The Real Deal New York

State Supreme Court judge rules in favor of Kibel in 421g case

It’s the second recent decision to go the way of a landlord reaping key tax break for Downtown luxury rentals
By Will Parker | May 09, 2017 10:50AM

85 John Street and Rudy Giuliani (Credit: Google Maps and Getty Images)

A State Supreme Court judge ruled last Tuesday that a downtown landlord receiving the 421g tax exemption did not have to keep its luxury apartments rent stabilized. Kibel Companies sued two of its tenants, Joel Roodman and Jill Tafrate, in 2015 when they allegedly took issue with a steep increase in rent at their 85 John Street penthouse. Citing property tax laws, the tenants argued that their apartment should only see the modest increases set annually by the Rent Guidelines Board.

The proceedings, which lasted nearly two years, received more attention than the typical landlord-tenant dispute. That’s partly because former Mayor Rudolph Giuliani provided an affidavit in support of Kibel’s interpretation of the rent stabilization laws: under 421g, a tax cut set up to spur development in lower Manhattan, units could be deregulated through what is known as “luxury decontrol,” that is, when the legal rent was higher than the $2,000 luxury threshold when 421g was enacted by the state legislature in 1995 (that number is now $2,700). Most 421g apartments were near or over that price point on first lease anyway, which has led several landlords to report them as non-stabilized units to the state’s Department of Housing and Community Renewal for years.

In his ruling on the 85 John Street matter, Judge Shlomo Hagler, whom tenant activists have criticized for ties to landlords, gave the real estate industry the second favorable 421g ruling in as many years when he sided with Giuliani and Kibel. In contrast to the 421a and J51 abatements, Hagler wrote, there was legislative intent to keep luxury decontrol from applying to 421g. While the prior two tax exemptions are protected from luxury decontrol, 421g is not, he ruled.

Tenant attorneys aggressively dispute this view. Giuliani, who as mayor had no legislative authority, had his interpretation of 421g’s rent stabilization requirements read into the legislative record by a Republican senator near the time of the vote on the law in 1995. As such, Giuliani’s letter and later affidavit and should not carry any authority on legislative intent, they argue. They further argue that the written law clearly means that rents should be stabilized no matter their cost and that fishing for supplementary readings in the legislative record from non-legislators is not necessary to interpret its intended meaning.

But landlords have had a favorable 1997 opinion from DHCR at their disposal, too (which was also partly justified by Giuliani’s letter). These arguments were strong enough to win landlord UDR Inc. a favorable decision in a similar case last year and now it appears it’s enough for Kibel Companies.

Other 421g cases at buildings such as 50 Murray Street and 90 West Street are still undecided. In August, Public Advocate Letitia James and 37 state and city lawmakers filed an amicus curiae in support of tenants at 90 West Street, who are suing Kibel and claiming unlawful luxury decontrol.

Sherwin Belkin

Kibel’s attorney, Sherwin Belkin, said he’s hopeful that the 85 John Street decision will become a factor at other buildings undergoing 421-g disputes. “We will be submitting Judge Hagler’s decision to the Courts and to DHCR where there are pending proceedings,” Belkin said in an email.

Serge Joseph, attorney for Roodman and Tafarte, did not respond to multiple requests for comment, nor did Roodman.

Although this latest ruling favors landlords it by no means sets an infallible legal precedent, and other cases have gone the opposite way. In 2010, housing court judge Bruce Scheckowitz sided with tenants by ruling that luxury decontrol would “eviscerate” the intent of the 421g program. No appellate court is yet to take up a 421g case and a ruling there would carry much more weight going forward.