Ruling could “open the floodgates” on apartment improvement fraud cases

Landlords who raised rents by inflating apartment improvements before the rent law changed got some unwelcome news from a Manhattan judge.

Supreme Court Justice Sabrina Kraus granted class-action status last month to tenants of 11 rent-stabilized buildings in a suit against Big City Management and Magnolia Holdings. The ruling could “open the floodgates” for multi-building class actions, Aaron Carr, executive director of Housing Rights Initiative, told City Limits.

The nonprofit advocacy group and the law firm representing the tenants said it’s the first time such a case has been allowed to proceed as a class action.

“Individual apartment improvement fraud is by far and wide the most common type of fraud pervading the rent stabilization system,” Carr told City Limits. “The potential impact of this ruling on the lives of tenants cannot be overstated.”

The improvements, known as IAIs, were pervasive before rent increases allowed for them were limited to $83 a month by the 2019 Housing Stability and Tenant Protection Act. But past cases of fraud can be subject to lawsuits.

Allowing the 11 buildings’ past and present tenants to make their case as a class could expand the number of plaintiffs to roughly 2,000. They may be in line to receive damages or new stabilized leases. Kraus ordered the landlord to provide tenants’ attorneys with current rent rolls and information on residents dating back to 2012 so they can be added to the case. All 11 buildings are north of 129th Street.

The tenants allege their rents were increased after the landlord falsely claimed to have renovated their apartments, as well as failing to register units with the state and not providing rent-stabilized leases despite receiving tax breaks that require them.

Apartment improvements are typically made — or claimed, at least — during a vacancy, so a new tenant would not necessarily know that the rent had been raised proportionately. Housing Rights Initiative has helped tenants discover past rent increases, which are supposed to be filed with the state’s Division of Homes and Community Renewal. Carr tweeted that Big City threatened his group about contacting its tenants.

In her ruling, Kraus said the tenants documented in great detail a “methodical attempt to illegally inflate rents and evade the requirements of rent-stabilization” that amounts to a “systemic evasion of the rent regulations,” according to City Limits.

Homes Community and Renewal’s Tenant Protection Unit audited 1,100 cases in 2014 and found landlords couldn’t provide proof of apartment improvement costs in 40 percent of them, according to the New York Times. The city has nearly 1 million rent-stabilized units.

— Harrison Connery