Sorry, little guy: Small property owners say 421a compliance rules are impossible to meet

For city and state officials, the latest crackdown on property owners abusing a lucrative tax break is a brag-worthy moment, a critical step in ensuring developers stick to certain rent regulation requirements. But for Joseph Ognibene, a property owner in Queens, it could upend his retirement plans.

“What they are asking is almost impossible for a person like me,” Ognibene said. “I’m a small owner, and I think that’s who it’s going to affect the most.”

Ognibene is one of more than 3,000 property owners who received a letter in the past month warning him that if he didn’t fill out the requisite paperwork, he would lose his 421a tax abatement. Ognibene, like other property owners, is at risk of losing his tax break because a “final certificate of eligibility” was never issued for his property. The certificates are typically issued once construction is complete, but many developers enrolled in the 421a program only received a preliminary certificate of eligibility when construction began. Crucially, property owners must include the rent of each apartment on this final certificate and show that they’re fulfilling 421a’s rent stabilization requirements.

The problem for Ognibene (and many others) is that he’s not his building’s developer, and the final certificate also requires information like the cost of construction, architecture fees and other information that he doesn’t have on record. Ognibene bought 1854 Palmetto Street in 2013, more than six years after it was built, according to city records. He’s on year nine of a 25-year tax exemption and isn’t sure how to get the information needed in order to comply with the program. Ognibene, who lives in Long Island and rents out his building’s three units, said he planned to retire in four or five years from the U.S. Post Office, where he’s worked as an expeditor for the past 32 years. Losing his tax break, however, could disrupt his plans.

“What they are asking us is a monumental task,” he said. “If I lose my exemption, I’m going to be pretty much in the negative.”

According to tax records, Ognibene’s exemption is worth $16,727 from July 2016 to June 2017. That means his tax bill is $4,056 instead of $7,400 (the $16,727 figure is knocked off the property’s assessed value). Making up the difference with rent increases doesn’t seem likely, since the average rent in Ridgewood, Queens is just $1,829, according to MNS’ latest rental report.

When city officials embarked on the enforcement initiative, they knew that a significant portion of the people they were targeting were likely small property owners, an associate commissioner for the city’s Department of Housing Preservation and Development told The Real Deal. That’s part of the reason why the city set a January 2018 deadline — they anticipated that many of these owners would need some time to figure out how to comply with the program.

HPD is in the process of creating official guidance for property owners who are unsure of how to comply with the program. A representative with HPD on Wednesday refused to provide advice for property owners who are not the original owners, citing that she wanted to wait until the agency officially releases guidance. Some property owners also expressed concern that the letters also said that their tax abatement could be revoked retroactively, back to when the property first started receiving the break.

In the past few months, state and city officials have ramped up 421a enforcement efforts. In early December, officials notified owners of 3,103 multi-family rental buildings — which have a total of 37,141 apartments — that they would lose their tax break if they failed to comply within 13 months. That followed two other crackdowns, including one in September that revoked benefits at 35 buildings that received $4.5 million.

“We must hold landlords accountable,” Council Member Stephen Levin said in a statement after the warning notices were sent out in December. “It’s unconscionable that property owners are receiving millions in tax breaks to provide community benefits and are instead charging rents that push New Yorkers out of their homes.”

According to the city, 173,000 apartment units received a 421a tax break in fiscal year 2016, worth $1.2 billion in forgiven taxes. The latest wave of enforcement came just weeks after the Building and Construction Trades Council and the Real Estate Board of New York reached an agreement that will seemingly pave the way for the tax break’s revival. The deal established wage requirements in some areas — south of 96th Street in Manhattan and along the Brooklyn and Queens waterfronts and extended the tax abatement to 35 years in those areas.

Days after the deal was announced, two bills were introduced in the City Council calling on the city’s housing agency to step up oversight over the program, ProPublica reported. One of the bills would require HPD to audit 421a properties annually to make sure that landlords are complying with rent-regulation requirements.

Some property owners lamented that HPD waited well after they purchased their buildings to notify them that they weren’t complying with the program. Sabine Faustin, who owns 168 Putnam Avenue in Brooklyn, said that the 25-year tax abatement was a major selling point when she bought the three-story building in 2002. Her 421a exemption is worth $46,448 for July 1, 2016 through June 30, 2017, meaning that instead of paying $9,749, she’s only paying $464.

Faustin said that she may have had an easier time tracking down the development costs and other information needed to comply with the program if HPD asked for it sooner. (The developer of her building was Yaron Hershco‘s United Homes, a landlord who was ordered to pay more than $1 million to eight homeowners who accused him of luring first-time buyers to Brooklyn properties and over charging them.) She’s concerned she won’t be able to retrieve the information needed to comply with the program.

“You can imagine how distressed I was receiving this letter before Christmas,” she said. “My biggest complaint about HPD is that they waited 17 years.”

Benjamin St. Clair contributed reporting.