Destabilized! Landlord beats lawsuit from tenants seeking rent-stabilization protections under 421-g

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The landlord of 85 John St. has successfully fended off a tenant lawsuit seeking rent-stabilization protection under the 421-g program that gives the owner tax breaks.


A Supreme Court judge has granted a Downtown landlord cart blanche to charge tenants market rates, despite receiving generous tax abatements through a program mandating residents receive rent stabilization.

In his May 2 decision, Justice Hagler cited a letter that former Mayor Rudy Giuliani wrote in 1995, which has managed to override state legislation for decades to benefit landlords over tenants, according to a lawyer for tenants at the building in question, 85 John St.

“We believe that Justice Hagler erred in relying on the Giuliani letter and finding that the State Legislature intended to permit landlords to enjoy generous tax benefits without anything in return,” said attorney Serge Joseph.

Seeking to spur development in the blighted Lower Manhattan of the mid ’90s, state senators voted 53-1 to award a generous tax break — called 421-g — to developers willing to convert aging office buildings to residential use — but requiring in return that rent increases be capped through rent-stabilization laws.

But just before the ballots were cast, then Senate Republican Leader Joseph Bruno read the so-called “Giuliani Letter” into the record, in which the former mayor declared that the city intended to interpret the law’s rent regulations to be subject to luxury-deregulation laws — which remove units with rents higher than (then) $2,000 per month (currently $2,700-per month) from rent stabilization.

Members of the state Assembly, which had already passed the bill before the Senate sat down to deliberate, did not see the letter in time to respond before the bill passed.

And while language within the bill never mentioned any exclusions based on rent, landlords have pointed to the now-infamous Giuliani Letter ever since as justification for charging market rates for a huge majority of all rental units built under 421-g — while still receiving massive tax breaks through the program.

In his decision, Hagler made frequent reference to the bill’s ambiguity regarding rent stabilization, calling it a “knotty issue” and citing statements from other Chief Judges who described rent control laws as an “impenetrable thicket.”

But the language governing 421-g is neither knotty nor impenetrable, according to Joseph, who claims legislators were very clear in their intent that all apartments created through the 421-g program be subject to rent stabilization.

“It’s absolutely clear and unequivocal,” said Joseph. “It said what it says.”

The landlord at 85 John St., on the other hand, argued that the tax break’s intent was always to promote the revitalization of a recession-era Lower Manhattan, and that slapping a permanent cap on rent increases for all converted residential units would have only put building owners off the idea of investing millions to retrofit their dilapidated office towers, according to the landlord’s attorney, Joe Burden.

“The intent of the statute was to incentivize commercial property owners to convert their properties to residential use,” Burden said. “Freezing the rents at rent-stabilized levels … would de-incentivize the owner.”

Joseph has represented tenants in numerous similar cases, and claims landlords are typically eager to settle out of court, lest an unfavorable decision force them to provide all their residents with rent-stabilization protections.

“Landlords tend not to want to risk a finding that all the apartments in their building are subject to rent stabilization, so they settle,” he said.

Prior to this most recent case, judges with the city’s Housing Court have made two decisions regarding the law, one in favor of tenants, and another in favor of landlords.

Justice Hagler’s is the highest-level decision regarding the law so far, but the rent-stabilization questions around 421-g has yet to reach the appellate division of New York’s highest court and, until that happens, it will be up to tenants to shoulder the costs of litigation to push the court to bring decisive clarity to the decades-old legislation, Joseph said.

“That would settle the issue once and for all, so that individual private parties won’t be incurring legal fees at the risk of eviction and all these other things,” the legal eagle remarked.

Joseph’s clients haven’t decided whether they will appeal — which is an expensive and time-consuming process — but if they did, the case would go to the Appellate Division. A win there would potentially bestow rent-stabilization protections to tenants in thousands of units built under the 421-g. But in that case, Joseph said, the landlord could appeal the decision to the Court of Appeals — the highest court in the state — where the result would be final and binding.

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6 Responses to Destabilized! Landlord beats lawsuit from tenants seeking rent-stabilization protections under 421-g

  1. Tom Goodkind

    Without stabilization, long term tenancy in a community is nearly impossible due to unaffordable rent increases at lease end. These apartments in question are luxury rentals: the landlord is earning plenty! Stabilization should be legislated by our elected officials…problem is- it appears that REBNY is financing Albany to keep our community short-term.

  2. maryanne braverman

    This is so twisted!! FiDi buildings needed renewal and renovating, and landlords got a tax break to do so. Now, the landlords own improved properties that are filled with tenants. They do not need more rental income over and above stabilized rates. Greedy, greedy, greedy!! No wonder working people can’t find affordable apartments in NYC!!!

  3. Not everyone can afford to live in a luxury apartment in NYC but enough people can so that the buildings are basically full. If you don’t want to pay the price of luxury apartment then don’t pay it but to think that a private citizen should subsidize you is rather self serving.

  4. Cary Freedman

    The Kibel company knows their buildings are supposed to be rent stabilized – 85 John st. And 90 West St. They are already charging all tenants market rent. But when people’s lease ends they are forcing rent increases of 30 percent and higher which is forcing tenants to move out. I think this is disgusting. They are exploiting tenants, many of which are families with school age children in the public schools. Once again greedy landlords are left to self regulate themselves and we all know that is never good. In this case they sued the tenant and forced them to pay rent and foot legal bills. Tenants sued Kibel at 90 West St. and the decision is not in yet. Hopefully the judge will not be in the pocket of the landlords like this judge appeared to be.

  5. This is great. The landlord argument is exactly right — it’s basic economics that imposing price caps leads to shortages, and in the same way there is broad evidence nationally that rent controls result in underinvestment in housing and development and upkeep. The best way to combat the affordability crisis is to allow supply to rise freely to meet demand, not to try and squeeze the market through the brute force of legislation.

  6. Not one landlord was forced to participate in a 421-g tax abatement program, the relevant provisions of which are crystal clear that the main cost to Landlords looking to take advantage of it and receive tremendous immediate tax benefit is the rent stabilization. That’s the price of admission and Landlords still thought it was a good deal. No competent or incompetent lawyer could have missed this requirement in the letter of the law. Thus, the only plausible scenario is that Landlords must have conducted a cost/benefit analysis on not complying with the rent stabilization requirement, which must have indicated that it’s most beneficial to “strongly deny” (as our Real Estate Developer President would say) the sole benefit of this statute to the community and see if anyone notices or cares to do anything about it. Of course, the statute addresses the scenario of what happens if tax abatement beneficiaries don’t comply with the rent stabilization requirement, imposing personal liability for the unpaid taxes. If the legislature didn’t mean what it clearly stated, the requirement and the penalty for non-complying with such requirement are superfluous. To now give any weight to Mr. Giuliani’s after the fact correspond (which no legislator knew about at the relevant times and safe to say no developer has relied on in applying for the tax abatement) is incredibly convenient for the Landlords, but it’s a batshit crazy argument that i can not believe some judge allowed as evidence.

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