By Robert Sedaghatpour, STRATCO Property Group
Far too many New York City Multi-Family operators see Housing Preservation and Development (HPD) violations as a source of stress so great that they simply retreat into neglectfulness.
They do not see value in removing the violations and operating a violation free building.
On the surface, operators face opposing forces: the desire to maximize profit on their buildings while these HPD violations only increase demands on resources both managerially and financially, offering no obvious benefit in revenue growth.
In order to operate with precision in NYC and be best in class, you must be able to operate a violation free building. There are several clear benefits to doing so.
Insurance Premiums
When providing quotes for your annual insurance policy, brokers, as part of their building due diligence review the violation history of a building.
It is the easiest way for a third party to determine whether there are deferred maintenance issues and potential areas of liability.
When the building shows class C violations (“immediately hazardous”), insurers often require you to remedy the violations in a defined period of time with any new policy. An insurance company who is providing coverage to protect you, wants to remove actual perils to human life as this reduces the chances of having to defend lawsuits or pay for injuries.
Ultimately, a violation free building provides a lower insurance premium and easier negotiation to obtain insurance coverage.
HP Actions
Tenants have a right to live in a stable and safe home. The number of violations an apartment has is a common metric for measuring that level of safety.
If a landlord fails to address the violations, a tenant may sue the landlord in a so-called “HP Action.”
This is a mechanism whereby a landlord will be fined per day per violation for the number of days the landlord failed to cure each violation. It provides financial pressure on the landlord to act responsibly.
For a landlord, this is costly, time consuming, and an activity that can be avoided had they acted in a proactive manner.
While HP Actions are relatively rare in buildings lacking in C violations and with a violation per unit ratio of lower than one building-wide, buildings exceeding those benchmarks are common targets of such actions.
Clean Hands Doctrine
In housing court, a judge often checks the violation history of a building and unit in question during each proceeding.
It is a measuring tool used to determine the quality of operator and of the operator’s commitment to fulfilling its responsibilities. In order for landlords to establish credibility in cases they bring against tenants, the landlords must be able to show they are operating a clean building.
It is difficult for a court of law to believe or trust the more monied, more powerful parties (landlords) if they have not done everything they are responsible for with perfection. Courts hold landlords to a much higher standard than they do a mere tenant.
Thus, when entering any court proceeding, you must make sure you have fulfilled all your management responsibilities in full. Sooner or later, deficiencies will become exposed.
A judge will respect and often give the benefit of doubt to the operator who operates with a track record closely adhering to perfection. This is the element that many operators miss when they complain that the housing court decisions do not favor them.
Tenant Fraud
Most landlords have some tenant who abuses the system and constantly the files the same complaints over and over again. Too many operators have disregarded these complaints and let the violations accumulate. However, there is case law that protects the landlord from tenants that abuse the system.
These tenants file false complaints in order to distract or avoid proceedings where they have violated their leases. A landlord may initially give up addressing the violations because they are onerous, time consuming, or a waste of resources. However, it is key to remove them, responding to the complaints or potential violations.
Most importantly, one must document the tenant’s behavior. In due time, the truth will come out. The court system is inclined to respond favorably to a landlord and with a lack of grace to such tenants who are abusing the very system which is meant to protect them.
This is also most evident with respect to chronic non-payment holdovers. Those landlords who can document that they operate with clean hands, and maintain a violation free apartment during the course a tenant’s history of non-payment proceedings, are likely to be victorious in reclaiming their apartments from such unscrupulous tenants.
Summary
If you intend to drive your expenses down and create a stream of revenue growth, you must maintain a healthy building. In order to do so, you must create a violation free building.
You will be able to achieve your results on your building turnaround much more quickly by acting responsibly regarding your obligations to your tenants. For the highest return on your investment, you must take preventative action.
