Here’s what Stuy Town ruling means for rent regulation

Some landlords fear tenants will use it to challenge all deregulation

Stuyvesant Town and Blackstone president Jonathan Gray (Getty; Blackstone/YouTube)
Stuyvesant Town and Blackstone president Jonathan Gray (Getty; Blackstone/YouTube)

After tenants of Stuyvesant Town and Peter Cooper Village scored a major victory, some landlords are worried that it could inspire more lawsuits challenging deregulation.

A state court judge ruled last week that the complex’s owner, the Blackstone Group, cannot deregulate some 6,200 units because of the 2019 state rent law. Blackstone had argued that a 2012 court settlement and a 2015 agreement with the city specified that the apartments could be taken out of regulation after June 30, 2020, when its J-51 property tax breaks expired.

The decision could make developers and landlords hesitant to ink regulatory agreements with the city, said Vladimir Favilukis, a partner at Kucker Marino Winiarsky & Bittens who focuses on rent regulation and tax law.

“How can you trust that the agreement you make today won’t be determined as unenforceable and held against you five years from now?” he said. “It makes it difficult to plan ahead.”

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It is not clear how far the decision will reach beyond the 11,000-unit complex. Stuy Town’s apartments were regulated prior to the owners receiving J-51 benefits in 1992. MetLife, the owner at the time, began deregulating units the following year, after the state introduced “luxury decontrol,” which allowed landlords to charge market-rate rents once units’ regulated rent reached a certain level and were vacated, or the tenants’ salary got too high.

The previous and current owners of Stuy have something in common: The reason why their apartments were stabilized in the first place played a key role in their legal defeats.

The state’s highest court ruled in 2009 that the owners could not deregulate units while receiving J-51 benefits, despite state guidance around luxury decontrol that suggested otherwise. MetLife had assumed that because the units were stabilized prior to getting J-51, they could deregulate them through the luxury decontrol provisions.

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In the most recent case, the judge determined that because the units were regulated prior to the owners receiving J-51 benefits, then improperly deregulated, and were stabilized when the 2019 laws passed, Blackstone could not charge market rents again after the tax break expired.

The 2019 law eliminated luxury decontrol, though an exception was made later for buildings receiving the tax break 421a. No such carveout was made for J-51 or other incentives.

Tenant advocates and lawmakers have framed the latest decision as a reinforcement of the “intent” of the Housing Stability and Tenant Protection Act of 2019. Manhattan Sen. Brian Kavanagh called it “a resounding victory for those who support the basic law and the approach that was taken under rent stabilization.”

“I think there is a broader message here that the landscape has really changed since 2019,” he said. “The broader implication for people is we have closed the loopholes, and we’re serious about retaining the stabilized stock.”

Tim Collins, a partner at Collins Dobkin & Miller who represented the Stuy Town tenants, said the decision could apply to buildings where the apartments were stabilized prior to receiving J-51 and were stabilized at the time the legislature passed the 2019 law. He does not think it would apply to buildings where J-51 is the only reason apartments were stabilized in the first place.

Still, some landlords and attorneys suspect that the decision could be used to fight deregulation of any kind.

Jay Martin, executive director of the landlord group Community Housing Improvement Program, said the ruling should not have any bearing on his group’s lawsuit challenging the state’s rent stabilization system. That case is awaiting a decision from the Second Circuit.

“This decision really doesn’t do anything to defend against the serious constitutional questions raised by 2019 rent laws,” he said.