TAX BROKEN: Pols say Downtown landlords abusing 421-g tax program

Associated Press / Frank Franklin II Public Advocate Letitia James and 37 other elected officials filed an amicus brief arguing that apartments created under the 421-g program should remain rent-stabilized for as long as the landlord receives the tax benefit.
Associated Press / Frank Franklin II
Public Advocate Letitia James and 37 other elected officials filed an amicus brief arguing that apartments created under the 421-g program should remain rent-stabilized for as long as the landlord receives the tax benefit.


Dozens of elected officials — led by Public Advocate Letitia James — have thrown their support behind a group of tenants challenging a loophole in a controversial tax break that has reduced affordable housing Downtown.

The lawsuit filed on behalf of more than 40 tenants of 90 West St. could return thousands of Downtown units to rent-stabilization rolls if the court rules apartments created through the 421-g program were wrongfully deregulated.

James last month filed an amicus brief signed by 37 other elected officials — including state Sen. Daniel Squadron, Assemblymember Deborah Glick and Councilmember Margaret Chin — arguing that apartments should remain rent-stabilized for as long as the landlord receives the tax benefit, contrary to the current interpretation of the 1995 law.

“We will not sit idly by as unscrupulous landlords cheat the system to make millions while tenants struggle with skyrocketing rents,” James said in a statement. “In order to curb the impacts of our unprecedented housing crisis, it is essential that we preserve our existing affordable housing.”

State legislators created the 421-g program in 1995 to revitalize Lower Manhattan. At the time, close to a quarter of the area had vacant office space and the legislation hoped to encourage developers to convert commercial buildings for residential use. Apartments created under the program were supposed to be rent-stabilized, which limits how much the rent can go up when a lease is renewed.

However, backroom maneuvers by Republicans ahead of the bill’s passing watered down protections for tenants, according to affordable-housing advocates. A letter sent by then-Mayor Rudolph Giuliani to then-Senate Majority Leader Joseph Bruno stated the city intended apartments created through 421-g to be removed from rent-stabilization once they reached the deregulation threshold — currently $2,700 per month.

Government agencies, as well as developers, have since used Giuliani letter to interpret the law. As a result, landlords benefiting from the lucrative tax break have been able to hike rents dramatically amidst a residential boom in Lower Manhattan.

Taylor West, one of the 90 West St. tenants who signed onto the lawsuit, said his landlord unexpectedly hiked his rent by 33 percent last year, and gave him only two weeks to decide whether to renew his lease.

“I was suddenly put in a situation where I felt like I had two weeks to decide whether to uproot my family,” said West. “It felt like we were being taken advantage of — and it was so greedy and over the top I started to take a look at the law and realized [the landlord was] double dipping.”

Critics of 421-g’s implementation point out the law passed by the legislature makes no mention of rent limits or deregulation, and argue apartments created through the program should be rent-stabilized as long as the landlord receives the tax break.

“The deal behind 421g was clear — tax breaks for housing in lower Manhattan must include more affordable housing for lower Manhattan,” Squadron said in a statement. “As this case makes clear, it is not acceptable to shortchange the tenants or the community. I’m proud to continue the push and join the Public Advocate in this effort to support rent-stabilized New Yorkers.”

By signing the amicus brief, legislators hope to add more weight to the lawsuit’s claim that Giuliani’s letter does not have the force of law. However, Sherwin Belkin, an attorney for the landlord, said he plans to ask the court not to accept the Public Advocate’s amicus brief.

“This is nothing more than political grandstanding and does not add any legal argument that is pertinent to the case,” he said. “[The amicus brief] repeats and rehashes the same legal arguments already submitted to the court and only unnecessarily inflates the record.”

Belkin also said the media wrongfully identified Kibel Companies as the defendant. He said the owner of the property, B.C.R.E.-90 West Street LLC, is owned by a group of investors and Kibel is only the property manager. Belkin declined to name the parties behind the LLC.

However, a 2006 mortgage from the city’s Housing Development Corporation lists the Kibel Group, as well as Brack Capital Real Estate, Ltd. and The BD Group as principal parties for the LLC.

Taylor said tenants at 90 West St. began being driven out of the building en masse around the time of his rent hike. He described seeing moving trucks parked outside almost every day.

And while his family might have been able to afford the increased rent — they paid $5,300 per month — it would have meant cutting back on afterschool activities for his children, who attend P.S. 276. The uncertainty of knowing whether they would be hit with another spike in rent adds another layer of uncertainty to the family’s ability to stay in the neighborhood.

“This affects anyone like us who wants to stay in the community long-term. And this is why the bill was created — to help establish a community Downtown,” he said. “I’ve realized over the course of this lawsuit that taking a stand is critical not just for the tenants at 90 West St., but for tenants all over Lower Manhattan where landlords are acting this way.”

Indeed, at least two other Downtown properties, 85 John St. and 50 Murray St., are embroiled in legal flair-ups between tenants and landlords over the interpretation of 421-g, The Real Deal reports.

And while lawyers for the landlords have held up Giuliani’s letter to argue their units can be deregulated, tenants say the program clearly requires apartments to be rent-stabilized for as long as the property owner receives the tax break — as intended by the legislators who wrote and passed the 421-g law.

Tenants at 85 John St. obtained an affidavit from former Democratic State Sen. Martin Connor, the minority leader when 421-g was enacted, stating the law was not written to allow apartments to be deregulated.

Serge Joseph, the attorney representing tenants at 90 West St. and 85 John St., called relying on Giuliani’s letter to interpret the law “laughable.”

“Giuliani’s letter should have no weight, especially in comparison to the interpretation of Martin Connor, who sponsored the legislation in the senate,” he said.

Joseph said the amicus brief signed by legislators also reinforces the assertion that 421-g has been wrongly implemented since it was enacted and the court should consider it.

“When you have so many elected officials taking a stand on how the law should be interpreted, that’s an inherent sign the tenants should be protected under rent stabilization,” he said.