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.