By Brian J. Pape, AIA
Bring back? Until recently, I never knew it had existed. All we hear is how high rents and taxes are devastating the mom-and-pop retail communities. Even our State Senator, Brad Hoylman, recently published a report entitled “Bleaker on Bleecker” on his website. The survey found 18.44% storefronts vacant on West Bleecker Street (26 vacant of 141 surveyed). Of course, this is happening throughout New York City, not just in the Village.
“You know you have a problem when Starbucks can’t pay the rent.” —Mayor Bill de Blasio on WNYC (March 31, 2017).
We must go back to the Second World War to track down commercial rent control in New York City. In 1945, responding to skyrocketing rents and eviction rates, the New York State legislature enacted a law that limited evictions and codified rent increases. Landlords could not raise rents by more than 15% above 1943 or 1944 rent levels if it would lead to a profit of more than 8%. The law was challenged repeatedly in the courts, and the New York State legislature allowed it to expire in 1963.
Also in 1963, when the City was approaching the State’s statutory limit on property tax rates and needed a creative way to generate revenue, leases below 96th Street became subject to New York City’s Commercial Rent Tax (CRT)—3.9% on base annual rents of $250,000 or more, paid to the landlord.
The Small Business Jobs Survival Act (SBJSA) was first introduced in the New York City Council by Ruth Messinger in 1984, and has been around in some form since then. The bill would grant commercial tenants the right to a minimum 10-year lease, the right to lease renewal, and the right to equal negotiation terms when renewing. It would also provide binding third-party arbitration and restrict landlords from passing property taxes onto business owners. Former Council Member Gale Brewer, now the Manhattan Borough President, championed that act, as well as restrictions on chain retail, in her Upper West Side area in 2012.
Similar proposals have existed in the City Council for decades, but the power of real estate is as strong in the City as it is upstate, if not stronger. The President of the Real Estate Board, Steven Spinola, called the bill an “unconstitutional intrusion” on property owners.
While legislation akin to the SBJSA may not exist in any other part of the U.S., something quite similar exists in the U.K. The Landlord and Tenant Act of 1954 established the right of tenants to renew their leases, with landlords able to regain their property in certain circumstances. As in the SBJSA, a landlord and tenant can agree on the rent in their new lease or turn to an arbitrator or court to set a new rent.
There are three differences between the U.K.’s policy and the SBJSA. First, the British law allows landlords and tenants to agree on a contract in which tenants sign away their right to lease renewal. Second, there is no required length of the lease. Third, when the court decides on a new rent, it looks only at one factor—the comparable market rents in the surrounding area.
This could be a disadvantage to the landlord, whose operating costs and mortgage costs would not be taken into account. “I’m pretty sure at the time of introduction there would have been a big outcry from landlords but now it’s accepted as normal practice,” said Tom Entwistle on citylimits.org; he is a British blogger and landlord who has written about real estate issues in Britain for years. (His website is landlordzone.co.uk.) Entwistle doesn’t feel that such policy discourages business development because businesses will usually invest more in their improvement, not less, when they have stability. Ultimately, “who operates where in big cities comes down to economic forces,” but the bill does help protect mom-and-pop stores that have “built up a valuable business over years in a locale…” added Entwistle.
The more common small business bills that do exist in New York City are like the resources offered by the City and State economic development agencies: They seek to provide clarity with forms, regulations, and other bureaucratic nuances related to opening and operating a small business.
De Blasio’s Department of Small Business Services (SBS) is spending about $27 million to streamline and defuse the regulatory process. With the New York City Department of Consumer Affairs, SBS has rolled out initiatives aimed at providing pro bono legal services to small businesses in lease negotiations.
All agree that the New York City Council had “home rule”: Only the State could institute residential rent control, but the City had a right to regulate commercial contracts, and this should be reconsidered at present.