Let’s Talk About Lease Renewal & Rent Stabilization

Let’s Talk About Lease Renewal & Rent Stabilization

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Rent Stabilization

In New York City, some apartment buildings are rent stabilized. This means these apartments can only increase by a certain percentage that is calculated by the New York Rent Guidelines Board. It varies each year.

This year the increase is 2% for a 1 year lease, 4% for a two year lease. The image below shows rent stabilization increases for the past ten years. Historically, this year’s 2% is the lowest increase since 2002. View the PDF for data going back to 1969.

NYC Rent Stabilization Increase Rules

1-Year Vs. 2-Years

I am given the choice to sign the lease for 1-year or 2-years. As you see in the chart above, signing for 2-years locks in the 2% increase rate of this year.

My options are:
1) Sign the 1-year lease, pay a 2% increase for 2013 which is an additional $26/mo. If I renew in 2014, I will be subject to a new rent increase.
2) Sign the 2-year lease, pay a 4% increase for 2013 & 2014 which is an additional $52/mo. I will not be subject to a new rent increase until 2015.

I have broke down the numbers on whether signing a two-year lease will save money over the course of two years versus paying two different rent increase rates. Below are my calculations (feel free to check my math):

Current Rent: $1,300/mo – $15,600/yr

One-Year Renewal
2% Increase: $1,326/mo – $15,912/yr

Two-Year Renewal
4% Increase: $1,352 – $16,224/yr – $32,448/2 yrs

Now, we need to determine if paying 4% for two years will save money compared to paying 2% for the first year and an unknown rate the second year. I calculated out a few scenarios:

  • 2% Increase (stays same): $32,136/2 yrs – $312 less
  • 2.5% Increase : $32,221/2 yrs – $226 less
  • 3% Increase : $32,301/2 yrs – $146 less
  • 3.5% Increase : $32,381/2 yrs – $67 less
  • 4% Increase: $32,460/2 yrs – $12 more

Signing a two year lease will only benefit me financially if the rent increase next year is 4% or higher.

Historically, looking at the first image, this could be possible, although the increase has never been much higher than 4%. Unfortunately, I have no knowledge of current market conditions to be able to make any kind of educated guess on this. I do know the rent increase will not go lower than 2% but either way there is a risk of overpaying.

Help

Looking at the numbers, what do you think?

For those of you who have experience with rent stabilized apartments, am I looking at this correctly? Some of the terminology is confusing and I might be misinterpreting things.

Update

I decided to renew for 1 year at the 2% rate increase. I am taking the chance that next year’s increase will be at least less than 4%.

Bonus Information: Rent Prices & Incomes by Neighborhood

For those of you interested, I found a data table comparing stabilized rents to market rents. The prices vary quite a bit by neighborhood.

Here are some highlights of rent comparisons & median income of market rate households:

  • Bronx: Soundview/Parkchester has a 10% difference of rents and a median income of $31K. Mott Haven/Hunts Point has a 41% difference and a $16K median income
  • Brooklyn: Bensonhurst has a 1% difference and a median income of $36K. Park Slope/Carroll Gardens has a 54% difference and a $87K median income
  • Manhattan:Lower East Side/Chinatown has a 106% difference with a median income $110K.
  • Queens: Astoria has a 5% difference and a median income of $52K.

Explanation of NYC's Rent Stabilization
Readers, I am looking for your advice and knowledge on lease renewal options.

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10 Replies to “Let’s Talk About Lease Renewal & Rent Stabilization”

  1. I was researching the exact same problem and found your website. What did you decide? I’m leaning towards a 1 year renewal at 2% and rolling the dice that next year’s increase won’t be above 3%.

    1. I did end up renewing 1 year at the 2% rate increase. I decided to take the chance and hope next year’s will be at least less than 4%. Also, since the numbers are so close, I do like knowing I have the flexibility to move in a year if I need to. Although hearing everyone else’s rent increases, I don’t see myself leaving this apt anytime soon!

  2. Thank you for this post. I felt like an idiot trying to calculate if I was saving by signing a two year lease. Last year I didn’t blink twice and signed a one year lease. It didn’t make sense to pay more for two years. This year the numbers (percentages) confused me. I think i’m going to roll dice as well and go for one year lease. Again, thanks for posting, it is very helpful.

    1. I’m happy to help! Rent stabilization is great but the renewal process is a bit complicated. Either way is a gamble really. But I, as well, plan to continue the 1 year renewal plan for a while. Two years is just a big commitment even without the financial risk of it.

  3. Hmmm. My husband and I live in an up and coming area of Brooklyn now. If we left, we couldn’t afford to move back. We are seriously considering the 2 year lease at 2.75 % because we love it there and don’t want to risk the possibility that the Rent Board won’t be so forgiving next year or may be influenced by angry landlords who took a hit this year – however from all that I am reading here, it seems we should take a gamble and go for the 1 year lease in hopes that next year’s renewal won’t be more than 2.75%…..

    Any advice?

    1. I actually am going to do a follow-up post on this soon because of the new rates. The first year I made that risk and it was… okay. The following year rent did go up by 4% for 1-year so I barely broke even. With rates so low now, at 1% & 2.75%, I am planning to sign the 2-year lease for my apartment when it comes up in February. I have a feeling that there will be a big jump again next year, since it is so low this year. It is worth doing the math on your specific rent though if you really want to determine at what point you’d be losing out on money.

      1. Doing the calculations for a 1 yr vs a 2 yr lease over time to decide what’s best seems to depends on what you think the following year’s increases will be. Often the 1 yr leases over time seem to save some money.

        There is another factor though that no one seems to be incorporating into calculations on rent stabilized rents, which is whether going with the 1yr or 2yr rent stabilization leases gets you to the $2,500 decontrol limit quicker (assuming you’re still under that limit which won’t apply to everyone).

        My calculations generally are that the 2 yr leases gets you to the limit later than repeated 1 yr leases which gets you to the limit quicker. I’ve also concluded that you’ll probably pay a bit more over time signing the 2 yr leases, but it’s a premium to keep your rent under $2,500 longer.

        I’ve not been able to fully calculate how many years the 2 yr lease may keep you under the limit (since it ofcourse depends on predicting the yearly % increases), but it’s at least 2+ years at a minimum if not more from my estimates. Hope this makes sense.

  4. Forgot to mention that to decontrol an apartment (i.e. removing it from stabilization rules) is a combination of rent over $2,500 and a combined income of folks living in the apt. for 2 successive years of $200K or over.

  5. Any advise on 2015? Received my renewal, options for 0% – 1 Year, & 2% – 2 Year.
    As I am nearing the $2,500 monthly rent, signing for I year I will be @ $2,200. Vs $2,250 for a two year. It is my understanding that once Rent hits $2,500 it can not be removed from stabilization if ternate does not earn $175,000 + a year.
    What would you suggest

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