Tenants Win Major Victory over Rent Guidelines Board Rent Increases

Tenants with rents under $1,000 may soon see a significant reduction in their base rent as well as a credit for past overpayments. 

In Casado v. Markus, (NY County Index No.: 402267/2008) Justice Emily Jane Goodman of the New York State Supreme Court found that the New York City Rent Guidelines Board overreached its authority when it imposed a minimum rent increase (a/k/a a “poor tax”) of $45 per month or 4.5% (whichever is greater) for rent stabilized apartments which experienced one year lease renewals after October 1, 2008, and $85 or 8.5% for tenants choosing two year leases. (For apartments where the landlord does not provide heat, the respective figures are $40 or 4% and $80 or 8%, whichever is greater.)       

Justice Goodman found that the minimum dollar amounts effectively established a separate class of apartments (those renting under $1,000.00) and that the Rent Guidelines Board lacked authority to do this — noting that the City Council has such authority and had already established the only classes that are permissible.  

While an appeal is almost inevitable, Justice Goodman’s ruling appears to be well anchored in the language of the Rent Stabilization Law and established precedent.   This is welcome news for tenants with lower rents — who also tend to be among the lower income tenants in the City.  

Congratulations to Ed Josephson and South Brooklyn Legal Services for a major tenant victory. 

Seth Miller Testifies Before the City Council

On December 16, 2009 Seth Miller testified on behalf of the Mitchell Lama Residents Coalition, before the City Council Committee on Housing and Buildings.  The Committee was holding an oversight hearing on HPD’s supervision of Mitchell Lama housing.

After laying out HPD’s long history of cutting private deals with landlords instead of enforcing the requirement that prevents J-51 assisted developments from buying out of Mitchell Lama unless they first register all apartments as rent stabilized, Seth offered the following legislative recommendations:

1.     Make enforcement of the J-51 ordinance mandatory rather than discretionary;

2.     Provide for penalties against landlords who fail to register their J-51 assisted apartments as stabilized;

3.     Require that the City collect the ten dollar per apartment fee for registering stabilized apartments, including J-51 assisted apartments, and promptly commence tax foreclosure proceedings against noncompliant landlords; and

4.     Bar landlords from communicating privately with HPD concerning any aspect of the privatization of Mitchell Lama developments, the setting of rents for privatized developments, and, in all types of buildings, the continued receipt of J-51 benefits.

The Nine Lives of Daniel Peckham

Chelsea Partners v. Peckham goes back to DHCR

On December 10, 2009 Tim Collins won an order stopping the eviction of Daniel Peckham, who hired Collins, Dobkin & Miller, LLP after he lost his demolition case in the Court of Appeals.

In May of 2004 Chelsea Partners sought permission from the DHCR to terminate Daniel Peckham’s tenancy and demolish 244 West 21st Street.  The application was granted in 2005.  Mr. Peckham’s petition for administrative review was denied by DHCR in 2006.  Peckham challenged the determination and obtained a remand from the Supreme Court in 2007 on the grounds that the DHCR had failed to clarify the standard used to determine what constituted a “demolition” and for a determination of the landlord’s financial ability to complete the project.  In a 3-2 decision, the Appellate Division, First Department, reversed the Supreme Court and ruled that the record was sufficient to permit the DHCR to act on the application. Peckham lost an appeal to the Court of Appeals which affirmed the Appellate Division in May of 2009.   

At that point, things looked pretty bleak for Mr. Peckham.  After battling eviction for five years he was now faced with eviction.  The landlord commenced an eviction proceeding in 2008 but it was stayed by the successive appeals. It was now placed back on the calendar in Housing Court.   

Throughout the appeals process the landlord denied that Mr. Peckham was still entitled to a moving stipend or relocation apartment, which are mandated by the Rent Stabilization Code, two operational bulletins and by the DHCR’s own decision granting the demolition application.  The landlord wanted a prompt and simple eviction. 

Mr. Peckham sought enforcement of the stipend and relocation provisions before the DHCR and sought to stop the eviction until he was heard on this claim.  Mr. Peckham moved for summary judgment seeking dismissal of the Housing Court proceeding on the grounds that DHCR had exclusive jurisdiction to enforce the relocation requirements.  The landlord cross moved for a judgment of possession.

In an exhaustive opinion, Housing Court Judge Timmie Erin Elsner declined to dismiss the case but remanded the matter to DHCR for a determination of Mr. Peckham’s right to a stipend or relocation apartment.  Judge Elsner held that DHCR had exclusive jurisdiction to determine this matter.  Judge Elsner also found that the appropriate window period for offering these benefits was tolled by the successive appeals — and effectively ran from May 8, 2009 through August 13, 2009. 

Mr. Peckam will assert before the DHCR that no proper offer was made during this period.   

In short, this ruling is a considerable victory for Mr. Peckham who has been rewarded for his unwavering insistence on fair treatment under the demolition procedures. 

Seth Miller on Roberts v. Tishman Speyer Properties

In the November, 2009 issue of Tenant/Inquilino, the newsletter of the Metropolitan Council on Housing, Seth Miller published his analysis of the impact of the Court of Appeals’ decision in Roberts v. Tishman Speyer Properties, also known as the Stuyvesant Town Case.

The Legal Impact of Roberts v. Tishman Speyer Properties, L.P.

By Seth A. Miller

On Oct. 22, the Court of Appeals struck down the efforts of the Pataki administration and the Bloomberg administration to assist in the illegal deregulation of apartments in buildings receiving assistance under the J-51 tax abatement program.

The case, Roberts v. Tishman Speyer Properties, L.P. is a class action brought by tenants of illegally deregulated apartments in Stuyvesant Town and Peter Cooper Village for recognition that their apartments remain rent stabilized and to recover overcharges. The Court held that, since the development received J-51 benefits during the plaintiffs’ tenancies, their apartments could not be deregulated.

This decision puts a stop to some of the practices by the state and city governments to assist in the deregulation of apartments in buildings that get J-51 tax benefits.

Prior to the advent of deregulation under the “Rent Regulation Reform Act” of 1993, the city’s J-51 ordinance and the regulations of its Department of Housing Preservation and Development said, in plain English, that every apartment in an assisted building must remain rent-regulated the whole time the building gets tax benefits, and even longer-until the tenant vacates-if the tenant doesn’t get notice in the lease that the apartment can be deregulated when the benefits end.
The original 1993 deregulation statute said J-51 units are exempt from deregulation. Originally the state Division of Housing and Community Renewal issued an opinion letter saying that this means what it says: Landlords that get J-51 benefits can’t deregulate apartments. In late 1996, DHCR turned around and issued an opinion saying that the exemption doesn’t apply to buildings like the ones in Stuyvesant Town that would have been rent-stabilized even if they never got J-51 benefits. As we now know, that advice was wrong on the law. Then in December 2000, DHCR issued a regulation adopting this illegal interpretation.

Meanwhile, the J-51 ordinance, and HPD’s regulations, didn’t change. They continued to say that every apartment in a building getting benefits must remain regulated. Although landlord representatives have told the press that they “relied” on DHCR’s bending the law, this was selective reliance. The whole time, there was equally authoritative law contradicting DHCR’s position.

The law didn’t change, but, under Bloomberg, HPD refused to enforce the law as written.

In developments like Stuyvesant Town, HPD permitted landlords to return J-51 benefits in proportion to the number of deregulated apartments.

In Mitchell-Lama developments facing privatization, such as Glenn Gardens, West Village Houses, and Independence Plaza, HPD permitted the developments to leave the program without requiring all of the apartments to be registered as rent stabilized, even though J-51 benefits were in place.

At West Village Houses, the city used millions of dollars in taxpayer funds to subsidize the conversion of the development into an “affordable” cooperative. At Glenn Gardens and Independence Plaza, HPD signed off on “rent studies” that set the rents at near-market levels for purposes of having federal taxpayers pay tens of millions of dollars to subsidize vouchers to protect only the poorest tenants. In these cases, HPD could have given better protection, affecting more tenants, without spending a dime on subsidies, if it simply enforced the J-51 law as written and forced the landlord to treat the tenants as rent-stabilized when the developments were privatized.

Under the Roberts case, many tenants now have an opportunity to regain the rent-stabilized status that their landlords, assisted by the city and state governments, tried to take away.

Who is affected by the decision?
The decision serves as a reminder to tenants to check to see whether their buildings receive J-51 benefits, even if the case did not specifically deal with the exact category of building they live in. Every apartment in buildings that now receive J-51 benefits, except co-ops and condos, must be governed by some form of rent regulation. )To find out whether a building received or receives J-51 benefits, go to www.nyc.gov/html/dof/html/property/property_tax_reduc_j_51.shtml. Searching will require that you know the block and lot number for your building, which you can get at http://a836-acris.nyc.gov/Scripts/Coverpage.dll/index.)

Any tenant that moved into a building as a supposedly deregulated tenant might instead be rent-stabilized, if either (a) the building is now getting J-51 benefits, or (b) the building used to get J-51 benefits during the tenancy of the current tenant, and the tenant did not get notice, in the first lease and in every renewal, saying that the apartment can be deregulated when the benefits expire.
In addition, a stabilized tenant might be exempt from high-income deregulation under similar circumstances.

Once a tenant is rent-stabilized because he or she is in one of these categories, the apartment remains stabilized even if the building goes condo or co-op. If the building went co-op or condo before the tenant takes occupancy, though, the tenant cannot be rent-stabilized.
Tenants who would be in these categories but who have left their supposedly deregulated apartments are affected too: If they left less than four years ago, they can sue for overcharges. It is doubtful, however, that they could ever regain possession.

Only tenants who were in occupancy at the time when J-51 benefits were received can benefit. If the building got benefits but they expired before the current tenant took occupancy, it is doubtful that the current tenant can benefit (at least not without a lot of legal wrangling).

How will the rents be set?

At a minimum, the legal rent for affected tenants will be the rent paid four years ago, and that rent will be considered a stabilized rent, even if it is above $2,000. Tenant attorneys will be arguing that the rent should be set even lower, however, since this situation might fit within an exception to the “four-year rule,” the rule that normally sets rents at the amount paid four years ago. The argument is that an exception should be made because the rent four years ago will in some cases clearly be the product of the illegal deregulation of the apartment. Tenant attorneys will also be arguing for an award of treble damages. The courts will probably decide that issue based on whether they give credence to the landlords’ argument that they had the right to rely on DHCR’s opinion, which has now been found illegal, while contrary authority was still on the books.These rent adjustments will not be made automatically. To get a rent adjustment, a tenant will have to file an overcharge complaint, bring a lawsuit, or join a lawsuit in progress.

What should I do?

Tenants in Stuyvesant Town and Peter Cooper Village have the option of considering themselves to be part of the class action that is now in progress, and they do not need to do anything to exercise that option. The lower court will now decide whether the Roberts case can proceed as a class action. If the answer is “yes,” then tenants in those developments will probably be in the class by default, but they should check any decision to make sure they are in the class.

Everyone else will need to decide whether to file overcharge complaints with DHCR, or go to court. There is no substitute for speaking to a lawyer about this decision, since the costs, likely outcome, and benefits of different options are different in every case. Generally, filing a complaint with DHCR is only a good option for the clearest cases, and only where the only goal is to set the rent at the rent from four years ago.

Tenants who take no action at all risk having their rent permanently set at a higher amount than they could have gotten and never being able to recover some of their overcharges. They may also be forced to deal with the issue anyway, if the landlord ever tries to evict them as supposedly free-market tenants.

Steve Dobkin Quoted in the Times

In the Real Estate Q&A column in the New York Times on November 13, 2009, Steve Dobkin was asked about rent stabilization in a co-op building.

November 13, 2009, 11:22 am

Rent Stabilization Tied to Tax Abatement

By JAY ROMANO

Q.

We are thinking of renting in a new co-op building. We have been told that after the two-year lease ends, we will become rent-stabilized tenants. What would happen if the landlord lost the building or it was sold to someone else? Would we have to move?

A.

“As a general rule, buildings completed after Jan. 1, 1974, are exempt from rent stabilization,” said Steve Dobkin, a Manhattan lawyer who represents tenants. In most cases, the writer would not become a stabilized tenant after a two-year lease ended, regardless of who owned the building.

But, Mr. Dobkin said, for buildings that receive tax exemptions under the 421-a program, tenants become rent-stabilized immediately and remain regulated for as long as the owner receives tax benefits, typically 10 years. If the owner fails to notify a tenant in the initial lease that the apartment is subject to stabilization because of the tax exemption, the apartment will continue to be rent-stabilized even after the benefits expire, for as long as the tenant remains in possession.

IPN Suit Gets Press (Two Days After Election Day)

In December, 2005 Collins, Dobkin & Miller, LLP brought a lawsuit to obtain rent stabilization protection for the more than 1,300 households at Independence Plaza North, in Tribeca. Independence Plaza is a former Mitchell Lama development that was privatized in June, 2004 while receiving J-51 benefits. Within months after our suit, the Bloomberg administration permitted the owner, Laurence Gluck, to repay the City for the tax benefits he received after the privatization. The City’s decision came about after months of private in-person meetings between Gluck’s lawyers, including a former HPD commissioner, and then-commissioner (now HUD Secretary) Shaun Donovan. The tenants were not invited to attend.

Our suit is still pending. The repayment of the tax benefits does not deregulate a rent stabilized building.

The Supreme Court sent the case to the New York State Division of Housing for decision, rejecting the landlord’s claim that he was obligated to pay back the benefits. A decision is expected in January, 2010.

The New York Times did not cover this story in 2006, when the City did this massive favor for Mr. Gluck. As a result, the Bloomberg administration was saved the embarrassment of having to explain its 2004 failure to enforce the law that required more than 1,300 apartments to become rent stabilized upon leaving Mitchell Lama, and then its private arrangement to allow Mr. Gluck to repay J-51 benefits. The Times first reported this story two days after Election Day, 2009:

http://www.nytimes.com/2009/11/05/nyregion/05independence.html

Another story came out shortly after that:

http://www.downtownexpress.com/de_340/stuycase.htm

In response to the Times article, Seth Miller submitted the following letter to the editor, which was never published:

To the Editor:

Thank you for your November 5, 2009 article covering the ongoing legal dispute about whether Independence Plaza North became rent stabilized when it left the Mitchell Lama program in 2004. As one of the attorneys for the tenants’ association, I am grateful that the issues raised by the Bloomberg administration’s 2006 decision to permit Mr. Gluck to repay tax benefits at IPN, as part of his attempt to avoid the requirements of rent stabilization, are receiving the attention they deserve.

Although the article endeavored to strike a balanced tone, it began with the claim that the tax abatements received at IPN after it left the Mitchell Lama program ($17,879.42, according to the article) are trivial in comparison with the “tens of millions of dollars” the development is supposedly worth today. The comparison obscures the role and purpose of the J-51 program in preserving affordable housing, the significance of the unlawful deregulation of more than 1,300 affordable apartments, and the consequences suffered by the public when developers break the law with the acquiescence of city agencies.

The tax abatements at IPN were not a trivial amount. The abatements began in 1998, when the development was a Mitchell Lama, and were for a twelve-year term. The quoted figure is a tiny fraction of the total abatements. They were for renovations, under a program — the J-51 program — designed to subsidize the renovation of affordable housing, in buildings sorely in need of renovations. Comparing the amount of the 1998 tax abatement for renovation of a subsidized affordable housing project with the 2004 “market” value of this (illegally) deregulated property is like comparing apples and caviar. A better comparison would be to note the significant proportion of the renovation costs that were shouldered by the taxpayer while the property was in the Mitchell Lama program.

The point of the J-51 program is to subidize the upkeep of affordable apartments, so long as they remain affordable. When someone agrees to be bound by an obligation to the public, such as by accepting J-51 benefits, the obligation does not disappear because the size later proves small, especially if the point of comparison is deregulated luxury housing. People are stuck with bad deals all the time. Millions of people are being foreclosed upon right now, and all of them can make arguments that are the same as Mr. Gluck’s argument, except that the same argument sometimes sounds different coming from plain folks.

The figure quoted in the first paragraph of the story is well in excess of one year’s rent for most people at IPN. Just imagine how it would sound if any of them claimed that it shouldn’t matter to Mr. Gluck if they didn’t pay rent for a year.

The article closes with the claim by Mr. Gluck’s lawyer’s that his client was not aware of the J-51 benefits in place at IPN. In court, Mr. Gluck and his lawyer told a very different story. Once we obtained proof that Mr. Gluck’s company was on notice of the benefits when he bought IPN, he admitted, in a brief, that he knew about the benefits, signing statements that said “Defendants are not claiming ignorance as to the circumstances of the project,” and that “Defendants’ knowledge of the J-51 benefits does not change the facts as they exist.”

In June, 2004 Mr. Gluck unlawfully deregulated more than 1,300 affordable apartments at IPN despite the fact that he was on notice of the significant J-51 benefits received there since 1998. As soon as the tenants merely asked him about the benefits, in 2005, his lawyers demanded and obtained numerous private meetings with the commissioner of HPD. The tenants were not invited. In April, 2006, HPD permitted him to repay the benefits received at IPN after June, 2004, leaving the tenants and the courts to spend more money and time than they can afford, enforcing the laws that require IPN to be rent stabilized. The point of the story is that, when he privatized this J-51 assisted development, it was Mr. Gluck’s responsibility to comply with the law, and HPD’s responsiblity to enforce it. This is what links the IPN story to the events at Stuyvesant Town, where thousands of apartments were illegally deregulated, helped in the process by dubious legal opinions from the New York State Division of Housing under the Pataki administration, and by HPD’s decision to accept the repayment of J-51 benefits in proportion to the number of deregulated apartments. The loss of affordable housing is the direct result of developers who, like Mr. Gluck and Mr. Speyer, skirt the law, and agencies who, like Bloomberg’s HPD and Pataki’s DHCR, accquiesce.

Seth A. Miller

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