Judge trashes 421a rent overcharge suit against Muss

Tenants’ case accuses developer of illegally inflating rents in Bed-Stuy

Jason Muss, President of Muss Development; 180 Franklin Avenue (Muss Development, iStock)
Jason Muss, President of Muss Development; 180 Franklin Avenue (Muss Development, iStock)

Muss Development notched a win against tenants at a Bed-Stuy rental building who accused the landlord in a lawsuit of illegally inflating rents.

The case, brought by tenants at 180 Franklin Avenue, was dismissed by a state Supreme Court justice last week.

Muss Development’s lawyers at Belkin Burden Goldman lauded the ruling, with partner Matthew Brett calling it a decision of “law and logic.”

The tenants’ lawyers, Lucas Ferrara and Roger Sachar of Newman Ferrara, plan to appeal.
Ferrara decried the ruling as “fundamentally flawed.”

“This is far from over,” he said by email. “As New Yorkers, we’re not about to shy away from a good fight.”

The case is one of seven filed in the past year challenging how landlords reported the initial rents at buildings using the 421a tax abatement program. In every case, Newman Ferrara is representing the tenants while BBG appears on behalf of the landlords.

At issue is whether the initial rent landlords record with the state’s Division of Housing and Community Renewal should reflect concessions that many developers offer when first leasing up a building.

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Landlords argue that one-time concessions should not be factored into the first rent recorded with the agency, while Newman Ferrara argues that it should reflect what tenants actually paid. The first rent serves as the base for future rent increases, which are set by the Rent Guidelines Board until the tax abatement runs out.

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As the cases make their way through state court, the outcomes have varied. Last month, a judge dismissed tenants’ 421a overcharge suit against billionaire John Catsimatidis’ Red Apple Group at one of his Prospect Heights buildings; the tenants are appealing.

Meanwhile, a judge has granted class-action status to an overcharge case filed against Spruce Capital Partners at 1209 DeKalb Avenue; the landlord is appealing.

https://therealdeal.com/2021/04/08/industry-suffers-setback-in-421a-class-action-suit/

Both of those cases will be heard by the Appellate Division in November. Lawyers on each side say the higher court’s decisions will carry significant weight. Unanimous decisions by the appeals panel are unlikely to be reviewed, let alone overturned, by the Court of Appeals, the state’s highest court.

The cases will help clarify the rules for landlords who receive 421a and offer concessions on the initial rent.

“Owners should not be punished for giving temporary rent concessions to tenants,” said Brett.

But Ferrara says what landlords are doing amounts to illegal rent inflation. He said his team is “confident that the appellate courts will find in our favor and uphold these critically important tenant protections.”

The outcome will be significant not only for affected tenants and landlords, but for state lawmakers considering the future of 421a. The seven rent overcharge suits stem from investigations conducted by housing watchdog Housing Rights Initiative, which is seeking the abolition of 421a, an abatement that wipes about about $1.7 billion in property taxes each year.

State and city lawmakers point to the lawsuits as grounds to let 421a die when it expires next year.