Total existing-home sales—completed transactions that include single-family homes, townhomes, condominiums and co-ops—rose 3.1% from December to a seasonally adjusted annual rate of 4.00 million in January.
BARRISTER'S BRIEFING: Getting More Than One Month’s Rent in Advance: Seasonal Rental Amendment to the Housing Stability and Tenant Protection Act
Back in 2019, the New York legislature enacted a broad new law that provided sweeping housing reforms and protections for tenants relating to permanent residential housing. Among these rent regulations was one that caught many landlords and real estate agents by surprise and I am still asked, nearly two years later, to confirm or explain this rule. That rule, found under subsection 1 of Section 7-108 of the General Obligation Law was:
No deposit or advance shall exceed the amount of one month’s rent.
This provision meant that a landlord or his/her agent cannot require a tenant to provide more than one month’s rent as an advance in total on the rental of a residential property. It meant that if a landlord were to hold one month’s rent as security, they could not charge a last month’s rental fee, a pet fee, a move-in fee, or a myriad of other financial advances designed to protect the landlord. This simple sentence, in one fell swoop, changed how landlords operated. With the passing of this law, landlords were no longer financially protected and they could be left in a dire financial situation if they encountered a bad tenant. More importantly, some landlords, who operated seasonal rentals, were left in a precarious situation.
The model for seasonal rentals is simple: the renter pays for the entire time they are going to use the rental unit up front. A two-month rental requires two months’ rent up front, and usually a deposit/damage fee, which is refunded at the end of the rental term after the rental is cleaned and examined for damage. Similarly, full summer rentals required the entire rental amount (or sometimes one half) up front. However, with the advent of the 2019 rent regulations, a landlord in the Hamptons, for example, could not rent his summer property and require the full amount up front. The landlord would have to enter into a lease agreement with the renter and collect the money at the beginning of each month and they could not hold more than one month’s rent as security. Not only did this arrangement create problems financially, particularly if the landlord was renting a spacious luxury property, but it also created some potential legal problems as well.
In an effort to carve-out these seasonal rentals, a bill was proposed to the New York legislature and it passed both houses and was signed into law by Gov. Kathy Hochul on Sept. 30, 2021. The amendment, known as the Seasonal Use Dwelling Unit (SUDU) amendment was made effective immediately. This amendment allows seasonal use rental landlords to charge more than one month’s rent as security or as an advance. If a landlord wishes to avail themselves of the SUDU amendment and charge more than one month’s rent in advance, they must comply with several requirements. They are:
The local government, county, or state agency must have established a registry of seasonal rental units;
The seasonal rental unit must be registered with the established registry;
The lease must expressly provide that:
• The seasonal rental unit is registered on the registry and provide the agency where it is registered;
• The lease must state that the occupancy is for a seasonal term not to exceed 120 days;
• The tenant must have a primary residence to return to, with that address provided in the lease.
• The unit cannot be rented for more than 120 days each calendar year.
The amendment provides that if the landlord of the property does not adhere to these provisions, the local government, county, or state agency is authorized to revoke the seasonal use dwelling unit’s registration.
While this amendment is very straightforward and is a benefit to certain landlords, there are a few problems that are raised as well. The SUDU amendment requires the establishment of a seasonal rental registry by a local, county, or state agency. NYSAR has opined that it is doubtful that the state will establish such a registry and believes that a seasonal rental registry will need to be established by local or county governments. How and when that takes place is to be seen and it is suggested that landlords reach out to their representatives to initiate and/or promote the establishment of these registries. Until that time where a registry is created, no landlord can avail themselves of the new amendment and charge more than one month’s rent as an advance.
Another issue is that while seasonal rentals of 120 days or less are covered under this provision, other rentals that extend beyond 120 days are not covered. Many landlords that provide housing for college students rent in a similar fashion to seasonal rentals. They too were impacted by the 2019 rent regulations; however, because they rent for a period in excess of 120 days, they are not covered under the new SUDU amendment. Additionally, many landlords that rent on a short-term basis to business people who are relocating or are assigned to a New York location on a temporary basis follow a similar model as seasonal rentals. They cannot take advantage of the SUDU amendment if the lease is greater than 120 days. Presently, there is no legislation on the horizon comparable to the SUDU amendment that may assist these landlords in securing their financial investments.
The SUDU amendment is a benefit to a specific segment of landlords, if and only if a seasonal registry can be created and the SUDU landlords comply with the requirements of the amendment. The amendment itself resolves the overlooked seasonal rental industry problem that was created by the 2019 rent regulations; however, it ignores other similarly-situated short-term rental industry landlords that still struggle with the 2019 rent regulation restrictions. Whether new legislation is proposed to help these landlords or broaden the scope of the SUDU amendment is to be seen, but at least the SUDU amendment has passed and we will all watch to see how things develop.