New York City Council Weighs Rent Regulation on Commercial Spaces

The city has not seen commercial rent regulation in more than fifty years. The new bill amidst skyrocketing rents, pandemic and Inflation aims to change that.

By Vivek Patil

Since post-WWII commercial rent regulation expired in 1968, the New York City Council has never brought a bill to regulate commercial space to a vote. This law has been introduced and reintroduced by Council members over the last fifty years. But, with so many empty storefronts as a result of the pandemic, small business owners hope there is an opportunity to change this history.

Before the Covid-19 pandemic hit New York City, in 2019, the Commercial Rent Stabilization Bill was introduced by former Council Member Stephen T. Levin of District 33 along with 28 co-sponsors. The proposed bill aimed to regulate commercial spaces that are 10,000 sq ft or less, in a similar way that exists now to regulate residential units, in an effort to protect against rising rents. The bill was reintroduced in March 2022 by Deputy Speaker and Council Member Diana Ayala of the 8th district along with 22 co-sponsors. However, the next hearing of the bill before the Committee of Small Business is yet to be scheduled, and there are still no regulations on commercial spaces at all.

A spokesperson from the Office of NYC Public Advocate Jumaane D. Williams, who is also one of the sponsors of this bill told RentWire NYC,” Small businesses are the heart and the backbone of our communities, and we must protect them. When so many local businesses are forced out of business due to rising commercial rents, it can be devastating to the character and economic opportunity of a community. We’re hoping to see the bill, which we were proud to co-sponsor the last session and continue to now that it has been re-introduced as Intro 93 by Council Member Ayala, progress through committee and into law so that we can protect small businesses from future predatory rent hikes.”

There were over 7,624 vacant stores in New York City in December 2020, according to the NYC Department of Finance. The empty stores illuminate the exorbitant rents that many new and small businesses can't afford. This trend has triggered the crisis of commercial displacement. For every locally operated store that closes, New York City sees a loss in its vibrant culture.

The CRS bill is particularly significant for small business owners. According to a report published this month by Association for Neighborhood and Housing Development, “Rents are a key concern for small businesses, especially those operating in BIPOC and immigrant neighborhoods. Commercial tenants lack the baseline protections that residential tenants have and often experience unreasonable rent hikes, harassment, and displacement.” It continued, “during the pandemic, countless businesses lost considerable revenue and yet were expected to pay rent without sufficient support from the city, state, or federal programs. Many of these businesses still owe months of back-rent.”

Omar Khutgur, a manager at a fast food restaurant on Fulton Street, said that he has never heard about this bill. “We don't have as many customers as we had before and the rent is still the same, so we are making less money,” said Omar.  He pays around $2000 per month in rent and has a lease agreement with his landlord that mandates a $100 increase in rent every year. “It would be better if the bill gets passed. It will lower expenses and we get more profit and get sales,” Omar added.

In 2020, Seattle became the only city to pass rent regulation on commercial space to protect small businesses as a response to Covid-19, Under this Ordinance, if the tenant is not able to pay rent on time, the tenant can negotiate a repayment plan with the landlord. The passed Ordinance also limits landlords' ability to increase rents. The bill in Seattle defines a small business as a business with 50 or fewer employees. 

The New York commercial rent stabilization bill as currently structured doesn't take the size of the business into account for rent stabilization. It considers the size of the store as a metric for rent stabilization. The bill, as currently drafted, applies to commercial places that are 10,000 sq ft or less and 25,000 sq or less for a manufacturing establishment. Critics have raised contentions that a multinational company like Starbucks or Citibank can operate in 10,000 sq ft as well and this metric doesn't help small businesses in any way. It benefits big chains and companies, as landlords would prefer leasing places to them anyway.

“The point is not to regulate businesses, it's to regulate the landlords. This is a bill to regulate landlord behavior. To keep the landlords from raising the rents at their whip,” said Paula Segal, an attorney at Take Root Justice, a non-profit legal services organization, who wants these regulations to apply to every commercial space, regardless of the size of the space. Right now being a landlord in New York for commercial spaces is entirely an unregulated market, there is nothing controlling what landlords do.”

One of the key arguments of the opponents of the CRS bill is that there will be less retail space available for small commercial tenants. The Real Estate Board of New York (REBNY) has opposed the bill with a view that property owners will favor leasing to big businesses rather than small ones if this regulation is imposed. The Board called this bill “misguided” and proposed “smarter alternatives.”

Along with the proposed alternatives, the Board called for implementing policies such as a small business lease program as well as eliminating commercial rent tax.

Julian Hill, an assistant professor of law at Georgia State University, who authored an article titled, “Commercial rent stabilization: one local response to skyrocketing rents,” challenges those who argue against stabilization by making the case that it will benefit large franchises.    

If that’s the case, I would ask how the relative desire for franchises post-CRS would substantially differ from commercial landlords’ existing preferences for large franchises,” he said. 

“Folks have written about commercial landlords holding properties vacant to wait out for larger tenants. The NYC City Council proposed a bill some years back to address that issue. It’s not clear that the landlords that rent to the tenants I used to represent are interested in meeting the demands that may come from regional or national franchise tenants”, he added.

Drew Adler, a small business owner who runs a photo printing shop on Marcy Avenue in Brooklyn, pays $2300 per month for a 300 sq ft space. Adler has also never heard about this bill. 

“It's our first commercial lease, it's a three-year lease,” he said. “Obviously would be great, if the rent was stabilized. Obviously, we are trying to grow as a business, so we are trying to add more space.” 

When asked how his landlord would feel about the rent cap, Drew said,“He probably would be pissed.”