City taking the keys from illegal hoteliers

By Sarah Trefethen

New York’s City Council voted last week to set fines for landlords who illegally convert residential units into under-the-table hotels.

The legislation will set fines at $1,000 to $25,000 for those who illegally convert multiple apartments or receive repeated illegal conversion violations.

“Time and time again, we hear from residents who have been pushed out of their homes by landlords looking to make a quick buck,” Christine C. Quinn, city council speaker, said in a statement after the vote. “Our legislation will make sure there are immediate and severe consequences for landlords who endanger the safety of residents and tourists and take away affordable housing from New Yorkers in need.”

Christine Quinn

But critics say the fines are an attempt to treat the symptoms while ignoring the disease, and are using the vote as an impetus to fire another salvo in the unending debate over rent regulation in the city.

“We do not condone any property owner breaking the law and illegally converting units,” said Martin Heistein, a partner at the NYC real estate law office of Belkin Burden Wenig & Goldman LLP. “However, perhaps this is a good time for the City Council to examine the reason why this is happening by particularly looking at the onerous rent regulation laws that have existed for decades in New York City which are preventing owners from obtaining fair market value on their property.”

The legislation adds a section to the City’s Administrative Code prohibiting the illegal conversion of permanent residential units and would classify the illegal conversion of more than one permanent dwelling unit or a subsequent violation for an illegal conversion at the same dwelling unit or building as an immediately hazardous violation.

Martin Heistein

The legislation is designed to address a “growing phenomena” in New York, Heistein said. “An owner would have a brownstone and the bottom floor used to be occupied by a rent regulated tenant, and when that tenant vacates, the space the owner illegally converted the unit to a furnished bed-and-breakfast type hotel.”

Faced with a choice between $500 a month in regulated rent and $200 or $300 a night from a tourist, Heistein said, property owners have a strong motivation to break the law.

Under current rent laws, Heistein said, “owners are not able to get a fair return on their property, and specifically with respect to small property owners costs continue to increase.” This June, the Rent Guidelines Board set the limits on renewal leases at two percent or $20 (whichever is greater) for a one-year renewal and four percent or $40 (whichever is greater) for a two-year renewal.

New York City attracted a record 50.5 million visitors last year, according to the city council. The average hotel daily room rate was $277, according to NYC&Co. the city’s tourism arm.

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