The Real Deal New York

Impact from Stuy Town decision may widen

November 20, 2009 05:47PM
By Adam Pincus

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The recent ruling in favor of tenants at Stuyvesant Town and Peter Cooper Village initially put the city’s landlords on the defensive, but now property owners are asking if the city might owe them money because of the decision.

Frank Ricci, director of governmental affairs at the landlord trade group Rent Stabilization Association, said he has fielded calls from “dozens” of landlords asking if the city might owe them for overpayment in taxes.

And in recent weeks the law firm Belkin Burden Wenig & Goldman raised more questions in a bulletin, including whether the city must pay landlords for lost tax abatements.

Adding to the potential chaos, Stephen Meister, a partner who specializes in real estate law at the firm Meister Seelig & Fein, said he had spoken with building owners who might want to leave the city-run J-51 tax abatement program altogether.

The decision by the New York state Court of Appeals Oct. 22 immediately raised questions about whether landlords apart from Stuy Town’s Tishman Speyer Properties and Blackrock Realty might owe thousands of dollars per tenant whose apartments were illegally removed from rent stabilization.

The Court of Appeals ruled that the Stuy Town landlords illegally removed apartments from rent-stabilization, and sent the case back to the State Supreme Court to rule on the retroactivity, statute of limitations and other issues.

Landlords who participated in the J-51 program say they relied on two advisory opinions from 1997 and 2003 by the Division of Housing and Community Renewal, the state department that regulates rent stabilization, which gave apartment owners the right to deregulate apartments in certain instances. Those opinions encouraged landlords to participate in the program, giving tax abatements for apartment improvements.

Now a program without clear direction, DHCR is waiting for the lower court to rule before issuing revised opinions, a spokesperson for the agency said in an e-mail.

“The entire matter is under intense review by DHCR as we await further guidance and the agency will not issue further guidance until we feel confident that we will be able to provide the requisite clarity and certainty for the affected owners and tenants that this situation demands,” the e-mail said.  

An industry source who asked not to be identified believed the agency had been severely undercut by the decision, and its lawyers were likely pouring over case law to prepare for the lower court ruling when it arrives.

“My guess is they are breaking attorneys up into teams that have expertise and having them look at different aspects of this issue,” the source said.

So while the process moves forward, landlords have begun looking at the ruling to see how they might ease the impact, or even profit from the ruling.

Ricci said landlords might be able to sue for a reduction in property taxes if the lower court rules changes are retroactive. In that instance, landlords would need to re-regulate some apartments, and property owners argue that change would cut income, which should in turn reduce their property taxes.

The Belkin Burden bulletin asked about a more complex issue tied to the number of units in each building that in the application of the J-51 program have to be classified as either rent-stabilized or free market.

“Since the city proportionately reduced the J-51 tax abatement by the percentage of deregulated apartments, if those apartments are now rent-stabilized, does the city now owe money to the owner?” the paper asked.

The city’s Department of Law did not immediately respond to requests for comment.

A Belkin Burden attorney who asked not to be identified, said one of his landlord clients estimated he might be owed $1 million by the city in lost tax abatements accrued over several years.

And Meister wanted to know if landlords who participated in the city’s J-51 tax abatement program, can now exit the program because it is no longer operating under the rules as they were presented in advisory opinions.

He said none of his clients has yet approached the city’s Housing Preservation and Development, the agency that administers the program, to leave it, saying the rulings were too recent.

“I think HPD should be required to honor landlords who now wish to terminate their J-51 on the grounds that they only applied for them on false pretenses,” he said.

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