ 216(J)).

B. How Does the Law Regulate Free Market Units?

i. Rent Increase Limitations The GCEL now limits a landlord’s ability to increase monthly rent.  RPL Section 231-C(3) creates a rebuttable presumption that any increase above the lesser of, (a) 10% of the previous monthly rent, or (b) the “Inflation Index,” is “unreasonable.”  The GCEL defines the Inflation Index to be 5% plus the annual percentage change in the Consumer Price Index, (“CPI”), published by the US Bureau of Labor Statistics for the region in which the housing unit is located, as thereafter published by the NYS Department of Housing and Community Renewal (“DHCR”) by August 1 of each year.  (At the time of this release, the DHCR-published CPI for the New York-Newark-Jersey City, NY-NJ-PA region, (which is the region applicable to New York City) is 3.82%, and is available, here.)  As such, any rent increase effective after April 19, 2024 that exceeded the previous rent by more than 8.82% is presumptively an unreasonable increase.

To rebut the presumption a landlord may present all relevant facts.  One such fact a court must consider is the building’s property taxes and any recent increases thereto.  A court also must consider whether the rent increase is sought in good faith following the landlord’s completion of “significant repairs,” where such repair does not result from the landlord’s failure to maintain.  Relevant facts a court may consider are a landlord’s operating costs – that is, costs for fuel and other utilities, insurance, and maintenance. 

One issue the legislation fails to directly address is the future impact of past unreasonable rent increases.  For example, if Tenant A’s rent increases 12% annually over the next 5 years, but is only raised 2.5% for year 6, can Tenant A successfully argue the 2.5% increase in year 6 is unreasonable because it derives from previous unreasonable increases?  Can a landlord successfully argue Tenant A waived her right to challenge the increase on unreasonable grounds by accepting the previous 5 years’ increases? 

What if the building sells during the 5^th year, Tenant A moves out before the lease expires during the 5^th year and her lease is assumed by Tenant B, and the successor landlord renews the lease with Tenant B at a 2.5% increase over the prior year.  Can Tenant B successfully argue the 2.5% increase is unreasonable based on the previous tenant’s leases?  Is the successor landlord liable for the prior landlord’s failure to comply with the GCEL?

These are just a few questions raised under the rent increase provision.  Perhaps the law’s failure to directly address this issue implies waivers are permissible or implies that any rent agreed to between a landlord and tenant following a vacancy is a “fair market” rent, and such agreement will serve as the new baseline from which future increases must be calculated. 

ii. Notice Couched within the last enumerated basis for good cause, the failure to agree to reasonable changes, the GCEL considers evictions on this basis to be good cause only when written notice of the changes to the lease is annexed to any renewal lease and provided to the tenant at least 30 days, but no more than 90 days, before expiration.  In the case of a new lease, written notice (a template form of which can be found at RPL § 231-C) must now disclose whether or not the GCEL applies to the particular housing unit.  The notice requirements take effect on August 18, 2024.

C. What Criteria Exempts Housing Units from the GCEL?

The GCEL applies to “all housing accommodations” except for:

1. Premises owned by a “Small Landlord,” defined as a landlord of no more than ten (10) units in the state (§ 214(1));
2. An owner-occupied housing accommodation with no more than ten (10) units (§ 214(2));
3. Units sublet, where the sublessor seeks in good faith to recover possession for their personal use and occupancy (§ 214(3));
4. Units incident to employment, when such employment is being lawfully terminated (§ 214(4));
5. Units subject to rent regulation or eviction regulation under local, state, or federal law (§ 214(5));
6. Units which are required to be affordable for certain income levels pursuant to statute, regulations, restrictive declarations, or regulatory agreements with a local, state or federal government entity (§ 214(6));
7. Units on or within a building that is owned as a condo or co-op, or on or within a building that is subject to an offering plan submitted to the office of the attorney general (§ 214(7));
8. Buildings for which a temporary certificate of occupancy (“CO”) or permanent CO was issued after Jan. 1, 2009, but such exemption is only valid for the first 30 years following the CO’s issuance (§ 214(8));
9. Units qualified for seasonal use (§ 214(9));
10. Units within hospitals (§ 214(10));
11. Manufactured homes (§ 214(11));
12. Hotel rooms or other short term or transient uses (§ 214(12));
13. Dormitories (§ 214(13));
14. Units within and for use by religious facilities (§ 214(14)); and
15. Units with monthly rents greater than 245% of the fair market value (§ 214(15)).

III. Open Issues

The GCEL has a number of open issues, some of which are addressed below.

A. Rent Regulation or Eviction Regulation - Section 214(5)

Section 214(5) exempts housing units subject to rent regulation and eviction regulation.  “Rent regulation” is likely to be interpreted to exempt any housing unit subject to regulation under one of the many Rent Regulation Laws.  But what about “eviction regulation?”  It is unclear what this term covers.

B. Owner-Occupied, Ten (10) Unit Accommodations – Section 214(2) 

Section 214(2) exempts an owner-occupied housing accommodation with no more than ten (10) units.  But what units are to be counted – the total number of units in a building, or the total number of non-exempt units? 

For example, if one (1) unit in an eleven (11) unit building is exempt because it is subject to the Rent Regulation Laws and the owner occupies the rent stabilized unit, and the remaining ten (10) units are free market, are the ten (10) free market units exempt from the GCEL?  In other words, must property owners count the total number of units in a building, or should only the number of non-exempt units in a building be counted?

C. Small Landlord – Section 214(1)

Perhaps the most significant exemption is found at Section 214(1), which exempts a “small landlord” from regulation.  But in doing so, the legislature leaves unanswered many questions about exactly who or what may qualify as a “small landlord.”  

Section 211(3) sets out definitions for a small landlord.  In the case of natural owners, Section 211(3)(B) provides that “[i]f a landlord is a single natural person, that landlord is a small landlord if they own or are a beneficial owner of, … no more than [10] units...”  The section continues to provide that “[i]f there is more than one natural person owner, then no one person may own or be a beneficial owner of … more than [10] units…”  Regarding entities, Section 211(3)(C) provides that “[i]f a landlord is an entity … then that landlord is a small landlord if each natural person with a direct or indirect ownership interest in the entity or any affiliated entity owns no more than [10] units.”

As a threshold issue, we are presented with the same question that affects the owner-occupied exemption in Section 214(2) – which units are to be counted?  (For the sake of argument, we will count the total number of apartments without consideration of whether an exemption applies for the analysis that follows.)

The GCEL does not define two crucial phrases: “beneficial owner” and “affiliated entity.” Broad interpretations of either phrase can significantly reduce the pool of property owners who may qualify for the small landlord exemption.

i. Beneficial Owner: Certainly, any income derived from an investment in real property can be considered a benefit.  But can a natural person that is the sole owner of a 10-unit building qualify for the small landlord exemption, when that natural person also has a 1% membership interest in an LLC that owns one or more housing units? 

One possible interpretation may be gleaned from the unrelated Federal Corporate Transparency Act, (“CTA”), which defines a beneficial owner of an entity as “an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, (i) exercises substantial control over the entity, or (ii) owns or controls not less than 25% of the ownership interest of the entity.”  31 U.S.C. § 5336(a)(3)(A).

Thus, in the hypothetical above, under the definition provided by the CTA, if the 1% interest in the LLC does not come with the powers to manage or control the LLC, the natural person may qualify for the small landlord exemption. 

ii. Affiliated Entity: Similarly, the GCEL does not define who or what qualifies as an affiliated entity.  Are affiliated entities only those found within the same corporate structure?  Or can entities be affiliated by one natural person’s ownership interest in multiple entities?

Other Federal and New York State statutes may provide guidance here as well.

Section 912 of the Business Corporation Law defines affiliate as “…a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, a specified person.”

Section 6-1 of the Banking Laws defines affiliate as “…any company that controls, is controlled by, or is under common control with another company, as set forth in the Bank Holding Company Act of 1956…”

Section 102 of the Non-Profit Corporation Law defines affiliate as “any entity controlled by, or in control of, such corporation.”

The Federal Bankruptcy Code defines an affiliate as “a person or corporate entity that directly or indirectly owns, controls, or holds with power to vote, 20 percent or more of the outstanding voting securities of the debtor.” 11 U.S.C.S. § 101(2).

The concept of “control” also finds its way into the case law.  The Second Circuit defines affiliate as “being close in connection, allied, associated, or attached as a member or branch.”  VKK Corp. v. NFL, 244 F.3d 114, 130 (2d Cir. 2001).

The New York Court of Appeals finds “[a]s a general matter, an “affiliate” is defined as a “corporation that is related to another corporation by shareholdings or other means of control; a subsidiary, parent, or sibling corporation” (Black's Law Dictionary [9th ed. 2009]).  Ellington v. EMI Music, Inc., 24 N.Y.3d 239 NY 2014 (Rivera, J., dissenting).

Apparent, again, is the concept of control.  If one entity controls another, under definitions provided by the aforementioned authority, that entity is likely to be an affiliate.  However, consider that GCEL Section 211(3)(C) is concerned only with the ownership interest held by each natural person in such affiliates.  Would a trust holding the beneficial interests in the entity or in all affiliated entities be enough to qualify for the exemption?

IV. Conclusion

The full text of the GCEL can be found, here.  Until such time as the legislature amends the GCEL to clarify its intent, or a court resolves litigation regarding issues of beneficial interest, affiliation, number of units, or any other open issue, the questions will remain unanswered and speculative interpretations will linger.

Please note that this advisory is a general overview of the GCEL and is not intended as formal legal advice. If you have any questions regarding the GCEL, please feel free to contact Daniel Bagatta at (516) 357-3849 or via email at dbagatta@cullenllp.com, Joseph D. Simon at (516) 357-3710 or via email at jsimon@cullenllp.com, Andrew Curran at (212) 510-2241 or via email at acurran@cullenllp.com, or Gabriela Morales at (516) 357-3850 or via email at gmorales@cullenllp.com.