Re-regulated, but not really: Lawsuit against Scharfman Org. alleges J-51 chicanery

Landlord put units back into rent stabilization in 2016, but at make-believe rent levels, tenants say

651 West 171st Street
651 West 171st Street

In January of 2016, Gov. Andrew Cuomo wrote a letter to the landlords of New York City. He told property owners that if they received the J-51 tax break but charged market-rate rents, they needed to put their apartments back in rent stabilization or they could face big fines.

But the edict didn’t unleash a wave of state investigators poring through property owners’ records and hauling landlords to court; it’s been largely up to tenants to complain that they’re being overcharged — if they’re even aware. An analysis showed that less than half of violating landlords voluntarily re-regulated their apartments during 2016.

And now, a new lawsuit alleges that one of the landlords who did re-register a J-51 building, still set legal rents at levels far higher than the law allows.

Two tenants at 651 West 171st Street in Washington Heights filed a lawsuit against the Scharfman Organization in Manhattan Supreme Court on Monday, alleging that Scharfman didn’t register the stabilized units for six years with the State Homes and Community Renewal agency, and also charged illegally high rents. The suit says that the landlord brought the apartments back into stabilization following Cuomo’s letter but still continued to charge an illegally high rent.

Scharfman is alleged to have reregistered an apartment with the state’s Homes and Community Renewal with a legal rent of $3,304, more than $600 over the legal threshold (but the tenant, for now, is receiving a deep discount, known as a preferential rent).

The problem with the preferential rent, said Aaron Carr, the founder of the Housing Rights Initiative, which performed the research leading to the suit, is that it invites the opportunity for abuse of the rent laws. In other words, Scharfman can choose to slide the charged rent all the way up to $3,304 at any time, he said. In some cases, the discounted rents tenants pay at the building are higher than what Rent Guidelines Board increases and the rules governing J-51 would have allowed, the suit alleges.

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Another tenant mentioned in the suit has a current legal rent of $2,600, but receives a $500 monthly preferential discount. By comparison, a tenant in the same unit was paying $1,557 in 2009. The suit alleges no significant capital improvements were carried out that would have helped boost legal rents to those levels.

In addition, the tenants were allegedly made to sign lease waivers that indicated they had forfeited their rights to contest rent increases and challenge the legal rent.

“In theory, a preferential rent is a discounted rent,” Carr said in a statement. “However, if the discounted rent is based on a fraudulent rent spike, it’s no longer a discount, it’s an overcharge hiding behind a larger overcharge.”

The filing attorneys in the case are the law offices of Jack Lester and of John Maher. They are seeking class-action status for the suit that could include any or all present and past tenants of the 48-unit building.

Scharfman Organization’s Mark Scharfman, who also operates Beach Lane Management, did not immediately respond to a request for comment.

Carr and other advocates see situations such as 651 West 171st Street as an acute regulatory failure.

“Unfortunately for taxpayers, the Department of Homes and Community Renewal does not release the rental history information of rent stabilized units to the public,” Carr said. “We call on DHCR to release its data on the number of units in J-51 buildings that have been re-stabilized at illegal amounts.”