Are Rent Control and Vacancy Tax Coming to Commercial Spaces?

During his recent State of the City address, Mayor Bill de Blasio proposed two measures that could sting co-ops and condos that have commercial space in their buildings: commercial rent control and a retail vacancy tax. De Blasio also proposed a “blue-ribbon commission,” Commercial Observer reports, to study the legality of commercial rent reform. 

Commercial rent control has been on the table for a while. In 2018, the city council passed a bill called the Small Business Jobs Survival Act, which would require landlords to offer a 10-year renewal lease to commercial tenants and enter an arbitration process if both sides can’t negotiate a new rent. Then last November, Brooklyn council member Stephen Levin introduced a bill that would create a form of commercial rent regulation similar to the rent stabilization system that exists for New York City apartments. 

If the city council passes a form of commercial rent control that includes arbitration for leases, it would give birth to “a huge arbitration business,” says Steven Soutendijk, a retail broker at Cushman & Wakefield. “I have no idea who’s shouldering the cost of these arbitrations. I assume it would be shouldered equally by landlords” – including co-op and condo boards – “and tenants.” 

On the topic of the vacancy tax as a spur to lease commercial space, Soutendijk points out that landlords and co-op and condo boards don’t want their commercial space to sit vacant. “If the alternative is keeping the retail space dark at the base of my rental building or rent it at 15 or 20 percent less than when I bought the building,” he says, “that deal pays for itself within a matter of months.”  

He adds: “A retail vacancy tax would unnecessarily burden smaller landlords, like co-ops and mom-and-pop small landlords in the outer boroughs. Co-ops make up a lot of the residential units in this town, and many of them are dependent on their commercial rents to help defray expenses and property taxes. So now not only do they have a vacant space, you’re whacking them with a vacancy tax.”