At one building owned by David Bistricer’s Clipper Equity, tenants have challenged rent increases granted in October for improvements made nearly a decade ago.
In a lawsuit filed in New York State Supreme Court on Wednesday, counsel for the tenant association at 10 West 65th Street allege that the approved rent increases — which the group has disputed since 2013 — were based on faulty statements to the Department of Buildings for work that was completed long before the application for the rent increase was submitted.
The plaintiffs also take issue with the number of apartments used as the basis for calculating the rent increase, since some of the units were subdivided. When the state’s housing regulation agency, the Division of Homes and Community Renewal, finally sided with the landlord and granted the increase in October, it called the tenants’ claims “unsubstantiated.”
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Attorneys for the tenant group call the agency’s approval of the rent increases “arbitrary and capricious.” That order disregards “conclusive evidence” that the improvements — a new boiler, fencing, security system and intercom — was completed more than two years before the landlord files an application for the rent increase, the lawsuit alleges.
“HCR remains committed to enforcing State rent laws to protect tenants and the housing stock,” said Brian Butry, a spokesperson for HCR. He added that the agency does not comment on pending litigation.
DHCR allows landlords two years to file applications through the Major Capital Improvements, or MCI, program. The agency has said that Clipper Equity’s deadline was pushed back because it took more than a year for the landlord to get the new boiler certified by the Department of Environmental Protection. DHCR said that the landlord in fact made the deadline with one day to spare.
Adding another layer of complexity, attorneys for the tenant group argue that because the increases were approved in October, the new rent law should apply. According to the 2019 overhaul of the rent law, rent increases for improvements are not allowed in buildings where fewer than 35 percent of the apartments are rent-stabilized. The tenants argue that is the case in their building.
That would be bad news for Clipper Equity, a Brooklyn-based real estate investment trust, which owns and operates thousands of units in New York City. Although it did not make the original improvement at the property, it could reap an annual rent increase of 2 percent over the yearly allowable rent increases, set by the Rent Guidelines Board.
The firm also said it was planning additional improvements to “enhance the property” in 2017, when it announced the acquisition of the 82,000-square-foot building for $79 million. A one-bedroom apartment at the six-story Lincoln Square building goes for $2,625, according to StreetEasy.
HCR did not respond to a request for comment. Clipper Equity did not respond to a request to comment. Lawyers representing the plaintiffs declined to comment.
It’s not clear if Clipper was counting on rent increases to fund the planned enhancements, but regardless, the 2019 rent law made that proposition much less lucrative. Rent increases for building-wide improvements are capped at 2 percent annually, and expire after 30 years. Increases for individual apartment improvements are limited to $15,000 for 15 years.
The law’s impact on the multifamily sector was not lost on Bistricer, who is bankrolling a federal challenge of the new rent law.
That lawsuit argues that the rent law violates aspects of the Fifth and 14th Amendments to the U.S. Constitution, and closely resembles a lawsuit filed earlier in the year by the Rent Stabilization Association and the Community Housing Improvement Program, which seeks to dismantle the law on the basis that it is an unconstitutional taking of private property.
A New York judge dismissed that case in September, and oral arguments for the case, which the plaintiffs planned to appeal at the Second Circuit, could begin in the spring.