What is a 'Frankenstein' apartment and is it legal?

 

I’ve heard that landlords can dramatically hike the rent on stabilized apartments by combining or dividing them. How does this work, and is it legal?

Yes, there is a loophole for landlords of stabilized units that allows them to raise the rent by combining or chopping up existing units and turning them into so-called “Frankenstein apartments,” says Sam Himmelstein, an attorney at Himmelstein, McConnell, Gribben & Joseph who represents residential and commercial tenants and tenant associations.

From 1993 to 2019, landlords were able to remove apartments from rent stabilization through a combination of vacancy increases—the rent would go up when new tenants moved in—and apartment improvements— rent increases proportional to the cost of documented, significant renovations to the apartment. Through these increases, landlords eventually raised the rent over the stabilization threshold, and could make the apartment market-rate.

The Housing Stability and Tenant Protection Act (HSTPA) of 2019 did away with these practices, making it much more difficult for landlords to remove apartments from rent stabilization or raise rents.

But one loophole remains: “If a landlord significantly alters the apartment, by combining two apartments, for instance, or chopping up an existing one into smaller units, they can charge whatever they want as the 'first rent,'” Himmelstein explains. “The apartment will still be rent-stabilized, but the new rent can be whatever a new tenant is willing to pay.”

The ability of landlords to create “Frankenstein" apartments out of stabilized units has been a longstanding policy of the state Division of Housing and Community Renewal, from before vacancy deregulation was legal.

“The DHCR has held that if the landlord in effect created a new apartment by combining or dividing apartments and substantially altering its outer perimeter, that apartment technically never existed before, and the landlord could set what is known as first rent,” Himmelstein says. “That rent was potentially whatever the market would bear.”

These apartments will remain rent stabilized, but at a much higher rent.

This isn’t necessarily easy for landlords to accomplish, though: creating a Frankenstein apartment depends upon two nearby units both being vacant, so they can be combined, or one unit being large enough that it can be divided into multiple, smaller units.

And the alterations must be substantial for the apartment to qualify for first rent.

“We just won a case in state Supreme Court in which a landlord claimed they had substantially altered the apartment and was charging first rent,” Himmelstein says. “They had moved one wall to increase the apartment size by 8 or 9 percent, and the court ruled that was not enough to qualify for first rent and the apartment was still stabilized and the tenant had been overcharged.”

Furthermore, the policy may not be around for much longer: The DHCR is considering closing this loophole, according to Gothamist. And the New York state legislature is considering legislation which would bar Frankensteining.

“As a result, a lot of landlords are pushing really hard to do this while they still can, and some buyout negotiations with stabilized tenants have accelerated,” Himmelstein says.

https://www.brickunderground.com/rent/frankenstein-apartments-rent-stabilization-rent-increase