Curb appeal: Tenants take 421-g rent-regulation fight to state’s highest court for ruling

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Tenants at 50 Murray St. are taking their case to the Court of Appeals, where a ruling in their favor would force landlords across Lower Manhattan enjoying tax breaks under the state’s 421-g program to slash rents — and even pay tenants back for years of overcharges.

BY COLIN MIXSON

New York’s highest court will finally provide clarity on a contentious legal debate that’s pitted Downtown renters against their landlords, who for decades have reaped millions in tax breaks while refusing to provide the regulated rents the program was meant to foster, tenants claim.

Following a court defeat in January, tenants of 50 Murray St. have decided to take their case to the state Court of Appeals to argue that building owners profiting from the 421-g tax program must continue offering the rent-regulated leases the law requires. Conflicting lower court rulings have left open the question of whether leases in 421-g buildings are subject to so-called “luxury deregulation,” so a high court determination in the 50 Murray St. case will have sweeping consequences for residents and developers in Lower Manhattan — and could force landlords to slash rents for thousands of Downtowners, according to the tenants’ lawyer.

“Nearly 5,560 apartments in Lower Manhattan will be immediately and directly affected by this court’s decision,” said Serge Joseph, an attorney representing tenants at 50 Murray St., in addition to tenants from six other 421-g buildings. “The two buildings subject to this appeal alone contain 510 apartments.  Additionally, thousands of other apartments in buildings participating in the 421-g program will be subject to the decision.”

State legislators created the 421-g program in 1995, giving developers generous tax exemptions in exchange for revitalizing a then-stagnant Lower Manhattan through the construction of new residential developments and conversion of office buildings.

In 2016, landlords at 90 West St. were exempted from paying nearly $3 million in state taxes, while the owners of 37 Wall St. profited from exemptions exceeding $3.2 million, according to a list compiled by housing experts at Community Board 1.

The 421-g program also entitled residents of those buildings to rent-stabilized leases, which places a low cap on annual rent hikes, but landlords have long argued that their units are subject to luxury deregulation — which axes benefits for tenants paying above a certain threshold, currently $2,700 per month — and have raised their rents accordingly, leading tenants in many 421-g buildings to sue.

Landlords scored an early victory in the case of 89 John St. in May 2017, when Justice Shlomo Hagler cited a letter that former Mayor Rudy Giuliani sent to the state Senate prior to the bill’s approval, indicating that the 421-g buildings would be subject to luxury deregulation, despite that language appearing nowhere in the law.

But tenants at 50 Murray and 90 West streets quickly scored back-to-back sate Supreme Court victories, undermining Hagler’s decision and the position of landlords, only for the issue to once again become muddled by a yet-higher court, the state’s Appellate Division, where four justices ruled unanimously — with one recusal — in favor of the Murray Street landlord earlier this year.

That decision would have reigned as the law of the land, but the Appellate Division has granted Joseph and his clients leave to appeal its ruling before the Court of Appeals, the ultimate authority when it comes to New York State law.

An attorney for the landlord, and a former justice for the Appellate Division, said he agreed whole-heartedly with the penultimate court’s ruling, and that he expects the Court of Appeals to render a decision that will give 421-g developers a reason to celebrate.

“The legislative history powerfully supports the Appellate Divisions conclusion,” said James McGuire.

But Joseph said the Appellate Division made the wrong call according to the language of the law, and said it’s up the Court of Appeals to provide justice to thousands of Downtown residents.

“In our view, the Appellate Division decision should not stand,” said Joseph. “It permitted landlords receiving tax benefits to flout the rules. It is our view that the Court of Appeals will agree with us and provide tenants in these buildings with the protections from evictions and unreasonable rent hikes they were intended to receive.”

The Court of Appeals hasn’t scheduled a hearing yet on the issue, but whatever decision it makes will be final, and will at the very least provide closure to a debate that’s raged for more than 20 years.

“The decision to grant tenants leave to appeal to the Court of Appeals is a big deal, because the highest court in the state will have the opportunity to provide finality to this issue,” Joseph said.

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