ON RENT LAW
IN THE PAST 20 years, a growing number of lower Manhattan landlords have been caught charging big-bucks rent to tenants in buildings that are meant to be rent-stabilized.
In recent weeks, a split has emerged among New York City judges over whether this is actually legal. Resolution of this question will have have a huge impact on up to 7,000 renters.
At issue is a generous tax break called 421-g, passed in 1995 to promote residential development below Canal St.
In the mid-1990s, lower Manhattan was suffering from a glut of empty office space. Then-Mayor Rudy Giuliani got Albany, which must approve any changes in tax legislation in the state, to forgive property taxes to building owners who converted their offices to apartments. The catch was fairly straightforward: To get the break, builders had to keep the new apartments affordable.
But behind the scenes, Giuliani and then-state Sen. Majority Leader Joe Bruno (R-Rensselaer County) took the position that not all tenants would be protected, arguing that wealthier tenants in 421-g buildings who paid more than the usual rent-stabilized cutoff of $2,700 a month must pay market rates.
Over the years, many landlords ignored the affordable rent requirement, taking advantage of the fact their tenants didn’t even know about the tax break. Others relied on the Giuliani-Bruno exemption — memorialized in a letter — for wealthier tenants.
In the past year, tenants from three buildings — one near City Hall, one next to the World Trade Center and another in the Financial District — have asked judges to resolve this issue. Tenants involved in all three lawsuits believe many of the lower Manhattan landlords who got this generous tax break have been overcharging their tenants for years.
Taylor West, tenant association president at 90 West St., where tenants have so far prevailed, learned of 421-g for the first time after his landlord, Kibel Co., informed him he was about to be hit with a 33% rent hike.
“Every real estate developer was doing the same thing. It was kind of this, ‘Wink wink, nod nod.’ They were getting away with it,” West said. “It was double dipping. They were able to take the tax break and charge whatever rent they thought they wanted. We felt that it was wrong.”
The same scenario played out for Joel Roodman at his John St. building when Kibel informed him it was raising his rent a whopping 30%. He did some quick research and discovered the owners had benefited for years from the 421-g tax break. “When we brought the abatement to their attention, they became extremely aggressive and sued us in New York Supreme Court,” Roodman said.
Roodman’s lawyer Serge Joseph argued the language of the 1995 law creating 421-g was unambiguous, clearly stating all tenants of buildings getting the break are protected by rent stabilization laws.
Kibel’s attorney Joseph Burden argued that the law was not clear, and that the Giuliani-Bruno letter documented the Legislature’s true intent — that rent protection did not extend to wealthier tenants.
Tenants in most of these buildings downtown tend to be affluent and pay hefty rents.
On May 15, Manhattan Supreme Court Justice Shlomo Hagler agreed with Kibel, ruling that landlords could charge tenants paying more than the rent-stabilized cutoff of $2,700 a month market-rate rent. Hagler, however, was not the last word.
Tenants at 50 Murray St. had also learned their landlord had benefited from the tax break but ignored the rent stabilization requirement. Tenant John Kuzmich said he and another tenant began lobbying their neighbors to file suit. “Some of the people said they really didn’t want to be part of it. ‘We have children. We have a young family. We don’t want to be kicked out,’ ” he recalled.
Ultimately, 41 tenants signed on as plaintiffs. This time, their lawyer, Joseph, went a step further and produced an affidavit from former state Senate Minority Leader Martin Connor (D-Brooklyn), the 421-g law’s original lead sponsor.
Connor explicitly stated the law protected all tenants in buildings that got the tax break and dismissed Giuliani’s read of the law.
The ex-mayor’s interpretation “contradicts the plain and clear language of the statute (and) ignores the state’s long history of tying tax benefits to rent regulation,” Connor wrote.
Six weeks later, Justice Carol Edmead sided with the Murray St. tenants, declaring the GiulianiBruno interpretation irrelevant. She ordered a referee to begin tabulating how much tenants have been overcharged going back years.
Last week, Justice Robert Reed joined with Edmead, noting Connor’s testimony and writing, “This court does not find the language of 421-g to be ambiguous.”
All three cases are now headed for the state Appellate Division and could wind up in the state’s highest court, the Court of Appeals.