Of course in the long run the practice of rent controls prevents land owners from building new apartments because they can't make any money as long as the government forces them to rent their property out at below market rates.

One tenant did not pay his rent for five months ... after consulting with a lawyer and deciding that an eviction process would be both lengthy and expensive, the landlord paid the man $4,000 to move.

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The Lucky Break of Rent Stabilization

By MARC SANTORA

Published: February 4, 2011

THERE are nearly a million rent-stabilized apartments in New York City. Which means that there are at least a million lucky people who know they have relatively low rent that isn’t going to rise too far, too fast. These fortunate souls also know that their leases, especially for apartments in Manhattan and parts of Brooklyn, are worth far more than the paper they are written on, should the landlord or a developer decide to buy tenants out.

A whole industry is built around paying tenants to move, and it is cloaked in mystery. Developers, seeking to spend as little as possible, make offers quietly and individually. Neighbors, wary of spoiling a deal, don’t talk to one another about those offers. There are no guidelines to help people figure out what an apartment is worth, and no easy ways to calculate the emotional toll that comes with moving from a home, sometimes after decades.

“We always have battles between tenants and landlords as to what the true market value of an apartment is,” said Luigi Rosabianca, a lawyer and managing member of Rosabianca & Associates, who has worked on dozens of cases involving rent-stabilized apartments, representing both tenants and landlords.

Often, in the end, it comes down to whether one has the stomach for a fight: the longer one of these battles plays out in a building that the owner is determined to empty, the worse conditions tend to get.

“The whole process is usually slow as molasses,” Mr. Rosabianca said. “These tenancies are sacred.”

How much cash it will take to get a tenant to break the sacred bond can vary wildly, even within one building.

For instance, at one building on 23rd Street, many tenants took the $17,000 initially offered by the developer, said Steven R. Wagner, a real estate lawyer at the firm Wagner Davis who represented a tenant there.

Mr. Wagner said his client, after months of refusing to budge, skedaddled when the developer agreed to pay more than $400,000.

There are even more extreme cases.

At 220 Central Park South — a trophy address by any estimation — a development team from Vornado Realty Trust and the Clarett Group, after years of court battles, has reportedly paid more than a dozen tenants $1.3 million to $1.6 million apiece to vacate their rent-controlled homes so the building can be torn down and a luxury condominium tower put up in its place.

A spokeswoman for the developers, who bought the 22-story white brick building for $131.5 million in 2005, refused to comment.

For anyone outside of New York City, the notion of turning down tens of thousands of dollars simply to remain in an apartment may seem crazy.

And to be sure, many rent-stabilized tenants take the first offer they receive and move on with little regret. Some even approach their landlords if they think they can make a quick buck by agreeing to depart.

Others hold on for dear life.

Most of the buyout stories you hear are at best secondhand, whether a tale of landlord threats and intimidation, or of a multimillion-dollar project stonewalled by a recalcitrant renter. That said, almost everybody involved in buyouts — developers, tenants, landlords and sometimes even lawyers — is reluctant to discuss the process, even years later.

Still, a longtime tenant of a rent-stabilized apartment and a new landlord, in separate interviews, agreed to provide a peek from two very different vantage points.

Maggie Kim, 34, had heard about people bought out of rent-stabilized apartments, and when a developer bought her building, she knew it might be worth her while to hang tight.

When she moved to New York more than a decade ago, she went through all the frustration that usually comes with looking for a place in Manhattan. Then she went to see an apartment in a building owned by “the friend of a friend” of her mother. Located in the 40s, near Bryant Park in Midtown, it was a spacious one-bedroom that was clean and, most important, rent-stabilized. At $700 a month, it was about as cheap as one could hope to find in Manhattan.

As an artist, Ms. Kim doubts she could have afforded to live in the neighborhood if she had had to pay market rate.

For the next decade, with the rent increasing only $75, she happily called the apartment home, even after she started making more money and might have been able to afford a bigger place.

“It’s Manhattan,” she said, “and if you’ve got a big, cheap apartment to yourself, it is kind of stupid to give it up.”

The developer first offered to let her move into another building for three to six rent-free months, but she refused. Then she was offered $10,000 to leave. Again, she refused. After turning down yet another offer, this one for $25,000, she decided to consult with Mr. Wagner, the real estate lawyer.

Steven R. Wagner, also a real estate lawyer, says big development companies usually figure the cost of buying out rent-stabilized tenants into the overall budget.

He found out that the developer had around $22 million in financing outstanding on the project — making any delays very expensive and giving Ms. Kim some leverage.

Weeks went by before the developer reached out to Ms. Kim again, this time offering $75,000. She said no again.

Ms. Kim said that her decision to fight was easier than it might have been because she had been planning on moving out of the country.

But it was still fraught with risk, especially because she did not know what her neighbors were doing. By this point, many had taken the money and cleared out. And as the weeks passed, the building descended into disrepair.

“It did get a little spooky living there,” she said. “There were a lot of problems with rodents, and one night I discovered a homeless man sleeping in the entryway.”

Those tenants who remained did not speak to one another about the various offers on the table.

“It was all hush-hush,” Ms. Kim said. “Originally, I’d asked the two remaining tenants if they wanted to present a united front, but one backed out because she had negotiated a few tens of thousands more than the original offer of $10,000, I think, and was afraid to lose it. And I don’t know what happened with the other guy. He was there after me, and we definitely were wary of discussing our negotiations when we crossed paths in the building.”

As part of the settlement, Ms. Kim is not allowed to discuss the exact amount she received to leave her apartment, but it was substantially more than the last offer of $75,000.

Mr. Wagner, the lawyer, says big development companies usually figure the cost of buying out rent-stabilized tenants into the overall budget. But they are really just guessing. There is no telling how high a hurdle they will face — both legally and financially.

He cited several cases in which the gap between the first offer made by developers and that accepted by tenants had been hundreds of thousands of dollars.

For the fortunate few like Ms. Kim, being bought out can be a life-changing experience.

She moved to Paris, where she has just begun a new venture, HiddenConcerts.com, through which she will host private musical performances in her new apartment.

The venture is another reason she is glad she left New York.

“There’s no way I had the space to have concerts in my N.Y.C. apartment,” she said.

Without rent stabilization, she might not have had a Manhattan apartment at all. “I know there are people who can afford market rate, and then some, but have lucked out with a rent-stabilized place,” Ms. Kim said. “That certainly doesn’t seem fair. Then again, Manhattan real estate has a lot to do with luck, doesn’t it?”

Of course, that question is at the heart of the perennial debate over the fairness and effectiveness of rent-stabilization laws.

The windfall payments only add fuel to the always heated discussion, which is picking up as the rent-stabilization law is set to expire in June. Debate persists over whether to extend the law, revamp it or simply let it lapse.

Over the years, it has been revised many times, and in 1993 a significant change made it easier for landlords to destabilize property. Essentially, the law allows landlords to raise the rent as much as 20 percent when a tenant vacates a property. And once the rent goes above $2,000, the vacant apartment is destabilized.

As a result, according to a report prepared by the Rent Guidelines Board, the stock of rent-stabilized apartments has been shrinking. In 2009, 18,588 housing units left rent stabilization, the largest number since the board’s first report was prepared in 2003.

At the same time, 8,536 rent-stabilized units entered the market that year, mainly through a program that offers developers tax breaks if they include rent-stabilized apartments in their projects. That program — known as the 421-A tax break — expired in December, and it is unclear whether the state legislature will reinstate it.

Between 1994 and 2009, 97,384 apartments were subtracted from the rent-stabilization rolls when they crossed the $2,000 threshold and were vacated. The majority of those apartments — 75,376 — were in Manhattan.

But many landlords would rather not wait for an apartment to become deregulated over time.

Matthew Haines, the founder of PropertyShark.com, which aggregates real estate data from hundreds of private and proprietary sources and puts the information online, is no stranger to tales of New York City real estate woe.

But as a landlord himself, he was struck by how difficult it can be to persuade rent-stabilized tenants to leave a building.

In 2003, he bought an eight-unit apartment building on West 119th Street that included rent-stabilized apartments.

Although the building was profitable from the start, even with the regulated units, Mr. Haines wanted to refurbish and upgrade it, and bring all the rents to market rate.

The experience, he said, was enough to make him “never want to be personally involved in a building again.”

“I was in the building every day working on it with my hands,” Mr. Haines said. “I let the tenants know that if the unit they were living in was no longer ideal for their life needs, I would give them money to help them move on.”

“I gave one woman a couple of thousand dollars to help her move to a bigger place in the Bronx,” he recalled.

Mr. Haines was eventually able to buy out four of the tenants.

“If you want to talk about the daily experience of most New Yorkers,” he said, “they don’t get half-million-dollar buyouts. Usually, from what I have seen, they get four or five thousand dollars and don’t engage a lawyer.”

But he had a holdout who drove him crazy.

“I had a tenant in a stabilized apartment who did not pay his rent for five months,” he said, adding: “He was employed. I have no idea why he didn’t pay his rent.”

After consulting with a lawyer and deciding that an eviction process would be both lengthy and expensive, he paid the man $4,000 to move.

“The law creates so many situations where one person can hold all the other people hostage,” he said. He got so fed up with “the mental energy that goes into dealing with the bureaucracy” that he sold his share of the building to his partner.

“It was the indignity of it all,” he said. “Now I just write a check and invest in properties without getting personally involved.”