Gotham faces rent overcharge lawsuit in Hell’s Kitchen

Tenants allege that the Gotham Organization overcharged them by revoking utility credits in leases at three large Hell’s Kitchen apartment buildings — credits that the landlord says were issued by mistake.

Attorneys representing the tenants filed the lawsuit in state court Friday seeking class-action status for tenants at three complexes. At nearly 800 income-restricted units, Gotham nixed utility credits in thousands of leases starting in June 2019, the suit says.

In response, some tenants have not signed their renewal leases. Gotham, in turn, has brought holdover eviction proceedings which are still pending, according to the lawsuit, which seeks treble damages for the revoked credits, attorney fees, court costs, and additional damages for tenants at 510, 530, and 550 West 45th Street (called Gotham West), and 511 West 44th Street.

In a statement, a Gotham spokesperson said that the original credits were a mistake — the result of a “clerical error by prior management” — and that it was working with elected officials and government agencies to legally remove the credits. In the meantime, the company said, it has restored the rent discounts and frozen further revocations.

“We have gone through an exhaustive process to correct prior management’s mistake and are confident we will prevail in what is a frivolous lawsuit,” said Chris Allred, Gotham’s compliance director.

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The problem for Gotham is that because that discounted rent was registered with the state, it’s now the official registered rent.

Attorneys for the plaintiffs declined to comment.

The lawsuit alleges that Gotham included the utility credits repeatedly in new leases and renewals and used them as a selling point as the firm was “struggling to fill the units in their newly constructed buildings.”

In a court filing, the plaintiffs show advertised rents which included the utility credits, as well as correspondence which indicates the credits were part of the lease agreement.

A one-bedroom, income-restricted apartment in one of the buildings is currently advertised on StreetEasy for $1,607, after concessions. The apartments boast new, full-size, stainless steel appliances and ample storage.

Developers receive state and federal subsidies in exchange for restricting tenants’ incomes and rents. For the property owner, the affordability component comes with significant regulatory oversight.

In this case, the Gotham buildings’ 421a tax abatement places the apartments under rent regulation for the duration of the benefit. Rent increases on renewed leases are set each year by the Rent Guidelines Board. But in one case, the lawsuit alleges, a lease renewal revoked a $55 utility credit, amounting to a nearly 6 percent rent increase — more than the 2.5 percent allowed by the board for a two-year lease.

Compounding the dilemma for the landlord, the 2019 rent law greatly increased the financial liability for overcharges by expanding the look-back period for treble damages from four years to six. Triple damages for a wrongfully revoked $55 utility credit would be $1,980 per year.

If class-action status were granted and attorneys for the plaintiffs can identify the “thousands” of tenants who lost credits, overcharge damages alone could be nearly $2 million. A lengthy period of discovery would also allow for significant legal fees — all to be paid by the landlord should the plaintiffs prevail.

The tenants, however, are not only seeking damages for overcharges but for an alleged breach of the building’s regulatory agreements.

The 421a benefit comes from a state law and rents are registered with the state’s Division of Homes and Community Renewal, but the abatement is administered by the city’s Department of Housing Preservation and Development. Moreover, the Gotham buildings are financed with federal Low-Income Housing Tax Credits. Such complicated frameworks sometimes leave property owners and tenants wondering who the referee is.

According to documents provided by a source close to Gotham’s thinking, one plaintiff in the lawsuit petitioned Homes and Community Renewal for a review of possible overcharges but the agency ruled in January that it lacked jurisdiction.

A spokesperson for Gotham said the agency reached the same conclusion in 19 similar complaints.