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Boon for tenants bane for landlords

NY Daily News, Sunday, April 5th 2009, 4:00 AM


Elizabeth and David Harris in their Tribeca apartment. Their affordable rent is in danger.

More than 300,000 New York tenants could reap the rewards of a major court ruling that bars landlords who got special tax breaks from pushing apartments out of rent control.

The ruling found thousands of tenants have been overpaying for years and may be entitled to huge refunds.

Landlords, who are appealing the case, worry that if the ruling stands, they could face bankruptcy while shelling out refunds and lowering rents.

The ruling is rippling across major apartment complexes citywide from the Riverton Houses in Harlem to Peter Cooper/Stuyvesant Town below midtown.

The exact figure is not known, but officials estimate 350,000 rent stabilized units exist in developments that get tax breaks called J-51.

Those breaks, meant to encourage landlords to pay for necessary repairs, have been in effect for 54 years. Officals estimate that tens of thousands of such units have been deregulated.

Since 2005, tenants of Independence Plaza in Tribeca have battled in court to overturn rent hikes after discovering their landlord was receiving those tax breaks.

In that time, senior citizens like Elizabeth and David Harris watched the rent on their one-bedroom rise steadily. When they recently began receiving Social Security checks, the added income pushed them out of eligibility for a housing subsidy.

"It was frightening. I thought I was going to be out in the street," Elizabeth Harris, 84, said.

"Overnight, it went up by $800 a month. We weren't qualified for anything. I felt so terrible that I couldn't pay my rent," said David Harris, 70.

After the Daily News made calls, the owner, Larry Gluck, agreed to return the elderly couple to rent control-level payments.

But thousands of other tenants in similar circumstances across the city must wait to see if the recent decision stands.

Joseph Strasburg, president of the landlord group, the Rent Stabilization Association, called the ruling "a seismic and unprecedented shift in the New York rent regulatory landscape."

The unanimous March 5 decision by the Manhattan Appellate Division directly involves tenants living in 4,400 deregulated apartments in Peter Cooper Village and Stuyvesant Town.

Owner Tishman Speyer Properties L.P. and deregulated tenants there have agreed to put all extra rent they pay above the stabilized level into an escrow account until the appeal is resolved.

If the ruling survives, Tishman Speyer will have to roll back rents for deregulated tenants, refund some $200 million in rent overcharges, and abandon plans to deregulate thousands more apartments until the tax abatements expire.

As word of the ruling spreads, tenants and landlords across the city have started calling around to ask what it means for them.

"People are very worried. They're concerned about potential overcharge liabilities, foreclosure," said RSA general counsel Mitch Posilkin.

The RSA tells landlords to "consult with their own attorneys, take stock of potential exposure" and consider following the Tishman Speyer plan of putting excess rents into escrow accounts.

Meanwhile, a group of 15 city and state lawmakers urged the state Division of Housing and Community Renewal to notify every tenant in a tax break building of the court decision.

And they urged the agency to temporarily freeze all applications to deregulate more rent stabilized apartments when rents reach $2,000 and household income is $175,000 or more.

"Tenants may lose their homes because they don't know the ramifications of this," state Sen. Tom Duane (D-Manhattan) said. "It's DHCR's responsibility to protect the rights of tenants, not just landlords."

The RSA's Posilkin called the ruling "an enormous Pandora's box" and said that if owners must roll back rents and reimburse tenants, he said, the city's housing stock will deteriorate and its tax revenues will drop.

The case returns to the Appellate Division, which will decide whether it can move to the highest court, the Court of Appeals.


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