Tenants Urge State to Close the ‘Frankenstein Loophole’ That Landlords Use to Supersize Rents
Testimony and a new report highlight how rent-regulated apartments are disappearing thanks to creative combining of units. The state is weighing rule changes that aim to end the practice.
Tenants flocked to a state housing agency hearing Tuesday to raise alarms about loopholes in the state’s rent laws — including one that allows landlords to combine empty apartments and sharply raise rents.
The Division of Housing and Community Renewal hearing focused on proposed amendments to rent stabilization rules, including one that HCR says would end the so-called “Frankenstein loophole” in the Rent Stabilization Code. Tenants reported a rise in this practice after passage of the Housing Stability and Tenant Protection Act of 2019 — historic tenant protections that eliminated most tactics landlords used to jack up rents and deregulate apartments.
“The 2019 law is supposed to be about more protection for tenants, not more opportunities for the landlords to make more money,” testified Moreom Perven, a renter in Jamaica, Queens, and a leader for the Bangladeshi Tenant Union, who led a rally outside the U.S. Custom House in Lower Manhattan ahead of the hearing.
“Frankensteining” is the term tenant advocates use for reconfiguring, dividing, or combining two adjacent units to create a new apartment. Currently, when rent-stabilized units are Frankensteined, the landlord can charge whatever they’d like for the new space, and potentially remove the new unit from rent stabilization altogether if one of the original apartments was market-rate.
“Warehousing and Frankensteining,” a new report from the Coalition to End Apartment Warehousing, finds that Frankensteining apartments is the main path landlords still have to raise rents on vacant apartments.
“These newly created units are not currently protected from deregulation and skyrocketing rent increases,” testified Assemblymember Deborah J. Glick (D-Manhattan). “Even when regulated apartments are combined to form a new apartment, the landlord is free to ask for whatever rent they choose, effectively removing two or more regulated units from our affordable housing stock in favor of high end apartments.”
Glick noted that Frankensteining is inextricably linked to warehousing — referring to the practice of landlords keeping vacant, rent-stabilized units off the market. THE CITY previously reported that tens of thousands of rent-stabilized apartments are currently empty.
Off the market
Frankensteining “has led to a spike in vacant apartments being kept off the market,” Glick testified. “The obvious rationale for mass warehousing of apartments — that has been documented — is the hope that future adjacent vacancies will arise and provide an opportunity to combine these units and name a higher first rent.”
HCR is proposing an amendment that would set the new rent of a combined apartment as the sum of legal rents for both original rent-stabilized units plus any permitted improvement-related increases, rather than a rent of the landlord’s choosing — thus limiting the financial incentive for Frankensteining.
The “Warehousing and Frankensteining” report states that landlords sometimes vacate apartments intentionally — using tactics that include offering market-rate tenants short leases or requiring them to switch apartments, pressuring tenants in adjoining apartments to leave, offering tenant buyouts, and harassing tenants with construction work.
Patricia Loftman, president of the Park West Village Tenants Association, has lived in her Upper West Side building for 50 years and has noticed more and more apartment vacancies in recent years.
Most of Park West Village’s rent-stabilized units are in three of the complex’s seven buildings. According to Loftman, of the 864 apartments in those three buildings, about 80 are vacant, six are the product of Frankensteining, and 22 are currently being Frankensteined.
“These apartments represent a significant block of lost affordable and habitable apartments,” testified Loftman at the Tuesday hearing.
‘Deteriorated’ and Desirable
Another back door to deregulating apartments concerns “substantial rehabilitation.” This policy allows landlords to take whole buildings out of rent stabilization if they replace 75% of building systems, such as plumbing or heating, and can prove that when the construction began, the building was in a seriously deteriorated state.
Under the old regulations, an 80% vacancy rate is considered an adequate threshold for demonstrating deteriorated condition.
Tenant activist Alex Yong testified against this definition of deteriorated — noting that the state is not informed whether a tenant left because of a landlord buyout. “A tenant offered a buyout, by definition, is in a unit a landlord wants, thus the apartment very often is NOT deteriorated,” he said.
Yong is concerned that the existing regulations offer landlords an incentive to intentionally vacate apartments to reach an 80% vacancy rate, so they can qualify for substantial rehabilitation and deregulate entire buildings. HCR’s proposed amendments would repeal the definition — no longer assuming that an 80% vacancy is proof of substandard condition.
“We’ve seen a huge uptick in landlords applying for this deregulation based on substantial rehabilitation, which I think shows us that landlords are adjusting their tactics so they can continue to find ways to deregulate apartments and charge unaffordable market rate rents,” Jordan Cooper, co-director of Community Action for Safe Apartments, told THE CITY.
Cooper testified on behalf of the statewide Housing Justice For All coalition in favor of strengthening regulation of substantial rehabilitation. She said the coalition wants HCR to investigate the tactics landlords use to create vacancies before the state evaluates an application, among other improvements.
Landlords Push Back
Landlords and real estate representatives are pushing back on the state’s proposed changes.
“This is one of the only legal ways left that owners have the ability to increase revenue,” Kelly Farrell, policy analyst for the landlord group Rent Stabilization Association, told THE CITY regarding the combination of adjacent apartments — adding that she prefers not to use the term “Frankensteining.”
Farrell testified at the hearing alongside RSA’s General Counsel Olga Someras, highlighting Frankensteining and substantial rehabilitation as the “two legal avenues left” for owners to increase rental income. In their submitted written testimony, they also argued that HCR’s proposed amendments on substantial rehabilitation are “throwing hurdles in the way of owners who wish to bring their buildings into the 21st century.”
Other building-owner representatives, including Joseph Condon, general counsel for the landlord group CHIP, testified that the state has not tracked how often apartments are reconfigured.
The “Warehousing and Frankensteining” report attempts to fill this gap by investigating the scale and consequences of reconfigured apartments using case studies across nine buildings.
The report documents over 60 units that have been Frankensteined and over 100 warehoused units — including those in Loftman’s building complex. Using on-the-ground knowledge from tenants, bolstered by landlord property tax data showing historical rent-stabilization unit counts and subsequent apartment rental listings on websites like StreetEasy, the report shows where and how apartments are deregulated.
“Currently there are no ways for tenants to challenge these combinations, and no recourse if new rents are excessive,” the report reads. “It is imperative that existing units of rent-regulated housing be available for rent and their number not further eroded.”