How Can I Remove a Property from Rent Stabilization in NYC?

Question

Hi all,

I’m an investor looking to understand how to legally remove a property or unit from rent stabilization in New York City. If I purchase a building with rent-stabilized tenants, are there any legal ways to de-stabilize the units, especially after doing significant renovations or rehabbing the property? What criteria or requirements must be met for this to happen, and what’s the process I need to follow to ensure compliance with the law?

Thanks in advance for any insights or experiences!

Mohammed Rahman · Answer

If you’re buying a building with rent-stabilized tenants in NYC, it’s important to know that the rules around deregulating units have gotten super strict—especially after the 2019 Housing Stability and Tenant Protection Act (HSTPA). Before that, landlords could remove units from stabilization through things like vacancy increases or high-rent thresholds, but those paths are basically gone now.

One legal way to remove a unit from stabilization is through substantial rehabilitation, but it’s not easy. You’d need to prove the building was in seriously bad shape—essentially unlivable—and show that you replaced most of the major systems like plumbing, electrical, heating, etc. The building also needs to be mostly or entirely vacant during the work. If you hit those marks, you can apply to the DHCR for approval, but it’s a long and documentation-heavy process.

Another option is owner occupancy. If you own the building in your name—not through an LLC—and plan to live there as your primary residence, you might be able to reclaim one unit. You’ll still need to follow the legal process and possibly provide relocation support, and the courts tend to lean in favor of tenants on these cases.

Buyouts are also still on the table. You can offer tenants money to vacate voluntarily, but you can’t harass or pressure them in any way. Everything has to be disclosed properly, and tenants have full rights to say no. Many of them do.

It’s also worth pointing out that renovations alone—no matter how much you spend—won’t get you out of stabilization. Rent increases from Individual Apartment Improvements are now capped at $15,000 every 15 years, and the rent bump you get is minimal. So don’t go in expecting upgrades to magically free up the unit.

Bottom line—if your goal is to de-stabilize units, you need to go in with your eyes wide open. Talk to a real estate attorney before making a move, and make sure you’re not banking on deregulation to make the deal work. If you want help running numbers or finding deals with existing free-market units, happy to help.

Jordan Flescher · Answer

@Isadore Nelson https://rentguidelinesboard.cityofnewyork.us/wp-content/uploads/2023/05/2023-Changes-Report.pdf pages 6 through 8 here touch upon  it a little bit.

Basically you will have to renovate at least 75% of the building in order to deregulate it. If  it were me, I would begin with a cost study to see what the potential benefits are (I.e. what is the difference between market rent and current rent) so I can create a pro forma budget. From there you will know what you are able to offer tenants to vacate. You should budget for at least 3x that number to account for any holdout tenants (your risk tolerance may vary, but educate yourself on others experiences in this endeavor). Consult with an architect/zoning expert to plan and file all the necessary docs, and only once all of that has been confirmed, preferably as of right, should you begin to offer your tenants buyouts.

My guess is that the cost and timeline required for all of this will not be worth it, but if you are interested, a cost study should not be particularly laborious.

Jordan Flescher · Answer

Pay everyone to leave... 🤷

Robert Rixer · Answer

Effectively no, otherwise everyone would do it and there would be no rent controlled buildings.

If the property becomes vacant there are scenarios you can remove it from rent control. The problem is, tenants who live in rent controlled units rarely want to leave.