Preferential Rent Amendment in the Housing Stability Tenant Protection Act: Does the Recent Court Of Appeals Decision in the Regina Case Open the Door to Challenge its Retroactive Application?

The Housing Stability Tenant Protection Act of 2019 (“HSTPA”) eviscerates many Owner’s rights that have been in effect since the Omnibus Housing Act of 1983 (the “OHA”) became effective on April 1, 1984.  With regard to the issue of preferential rents, the HSTPA provides that if the tenant is being charged and is paying a rent lower (preferential) than the legal regulated rent, the rent to be charged on a renewal until there is a vacancy is the lower preferential rent plus any guidelines increase.

The effective date of this provision is complicated. The HSTPA states that “Any tenant who is subject to a lease on or after the effective date of a chapter of the laws on 2019 which amended this subdivision, or is or was entitled to receive a renewal or vacancy lease on or after such date …” is covered by the provision.

A chapter amendment was later enacted to provide clarity. If, on June 14, 2019, a tenant already had a lease in effect which withdrew the preferential rent under the old law, the new rent remains in effect. If, however, a tenant’s preferential lease was still in effect, or if a tenant had a right to a renewal lease on June 14, the tenant is entitled to retain the preferential rent. The issue thus is whether, and to what extent, a preferential rent is to be accorded retroactive effect

The Court of Appeals noted in the April 2020 Regina case held that:

“Retroactive legislation is viewed with ‘great suspicion’ (Matter of Chrysler Props. v Morris, 23 NY2d 515, 521 [1969]). This ‘deeply rooted’ presumption against retroactivity is based on ‘[e]lementary considerations of fairness [that] dictate that individuals should have an opportunity to know what the law is and to conform their conduct accordingly’ (Landgraf, 511 US at 265). As the Supreme Court has cautioned, careful consideration of retroactive statutes is warranted because ‘[t]he Legislature’s unmatched powers allow it to sweep away settled expectations suddenly and without individualized consideration’ and ‘[i]ts responsivity to political pressures poses a risk that it may be tempted to use retroactive legislation as a means of retribution against unpopular groups or individuals’ (id. at 266).”

The Court of Appeals in the Regina case, recognizing these concerns with the retroactive application of legislation generally noted that:

“It takes a clear expression of the legislative purpose . . . to justify a retroactive application” of a statute (Gleason v Gleason, 26 NY2d 28, 36 [1970] [internal quotation marks and citation omitted]), which ‘assures that [the legislative body] itself has affirmatively considered the potential unfairness of retroactive application and determined that it is an acceptable price to pay for the countervailing benefits’ (Landgraf, 511 US at 272-273).”

Rather than serving the policy goals of rent stabilization, retroactive application of the preferential rent Amendments in the HSTPA creates   financial liability for past conduct that property owners cannot change – an objective which has been deemed illegitimate as a justification for retroactivity. The retroactive provision of the new rent laws making preferential rent permanent for the life of the tenancy despite an Owner’s compliance with the prior law impairs the rights  the Owner possessed when they entered into the lease agreement.

Daniels Norelli Cecere & Tavel, PC is of the opinion that, given the Court of Appeals reasoning and rationale in the Regina case,  Part E of the HSTPA dealing with preferential rents is subject to challenge because the amendment completely usurps Owner’s reliance interests and impairs the Owner’s rights the Owner possessed when he acted, thereby triggering fundamental concerns about fairness and due process.

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