Manhattan landlord Stellar Management overcharged tenants based on unsubstantiated apartment renovation costs, a housing court judge ruled in a two-year old eviction case last month.
Judge Sabrina Kraus said Stellar gave the impression that it paid a contractor $71,000 for Individual Apartment Improvements (IAIs) at a rent-stabilized Upper West Side building when it in fact hired an in-house employee to do the work, allegedly writing checks to three different shell companies that were controlled by the employee over a period of four years.
State laws prohibit landlords from increasing rents based on demolition costs when that work is done by an employee as part of their job.
One Stellar employee told the court the construction job had been bid out to contractors (who would have provided cost estimates). But the “contractor” selected to do the work, Albino Galabaya, testified that he worked full-time for Stellar, only did renovations at Stellar buildings, and earned about $300,000 a year from the landlord. Galabaya said he was paid for renovations through companies he owned with names like G&G Remodeling and RAC Renovation.
Stellar’s alleged $71,000 apartment make-over allowed the landlord to increase rent on the Upper West Side apartment by more than $20,000 a year. But in court, the landlord was unable to provide any receipts for furnishings allegedly purchased with this money, and the invoice provided lacked detail. And although Galabaya, who is not a licensed contractor, did provide checks paid to his companies, he was unable to prove those checks pertained to the construction work in question. He also could not explain why one of the checks was written a whole four years after the work had been performed.
“The court found Albino’s testimony about the invoice, checks and renovations lacked credibility,” Judge Kraus wrote.
Stellar did do at least $26,000 worth of renovations, however, the court found. Building permits from 2013 indicated that the cost of renovations should have totaled that amount and the first two checks paid to Galabaya’s companies also totaled about as much. The more a landlord spends on renovating a rent-stabilized apartment, though, the higher it can legally charge in rent. At the time the renovations were reported, Stellar could tack 1/40th of its total costs onto the monthly rent in perpetuity.
Now found to have broken the rules, Stellar will pay treble damages to the tenants totaling more than $123,000.
An attorney for the tenants did not respond to a request for comment. A spokesperson for Stellar said the company plans to appeal the ruling. The landlord had originally moved to evict the tenants for unpaid rent in 2017.
As The Real Deal explored in a recent investigation with WNBC, landlords are only compelled to substantiate their apartment renovation costs if the rents they charge are challenged by rent-stabilized tenants. This honor system-style regulation has made abuses, such as overstating the cost of renovations, too easy, housing advocates argue. It’s also led to a spike in litigation, with several class action lawsuits underway in New York, including one against Stellar. State legislators, such as the senate’s Deputy Majority Leader Mike Gianaris, have proposed eliminating the virtually limitless rent increases derived from IAIs entirely. Real estate groups, meanwhile, argue that without IAI increases, owners have no incentive to keep their buildings in good shape.
“Decisions like this highlight how the lack of transparency in IAIs leads directly to the loss of affordable housing,” said Justin La Mort, an attorney who reviewed the decision but was not involved. “There are simply too many loopholes and too much money at stake to depend on the honor system.”