What Landlords Need to Know About Basement Conversions (UPDATED)

LandlordsNY Member

LandlordsNY Member

The New York City Council will convene for a stated meeting next Wednesday, February 13. One of the bills that could be voted on, should City Councilmember Brad Lander (D-Dist. 39) get his way, will be Int 1004. If passed, the bill will create a pilot program in Brooklyn's Community District 5 (East New York, Broadway Junction, Cypress Hills, and Starrett City) that will allow for the creation of 40 housing units in the basements/cellars of one- and two-family homes. The program will be run for three years before an agency to be appointed by the Mayor’s Office will review its impact and either recommend the program be expanded or recommend it be suspended. Said report will be given to the mayor and the speaker of the City Council no more than four years after the law takes effect.

At meeting of the Committee of Buildings several months ago, Kim Darga of the New York City Department of Preservation and Development provided testimony to the Council and said that the pilot program is being tested in Community District 5 because community groups recommended the idea while negotiating the fine print of the rezoning of East New York. She added that the area was “ideal” for the district because it had been hit very hard by the foreclosure crisis a decade ago, that there continues to be discernible homeowner distress, and that illegal basement units are extremely common in the area. In fact, the estimated number of illegal basement apartments in East New York is five times higher than the estimated city average.

Most basement units are currently illegal because they do not comply with state and local codes. Furthermore, bringing them up to code is simply beyond the means of low-income owners.

Despite being illegal, many landlords rent out these spaces anyway. The Office of Assemblymember Harvey Epstein (D-Dist 74) submitted testimony claiming that there are "an estimated 250,000 illegally converted basement units" in New York. This has led to several problems.

First, the tenants can’t report things like mold or inadequate ventilation because the space is illegal. If they call 311 to get someone to help them, they will likely end up having to vacate their home. Second, owners are forced to operate clandestinely because making official improvements or openly renting out the space would result in fines and penalties. Finally, illegal conversions present hazardous situations for first responders should the building either not be up to code or be riddled with illegal structural alterations.

The current paradigm, the bill’s supporters argue, is bad for tenants, bad for owners, and bad for first responders. It’s also bad for a city facing a critical housing shortage.

While modest in its initial scope, the program could have a major impact on the city’s housing supply if it is adopted in all five boroughs. With median rents across the city surging to levels well beyond the means of people who make below the city’s average salary of approximately $69,000, basement apartments, though far from glamorous, could provide housing for the city’s more vulnerable workers. It would also benefit owners of one- and two-family who are struggling to keep up with mortgage payments and rising property taxes. The modest monthly payments they receive for renting their basements could mean the difference between selling and keeping their homes.

More than just creating more housing for the working poor and benefiting low- or mid-income owners, making it easier to convert basement apartments into legal units is more politically viable than building “affordable” developments. Allowing basement conversions does not require land acquisition, does not bring a rapid influx of new individuals into neighborhoods, and does not put significant stress on local infrastructure. Helping owners convert their basements into legal apartments also resolves the above problems associated with illegal basement units. It makes conditions safer, it allows owners to step out of the shadows, and it ensures that first responders are entering buildings that have been equipped with things like a proper means of egress.

Furthermore, studies have shown that easing restrictions on basement apartments could create thousands (some say tens of thousands) of units of affordable housing, which could ameliorate the city’s housing shortage. As we reported two years ago, a study conducted by the Citizens Housing & Planning Council found that “there are between 10,000 and 38,000 potential apartments that could be brought into safe and legal use in New York without even changing the Zoning Resolution.”

The bill under consideration, however, is nowhere near so grandiose. It is actually quite narrow, as it only allows for the creation of 40 basement apartments.

First, it would amend some codes to make it feasible to convert illegal basement and cellar units to legal ones with automatic sprinkler systems, ventilation, emergency escapes, and, when applicable, fire separations. For example, instead of needing a window with a minimum opening of 12 square feet, as specified by § 1205.2.1 of the city’s building code, the legislation would require these subterranean units to only have 6 square feet of openable area. As another example, the bill will make some cellar apartments legal so long as they have at least 2 feet of height above the grade plane.

(Currently, basement apartments are potentially legal and cellar apartments are necessarily illegal. What's the difference? The former is less than 50 percent below grade and the latter is more than 50 percent below grade. In other words, an apartment that has 8-foot ceilings is a basement (legal) if the floor is less than 4 feet below street level and a few other conditions are met. If that same apartment with the 8-foot ceilings were to have a floor that is more than 4 feet below street level, it would mean the space is a cellar and, therefore, that it is illegal to rent out that space.)

Secondly, the bill would defer penalties against owners, provided they are not immediately hazardous, so that they can get the necessary permits to bring their property up to code. Once the conversion is completed, fines stemming from renting the apartment illegally will be put into abeyance.

Third, it will allow owners to obtain an amended certificate of occupancy once their building is brought up to code. However, there is a major caveat here. While one-family buildings will become two-families and two-families will become three-families, these newly created three-families will not be subject to multifamily codes.

Finally, the city plans to set aside over $11 million to fund the program. That money will go toward no-interest and low-interest loans for qualifying, low- and mid-income homeowners to pay for the conversions. To a lesser degree, it will also fund outreach efforts by HPD and an as-of-yet named community organization that will connect owners with tenants, and administrative fees.

While this may sound like a lot of money for only 40 housing units, it is based on estimates that it will require between $160,000 and $260,000 to convert basement areas into habitable units. Furthermore, the city expects the lion’s share of this money to be returned as owners pay back their loans.

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