Since New York state enacted the Housing Stability and Tenant Protection Act in 2019, condo conversions have become nearly impossible because of a need to secure commitments from 51% of current tenants before proceeding with a conversion.
But the Affordable Housing Retention Act, a four-year measure enacted this May, allows certain developers to move forward once 15% of units are committed to bona fide purchasers. In exchange, developers must permanently preserve a portion of the building as affordable, rent-stabilized housing.
NYC Condo Conversions
These changes have been especially apparent in New York City. The HSTPA dramatically reshaped the development landscape, and condo conversions all but disappeared.
The HSTPA placed strict limits on how landlords can recover costs from individual apartment improvements and major capital improvements, stretching amortization periods and capping rent increases, which makes investments far less profitable. It also tightened rules on owner-occupancy evictions.
The increase in the requisite tenant commitments to 51% prevented any potential shift by landlords, developers, and investors to convert multifamily buildings into condominiums. The AHRA could set off a new wave of conversions and ease the record highs in rent and record laws in housing stock by giving New Yorkers a chance to become homeowners.
As a result, developers and investors redirected their capital to markets with more favorable conditions, fueling a development surge in cities in Florida, Texas, and elsewhere across the Sun Belt.
Although New York issues the highest number of multifamily building permits, southern and southwestern cities dominate real estate development rankings, and Sun Belt markets continue to rank among investors’ most favored for multifamily. This type of shift gives a good example that stakeholders cite when pushing for targeted reforms such as the AHRA.
When development becomes infeasible—particularly in a real estate hub such as New York City—the impact extends far beyond developers. Investors, construction and architectural professionals, laborers, lending institutions, and their attorneys all feel the effects. Fewer projects mean fewer jobs, reduced housing supply, and lower property-tax growth.
Anyone involved in New York real estate, even indirectly, should understand that these protections reach far beyond housing court. Missteps such as incomplete due diligence, improper buyout practices, or inaccurate disclosures can lead to civil penalties, tenant harassment claims, loss of tax benefits, and voided offering plans.
Even if these responsibilities don’t fall directly on your client, knowing the rules can help identify and appropriately allocate the inherent risks.
Essential Due Diligence
When considering conversions, developers must uncover overlooked regulatory issues, which can lead to significant penalties and stalled plans.
Plan the offer. To move forward, developers submit an offering plan to the New York Attorney General’s Real Estate Finance Bureau. When rent-regulated tenants are present, a non-eviction plan is typically required. This allows rent-regulated and market-rate tenants to remain in their apartments without being forced to buy or leave.
It isn’t a surprise that conversion of rental buildings into condos has slowed since the HSTPA’s enactment. Pursuant to the new AHRA, certain large buildings can satisfy the 15% threshold even when units are sold to outside buyers, not just existing tenants, significantly expanding the path to approval.
Pre-2019 laws required securing an agreement to purchase from at least 15% of current tenants. The AHRA brings the threshold back down to 15% and permits non-tenant purchasers to count toward it.
But under the HSTPA, a developer owning a 100-unit rental building needed 51 tenant-purchasers (more than half of existing tenants) to sign purchase agreements. In practice, this was nearly impossible—most tenants wanted to stay as renters, not buy, and many couldn’t afford market-rate condo prices.
Now, those buyers don’t all have to be current tenants, but those who wish to stay as renters can continue to do so, because the law requires a permanent portion of units remain affordable and rent-stabilized.
Buyouts and oversight. Voluntary buyouts of rent-regulated tenants remain legal even if the chances to use them are limited. But offers must not be coercive or repetitive, and developers must retain all communications and ensure tenants are informed of their rights.
A buyout alone doesn’t deregulate a unit—a legal path must exist under current law. Failing to adhere to these standards can expose developers to tenant harassment claims, which carry fines up to $10,000 per unit and may jeopardize the offering plan itself.
The attorney general’s office rigorously reviews all offering plans, especially those involving regulated tenants. Incomplete or misleading disclosures can lead to plan rejection, delays, or in extreme cases, revocation of approval.
Best practices. Condo conversions require diligence, transparency, and strict legal compliance. Conduct a full regulatory audit before proceeding with purchasing a building, retain counsel with rent regulatory law expertise, and ensure accuracy in all offering plan disclosures. Make sure to document any buyouts carefully, and comply with buyout offers and agreements.
All of this can prevent liabilities such as civil penalties, unit re-regulation, treble damages, loss of tax benefits, voided offering plans, and lengthy delays.
A regulatory audit includes confirming the rent-regulated status of every unit, reviewing prior DHCR registrations, and checking for pending tenant complaints or proceedings. When a rent‑stabilized building converts to a condo or co‑op, existing tenants usually may remain.
In the context of condo conversions, owners who misrepresent the regulatory status of apartments may face civil penalties, and inaccurate offering plans can lead to deposits returned, approvals rescinded, or plans declared void.
Buyouts must voluntary, clearly documented, and compliant with disclosure requirements. Tenants must receive written notices of their rights. Developers should also implement a system to track and store all tenant communications so they can demonstrate compliance if challenged.
If a buyout offer or agreement is found to be improper, owners can be liable for up to $10,000 in fines (more if the harassment is found to have occurred within the last five years). Accuracy in all offering plan disclosures is non-negotiable.
While the market hasn’t returned to pre-HSTPA activity levels, the AHRA is a modest signal that development incentives may be making a return. That said, post-2019 tenant protections—and the penalties associated with violating them—are likely here to stay.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.
Author Information
Steven Kirkpatrick is a partner in the litigation department at Romer Debbas.
Kate Wildonger is an associate in the litigation department at Romer Debbas.
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