The Real Deal New York

Clipper, Equity Residential sued over 421g

Tenants allege years of rent overcharges in abuse of tax cut program -- but Bistricer says suits are frivolous

June 23, 2016 03:00PM
By Will Parker

From left: 50 Murray Street and 71 Broadway

From left: 50 Murray Street and 71 Broadway

UPDATED, 12:21 p.m., JUN 24 Tenants at two of Clipper Equity’s Financial District buildings that receive a 421g tax abatement are suing the landlord, alleging years of unlawful rent overcharges. Clipper, however, maintains that the legislative history and intent of the abatement allow it to deregulate apartments that have passed the deregulation threshold. Equity Residential is facing a similar suit from tenants at one of its buildings in the neighborhood.

The plaintiffs include 41 tenants at Clipper’s 50 Murray Street and 53 Park Place, and nine at Equity Residential’s 71 Broadway. In separate lawsuits filed in New York Supreme Court Wednesday, they allege that their buildings have been illegally removed from rent stabilization by both Clipper and Equity Residential, saying that the 421g tax law requires building owners to adhere to annual increases set by the Rent Guidelines Board for the entirety of the period that the owner receives the benefit.

Sherwin Belkin, an attorney for Clipper, told The Real Deal that 421g “clearly permit[s] the deregulation of apartments” that have passed the deregulation threshold, which has risen from $2,000 to $2,700 per month over the last two decades (full statement below).

Clipper, which is headed by David Bistricer, will continue to receive property tax cuts for 50 Murray, two residential conversions completed more than a decade ago, until June 2017 (53 Park Place’s benefits expired in 2015). But the suit claims that because Clipper never notified the tenants that these benefits will be expiring, it owes the current residents the right to rent-stabilized leases in perpetuity — even after the building’s tax benefits expire.

When reached by phone Thursday, Bistricer echoed his attorney’s comments on lawful deregulation. He said that the attorney for the tenants, Serge Joseph, and his law firm HGDJK, have been trying to drum up business by getting these lawsuits into the press. The landlord also pointed out that Clipper Equity has only owned 50 Murray and 53 Park Place since 2014, which TRD confirmed in public records.

Equity Residential’s 421g benefits for 71 Broadway expired in 2012. But because tenants were never notified, the other suit alleges, the tenants there also have a right to stabilized leases going forward. A representative for Equity Residential did not respond to a request for comment.

The suits are the latest in a string of 421g spats  coming out of Lower Manhattan, the area that the abatement was crafted to revitalize in the 1990s. At 90 West Street, a 410-unit rental owned by Kibel Companies, more than 40 tenants have sued their landlord with similar claims. Kibel also recently sued two of their tenants at 85 John Street when a couple claimed that their apartment, then set at $7,250 a month, should be rent stabilized.

Former New York City Mayor Rudy Giuliani stepped into the debate at 85 John Street by providing a deposition for Kibel Companies, claiming that when 421g was enacted by the state legislature during his time as mayor, it was meant to allow for the decontrol of units that surpassed the luxury rent decontrol threshold, then $2,000 a month.

A written correspondence between Giuliani and then-State Senate Majority Leader Republican Joseph Bruno that details this interpretation was read into the legislative record just before the bill’s passing in October of 1995.

Ever since then, landlords have used the so-called “Giuliani letter” to support their argument that luxury decontrol was an understood part of the program rules from the beginning.

Belkin, Clipper’s attorney, also pointed to a recent case, UDR 10 Hanover, LLC v. Aaron, which saw a housing court rule in favor of UDR, the landlord. The judge, Jack Stoller, ruled that the intent of 421g was to allow luxury deregulation, and added that since the legislature has yet to explicitly try and prohibit luxury decontrol at 421g buildings, it meant for such deregulation to continue to be permitted.

Activists and tenant attorneys, however, have argued that the original law is clear: Regardless of the what the rent level is, they say annual increases must be capped by what the Rent Guidelines Board dictates in a given year. They point to a line in the law, 421g(6), which states: “Notwithstanding the provisions of any local law for the stabilization of rents in multiple dwellings …the rents of each dwelling unit in an eligible multiple dwelling shall be fully subject to control under such local law…” They interpret this to mean that 421g units must stay stabilized in spite of the fact that other stabilized apartments can eventually become destabilized through exceptions like luxury decontrol.

The issue is far from settled, but, for now, Judge Stoller’s decision in housing court appears to be the most recent ruling on the matter. Previous rulings, however, have ruled in favor of 421g tenants. In housing court in 2010, Judge Bruce Scheckowitz ruled that apartments benefitting from 421g at 37 Wall Street must remain rent-stabilized through the duration of the abatement even if the rent exceeds the luxury threshold, and added that luxury decontrol would “eviscerate” purpose of the tax program.

The tenant attorney for the new lawsuits filed on Wednesday, Serge Joseph, told TRD that he now has an affidavit from former State Senator Martin Connor, who served as Senate Minority Leader from 1995-2002. In the affidavit, Connor, the lead sponsor of the bill that became 421g in the legislature, opposes Giuliani, saying “Giuliani’s interpretation of [421g] contradicts the plain and clear language of the statute; ignores the State’s long history of tying tax benefits to rent regulation; and disregards the State’s long established policy of not allowing building owners to use public funds to subsidize deregulation of apartments or the consequent reduction of affordable housing in New York City.”

Joseph said he feels confident that this affidavit, first submitted in a separate case at 85 John Street, will help convince Judge Stoller to change his recent decision.

Full statement from Clipper Equity’s attorney Sherwin Belkin: “Neither my client nor I have yet seen these complaints. But, our assumption is that these are exactly the same claims – likely by the same attorney — as have been raised in other “421-g” cases already pending in New York State Supreme Court. In those cases, we have moved for summary judgment based upon the language of the law and the legislative history and intent which clearly permit the deregulation of apartments, notwithstanding the receipt of RPTL 421-g tax benefits. The cases remain pending. Only recently, Judge Jack Stoler in UDR 10 Hanover, LLC v. Aaron ruled that these exact claims are meritless and that owners are permitted to deregulate apartments, notwithstanding the receipt of RPTL 421-g tax benefits. We are confident in our position.”

Correction: a previous version of this story stated that Judge Stoller’s decision happened in a lower appellate court. It was actually in housing court.

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