Tenants score another win: Lower Manhattan apartments should’ve been rent regulated, court rules

Court decided units at 50 Murray and 90 West streets must remain regulated through life of 421g

50 Murray Street and 90 West Street
50 Murray Street and 90 West Street

The state’s Court of Appeals on Tuesday ruled in favor of tenants at two Lower Manhattan buildings, finding that their apartments should have been rent stabilized. The decision addresses questions over the state legislature’s intent when the 421g tax program was created.

David Bistricer

David Bistricer

The court reversed an appellate court’s decision, finding that because Clipper Equity and an entity tied to Kibel Companies respectively received 421g tax breaks at 50 Murray Street and 90 West Street, they’d wrongfully deregulated units in their buildings. The owners argued that because the state’s Rent Stabilization Law, which introduced vacancy and high-income decontrol in 1993, didn’t specifically exempt 421g — as it had, at the time, other tax breaks like 421a and J51 — they could start charging market rate for their apartments once rent reached a certain threshold and there was a vacancy or the tenant’s income hit a certain point.

But the court found that the legislature’s intent to ensure that apartments were regulated during the life of the tax break was “clear and inescapable” in its creation of 421g, which was designed to incentivize the conversion of office space into residential. The court also notes in its decision that 421g was enacted two years after vacancy and high-income decontrol were put in place, so it wouldn’t have specifically been singled out in the Rent Stabilization Law.

“We’re delighted with it and we think the court did the right thing,” said Robert Smith, partner at Friedman Kaplan who represented the tenants at both buildings. He noted that the state’s recent elimination of vacancy and high-income decontrol — as part of the new rent law signed by the governor earlier this month — probably would have have impacted his case.

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“I doubt that they would’ve retroactively applied rent control,” he said.

Attorneys for both landlords declined to comment.

In a dissenting opinion, Chief Judge Janet DiFiore said the decision will result in tenants who agreed to lease luxury apartments at market rate rents “converg[ing] on [the Division of Homes and Community Renewal] in an attempt to collect refunds, based on the majority’s conclusion that their apartments should have been rent-stabilized for years.”

“Even worse, the next time government looks to the private sector and asks developers to take risk and finance a revitalization program, potential investors will think twice about relying on a common sense reading of legislation, clear legislative history and the representations of implementing agencies – none of which protected them here from the majority’s retroactive reading of statutory text that dramatically changes the terms of the bargain long after the Legislature’s goals have been achieved,” she wrote.

When the new rent law repealed vacancy decontrol, it inadvertently impacted the latest version of 421a — dubbed Affordable New York. That version allowed landlords to deregulate units at buildings receiving 421a once rent reached a certain point and the apartment was vacated. Legislators subsequently pledged to create a carve out for 421a to allow such deregulation.