Rent stabilization due diligence before you buy
The rent roll shows what the seller collects. The DHCR registration history shows what the law allows. The price should be based on the second.
What to get from the seller
- DHCR registration history for every apartment, all available years
- Current leases and renewals, and rent ledgers covering at least the six-year look-back period
- Individual apartment improvement files for every apartment claimed as deregulated or carrying a rent increase for improvements
- All DHCR orders, pending cases, and correspondence
- Certificates of occupancy, and the building's J-51 and 421-a history
What to compare
| Check | What a problem looks like |
|---|---|
| Rent roll against registration history | Apartments carried as free market with no documented exit from rent stabilization |
| Deregulation dates against June 14, 2019 | Apartments stabilized after the cutoff and now shown as free market |
| Improvement files against deregulation claims | Deregulation that depended on work with no proof of cost |
| Rents collected against registered legal rents | Current overcharges that become the buyer's exposure at closing |
| Registration years | Missing years, which carry DHCR penalties of $500 per apartment per month |
How it changes the price
An apartment the seller carries at a market rent that is legally stabilized at a lower rent reduces income permanently and brings overcharge exposure with it. Price the building on the income the law supports, not the rent roll.
Contract protections
Findings from the review belong in the contract: seller representations about regulatory status and rents that survive closing, an indemnity for pre-closing overcharges, and an escrow or holdback sized to the exposure. The Rent Stabilization Code generally makes the buyer responsible to tenants regardless of what the contract says. The contract decides whether the buyer can recover from the seller.
Have Evan review it
I review the seller's rent roll, registrations, leases, and deregulation files during your diligence period and deliver a written memo identifying which apartments are exposed and what that means for income.
Flat fee, quoted in writing before any work begins. Written memo delivered on a fixed date.