Rent collection strategies under the new NY Tenant Protection Act

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I'm an investor trying to formulate new policies around the new statewide NY Tenant Protection Act of 2019 that was passed in June.  After speaking with countless lawyers, property managers, and RE investors all over NY State in the last 3 months, almost no one seems to have come up with any good strategies, policies, or ideas for how to motivate late payers to pay remotely on-time under the laws, so I'm starting this discussion to share some ideas, best practices, policies, etc., and maybe brainstorm as a NYS community as to what's working and not working for upstate, central and western NY.  I'll exclude the city from this discussion because they have a whole slew of other issues even worse than what us upstate-ers have to deal with.  

For those not aware, here's the issue.  As of June, NYS has imposed the following new "Tenant Protection" laws into effect that make it almost impossible to encourage on-time rent payment (there are way more clauses than this in the law, but these are the ones that affect this conversation):

1.  Late fees are limited to the lesser of $50 or 5% of rent, and can't be imposed until 5 days past due.  

2.  Evictions now take 45-60 days based on new timing requirements, such as the service of 14-day notice and delivery of 5-day certified letter of late rent.

3.  If a tenant pays only base rent (NOT late fees) in full at ANY time during the eviction process prior to being removed from the unit, then the eviction is voided and thrown out.  

4.  Landlords CANNOT charge back legal fees to tenant associated with eviction.  

5.  Deposits are limited to 1 month's rent, and can't charge for last month's rent.  

So, here's the challenge.  Suppose a tenant habitually pays late, but not 45-60 days late.  And suppose It's now the 15th of the month, and they still haven't paid, so you sent your certified letter of late rent back on the 5th as required.  As a Landlord, we now have 2 options: 1) Do nothing, hoping they eventually pay, which costs us nothing immediately but is risky, or 2) Incur the cost of serving them with a 14-day notice (maybe $150 or so) that we cannot recoup from the tenant if they eventually pay base rent before being evicted.  

The issue that compounds this is that, for the renter that ALWAYS pays weeks late, option #2 can happen every month, forever, and the tenant would incur no costs, could refuse to pay late fees, but never be evicted, and the Landlord would eat the $150/mo for serving process in perpetuity.  And further, once a tenant is 5 days late and the late fee has hit, there's zero additional incentive for a tenant to pay prior to the day of eviction because nothing can be charged to the tenant beyond that initial $50.

What I'm hoping to glean from this discussion is what policies other PM's and investors are using to deal with this.  Please avoid the discussion getting political, its safe to say all of us on here think the laws are total BS and there are other discussions elsewhere on BP for that, but let's keep this discussion to how we deal with the reality of it.  This is statewide, so looking to hear from investors in Albany, Schenectady, Troy, Saratoga Springs, Rochester, Syracuse, Buffalo, Utica, Poughkeepsie, and everywhere in between.  Also would love for any NY lawyers on here to weigh in.

@Bill Keast Yes, i know Jaime well actually and had lunch with her a month or so ago to discuss the laws, which is what prompted me to write this post, because she's by far the most knowledgable on the laws, but even she is still at a loss for how to deal with it on a practical level as business owners.

@Ryan Vienneau I was thinking about charging for the storage space, something that would have normally been included to make up for the security deposit. Also following for other ideas. @Bill Keast I wish I knew about the event and sent  a connection request to Jaime too. I'd love to hear what other investors are doing about this as well. 

Month-to-month rental agreements only.  With habitual late payers you can simply terminate.  (Impossible with a 1-year lease.)  But within that 1st year, if things go sideways, a one-month notice is all that is needed.  Now if they don't leave, you have a holdover eviction.  Not sure if that is the same process as a non-payment eviction.

That said, if you terminate, I would still file a non-payment eviction case in order to get a judgement.  And I have no idea what happens if they also holdover.

(Note for those unaware: after 1 year, notice to terminate must be 2 months notice.  After 2 years, it's 3 months.)

Just because you can not evict for nonpayment of a late fee, does not make the debt disappear or become unrevoerable. You are a business owners. What do other business owners do when their clients dont pay? Then send the debt to collections.

@Mark W. This is exactly what i was thinking, and spoke with an attorney friend of mine who also owns properties and he said he is planning to do this. My only concern though is that a mo to mo lease could scare off the best applicants though that want a year lease.

Originally posted by @Ryan Vienneau :

@Mark W. This is exactly what i was thinking, and spoke with an attorney friend of mine who also owns properties and he said he is planning to do this. My only concern though is that a mo to mo lease could scare off the best applicants though that want a year lease.

Hi Ryan, this has been my practice for awhile now (even before this new law) and from my experience it has not been a deterrent.

I have utilized an "early termination" fee should the tenant choose to leave earlier than a year.  Recent research on the subject leads me to believe a judge would interpret that as essentially making it a one-year lease, so I may discontinue this practice.

@Rob Sawyer Jaime has been taking a very active role in lobbying and organizing landlords to fight pretty much every word of the new law, and she's been doing awesome and knows the new laws inside and out.  However, she's also realistic and is bracing for the potential for the laws to get even worse (like possible rent control statewide in Jan) before they get better, if ever.  I hope she succeeds and I'm 110% in support of her efforts, but I don't have much faith in NYS lawmakers to fix the issue any time soon and in the meantime we need to figure out how to operate in this new environment.  

These new laws are literally mind boggling and out of control. They take away the home owners (Landlord's) rights to their own property. Only way we can beat this and as crazy as it sounds is gradually raising rents and become more strict for qualification standards. Yes it will hurt us at first but this will make it difficult for lower end Tenant's to find places to rent and forcing NY law makers to give us certain rights back thus moving the pendulum back towards the Landlord's and property owners. Your thoughts on this NY investors?

The local government should be bowing down to us for making our areas better by supplying decent housing for those investors who actually care and make nice, safe and quality living environments. Because of these new laws, we will be forced to not rent to the lower end renters who abuse our properties. 

@Ryan Vienneau Thanks Ryan and I wholeheartedly agree in a lack of confidence that Albany lawmakers will reverse course. To many votes. to be lost...there are a lot more renters than landlords.

We'll have to adjust and screen better than ever to get the right tenant we seek.

Thanks again.

@Ryan Vienneau  My PM has just started the eviction process with one of my tenants in Albany NY. They are Sec 8 so at least I'm receiving partial rent as this process moves forward. As oppose to go through the whole eviction process, we may offer the tenant cash to leave. I'm keeping my fingers crossed. As far as the new law, I'm not sure how there will be work arounds if you plan on actually evicting someone. If you want to "encourage" them to pay, you can still serve an eviction notice as you would have in the past, however it isn't enforceable under the law. Not sure all tenants are aware of the specifics of the new law. If that doesn't get them to pay or leave on their own, you will probable have to follow the certified approach under the law.

At the Turning Stone event, Jaime had fielded a similar question - iirc she was thinking that the 3rd time or so you were in court, the judge would see the pattern and uphold the eviction.  

I think the holdover approach may become more popular.  And you wouldn't necessarily have to have a m2m form to make it work - if paying late (or unpaid late fees) are a default of the lease, you could (*if* I understand the new law, ianal) send a notice to cure (as set forth in your lease), and unless the $$ are paid in full you could then cancel the lease and start a holdover action.  I think you would still need to do a small claims court action for any non-rent monies outstanding (late fees, etc.).

Someone (maybe me?) did ask if we can allocate tenant monies received to rent last (that is, pay outstanding late fees before current rent); Jaime basically said that was not a good idea under the current law - that the court would likely re-allocate when assessing damages and it might harm your case to have been more aggressive.

Also, Jaime felt that raising rents and offering discounts for early payment could work - that way it's unpaid rent, not a late fee, in the eyes of the law.  But you would need to offer the discount across the board (to avoid fair housing issues/appearance of favoritism).

@Kevin Buckley Hmm, that must have been the 5-day late notice, because those must be certified mail, but the 14-day is separate and must be delivered by "process server methods", and can't go by certified mail.

In regard to the issue of habitual late payers, I think there are few ways to help combat this:

1) Tighter screening criteria. This may of course increase marketing time, but we find that this sort of behaviour doesn't tend to happen with tenants with higher credit scores.

2) Shorter lease terms.  MTM lease, or even 6 month leases are better than being stuck in this situation for a year.

3) Cash for keys. If they are habitually late and are going to cost you every single month of their tenancy, it may be better to cut your losses and pay them to leave. Think about how much more an eviction is going to cost now with lost rent, attorney fees, etc.

Quite a few changes with this latest legislation, but as some others have noted above, there are still things that can be done to incentivize on-time rent payments in full. From a perspective of establishing positive tenant behaviors, using tools that can report on-time rent payments directly to the major credit bureaus can be a positive reinforcer (ie. let your tenants know that this is a credit-building option, and by making payments in full this way can help them to boost their scores by up to 40 points). This will certainly incentivize on-time payments; the other side of that coin is negative remarks/late rent payments being reported as well. I'll defer to others on additional suggestions but I hope this helps. Thank you for sharing all the updates dealing w/ the NY Tenant Protection Act @Ryan Vienneau

@Ryan Vienneau   You forgot to mention it is now considered actionable discrimination to use a background check service to search for evictions and then reject a tenant based on those prior evictions.

I'm personally voting with my feet.

Even with the best screening practices there is no guarantee that a tenant will never be late. People are often motivated by rewards. Perhaps implementing an incentive to those habitual late payers. Let's say X amount off the 7th month's rent after the next 6 months of no late payments. I'd imagine it would be less costly and time consuming than repeating the eviction process every month...I've had my fair share of NYC's tenant friendly protection laws. In the end it was better to just buy them out.