November 15, 2011

J-51 Tax Abatement Stuy Town Ruling Sets Unfavorable Precedent for Landlords, Casts Cloud Upon Real Estate Market

Earlier this month, a New York appeals court ruled that free-market tenants at Stuyvesant Town and Peter Cooper Village may be entitled to rent rebates in excess of $215 million as compensation for illegal rent overcharges.
     

 

 

  Stuyvesant Town  

 

In 2007, the tenants filed a class action lawsuit against the building's owners Tishman Speyer Properties as well as the previous landlord Metropolitan Life. The suit alleged that Tishman illegally de-regulated rent-stabilized apartments while receiving a J-51 tax abatement.

 

 

 

The J-51 tax abatement program provides partial property tax exemptions to landlords who make certain renovations to their buildings. The Stuyvesant Town tenants claim that the landlords illegally deregulated more than 3,000 apartments in the complex while receiving more than $25 million in J-51 benefits. The New York State rent stabilization law provides for treble damages for any illegal overcharge.

 

 

 

Smelling blood in the water, tenants at other complexes have filed similar lawsuits.The plaintiffs range from Lenox Terrace in Harlem (home to Gov. Paterson and Rep. Charles Rangel), to Chelsea's luxury rental complex London Terrace andClermont York Associates on the Upper East Side.

       

 

  London Terrace  

     

Uncertainty over calculating potential liabilities and even future rent rolls makes it almost impossible for any J-51 beneficiary to refinance or sell. Even investors in the five bond offerings for Tishman's $3 billion mortgage could share in the responsibility to pay back tenants.

 

While I have no sympathy for the likes of Tishman-Speyer, I am also turned off by well-off tenants and their lawyers trolling for free money. The plaintiffs in these actions are individuals who freely entered into market-rate leases. They should not realize windfall due to a judge’s arguable interpretation of the rent-stabilization statute.

 

If the landlords were wrong to destabilize, let the fines be paid to the City, perhaps earmarked for affordable housing programs.        

seconds