As state lawmakers try to finish budget negotiations ahead of Friday’s deadline, the fate of 421a, a popular tax break among multifamily developers, hangs in the balance. The tenant advocacy group Housing Rights Initiative — not a fan of the program — has seized on that window to generate two more lawsuits against landlords accused of flouting the program’s rules.
The nonprofit’s hope is that Albany is watching.
The group’s latest investigation alleges that World Wide Group, the landlord of 41-42 24th Street in Long Island City, and North Brooklyn Management, which owns 1003 Greene Avenue in Bed-Stuy, duped tenants by registering higher rents than the tax break allowed. The tenants of both buildings sued the owners in separate complaints filed this week.
The 421a program offers 30-year tax breaks to developers who set aside at least 30 percent of their buildings’ units as affordable. Landlords must register units’ rents with the state and limit rent increases to levels set by the Rent Guidelines Board.
Both owners skirted those rules by offering renters lower “preferential” rents at the beginning of their lease, but registering higher rents — a tactic that allows landlords to impose steeper rent hikes down the line.
World Wide Group, for example, registered an apartment’s rent as $3,795 in 2015, before it was occupied, the complaint reads. Then in May 2021, a tenant leased the unit for $2,885, in an agreement that included concessions. Under rent-stabilization law, that preferential rent should have been recorded as the legal rent.
The owner then allegedly asked the tenant to sign a rider that would remove the unit from stabilization completely, another no-no under 421a. Landlords approved for the tax break must keep units stabilized for 35 years.
Both suits request money judgments against the owners for violating rent-stabilization laws.
Neither World Wide Group nor North Brooklyn Management could be immediately reached for comment. Landlords have argued that concessions are standard practice and should not be reflected in the official base rent.
The concessions scheme is similar to one allegedly used by Adam America Real Estate, a landlord sued for 421a fraud just last month following a separate HRI investigation. In total, the advocacy group said it has identified 1,500 buildings where owners may have gamed the program.
The new suits come days before the state will release its finalized budget, an agreement that could dictate the future of 421a, which is set to expire in June, or a comparable replacement program.
Tenant advocates, including HRI, have called on the state to scrap the program. Aaron Carr, the nonprofit’s founder and executive director, said he hopes the group’s most recent investigations will draw lawmakers’ attention to the tax break’s flaws.
“Any legislator that isn’t paying attention to our 421a investigations and class actions is turning a blind eye to the taxpayers and tenants of New York City and will have fraud on their hands,” Carr said.
Gov. Kathy Hochul, in her preliminary budget proposal, introduced a replacement for 421a dubbed 485w, or Affordable Neighborhoods for New Yorkers. Tenant advocates said the successor would perpetuate the same problems 421a has, namely big breaks for developers who aren’t obligated to make units affordable to most New Yorkers.
Separate budget proposals introduced this month by the Senate and Assembly didn’t mention the governor’s replacement, raising doubts that it would be included in the budget or even be renewed before lapsing June 15.
Real estate is optimistic that some form of 485w will be approved. James Whelan, president of the Real Estate Board of New York, told The Real Deal he is “confident” that Hochul’s proposal will be finalized.
But HRI is adamant that if lawmakers approve a new form of 421a, it must include consequences for landlords who break the rules. The governor has not commented on whether the state would enforce compliance.
“There’s a lot of talk about structural changes but almost no talk of enforcement changes,” Carr said.