Home News Landlords Inflated Rents While Receiving 421a Tax Breaks, Lawsuits Allege

Landlords Inflated Rents While Receiving 421a Tax Breaks, Lawsuits Allege

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Owners of three buildings in Manhattan, Brooklyn, and Queens filed a lawsuit against the state’s Office of Housing and Community Renewals (HCR) to charge tenants more than legally allowed for renewals or new leases. ) is accused of incorrectly registering the first rent.

Adi Talwar

One of the buildings cited in the lawsuit is located on the west side of Manhattan along 26th Street.

Tenants in three buildings in Brooklyn, Queens, and Manhattan illegally inflated rents in violation of rules related to massive 421a tax cuts, allowing business owners to “fight” residents and state oversight agencies. She sued her landlord in state Supreme Court on Wednesday, alleging that she attempted to .

Landlords (a series of limited liability companies (LLCs) affiliated with large real estate firms Atlas Capital Group, Heatherwood, and Artimus Construction) can pay a portion of their property taxes by participating in the state’s 421a program. is allowed. Comply with the Rent Stabilization Regulations as a condition of the exemption. However, in all three cases, the state’s Housing and Community Renewal Division (HCR) mistakenly sent the first rent to the state’s Housing and Community Renewal Division (HCR) to charge tenants more than legally allowed on renewal or new leases. registered, the legal complaint claims.

In three class actions, rather than registering the lower rents they were actually charging tenants (so-called “preferential rents”) as required by Rule 421a, owners listed higher amounts. , outlines how they were purportedly used as the basis for future price increases permitted. By the City’s Rent Guidelines Board (RGB).board Sets the annual percentage increase New York City’s over 1 million rent regulation apartment owners must comply.

“It’s a shame,” said Lucas Ferrara, a New York Law School professor and partner at the Newman Ferrara law firm who represents the tenants. “They are creating these ridiculous loopholes and workarounds to circumvent the law’s purpose of increasing the availability of affordable housing.”

Ferrara’s colleague Roger Sachar said owners “taking millions in tax incentives for failing to comply with rent regulations” are rampant across New York City. However, HCR is facing staff shortages and Long complaint backlogis rarely applied.

City Limits reached out to companies associated with the building’s LLC owner and attorneys who have represented the owner in past lawsuits, but no one responded to calls or emails by press time. This story will be updated when we receive a response.

The 421a program, which expired in June, was estimated to cost New York Over $1.7 billion in potential property taxes annuallybut supporters of reduction strategies, Including Governor Kathy Hochul, It is essential to incentivize middle-income housing production, he said. According to one study, from 2010 to 2020, approximately 70% of new condominiums in buildings of 4 units or more were built using 421a abatement equipment. February report by Furman Center.

However, Ferrara and Sachar said the program could be a rent scam because the increase during the 30-year tax break is based on the initial monthly cost. This gives owners, like the companies behind the three LLCs, a perverse incentive to fudge numbers to appear higher than they actually charge tenants, Ferrara said. .Therefore, at the next lease renewal, the price can be higher than if you registered an accurate but lower initial rent.

Each class action lawsuit accuses the owners of inflating the rents of at least 100 current and former tenants. One apartment in a 142 unit high rise at 27-03 42nd Rd. In Long Island City, the owner (listed as 1719 27th Street LLC) registered an initial rent of $3,794 per month with her HCR, but charged the tenant her preferential rent of $3,477. Complaint status.

However, under the 421a rule, the first amount registered with the state must be the “monthly rent billed and paid by the tenant,” even if it is a preferential rent. The lawsuit accuses the owner of trying to obscure what constitutes preferential rent by arguing that the lower monthly costs are the result of his one-month concessions on average over the year. increase.

“That ‘rent exemption’ is also known as ‘preferential rent,'” the complaint states. The LLC owner of the building Major real estate company Heatherwooddid not respond to calls or emails seeking comment.

In another 443-unit building at 54 Noll St. in Brooklyn, property owner ACI VI Denizen LLC has filed a lawsuit based on amounts incorrectly registered with the state rather than the actual totals paid by previous tenants. , raised rents for new tenants. according to the complaintThese price increases would violate 421a and the Rent Stabilization Rule, which allows only small percentage increases.

“Subsequent rent increases were based on the first incorrect rent set by law, thus tainting the entire rent history,” the lawsuit alleges.

The lawsuit also accuses the owners of illegally increasing the rents of existing tenants. In one example, a landlord registered a monthly rate of $2,385.25 per month, but charged a tenant with $1,762.50 “preferred rent.” Upon renewal of the lease in 2021, the owner increased the rent to the registered amount, resulting in a 35% increase in tenant protection law violations for him, the complaint states. that year, RGB Only 1.5% rate hike allowed According to the lawsuit, this should have been added to the preferential rent.

Atlas Capital Group has purchased the 54 Noll St. building. From original owner Full year 2021 It confirmed that LLC was listed as the owner, but did not respond to calls seeking comment.

In the 204-unit building at 260 West 26th Street, Chelsea, the owner also made a renewal price increase based on the registered rent, raising the price above the legally permitted percentage. according to the lawsuitThe owner, listed as Chelsea W26 LLC, rented one apartment for $2,260.87 in 2020 but registered it with the state for $3,000 in rent.

For the first lease renewal in 2021, the owner has increased the rent to $2,595 per month. That’s less than the amount registered, but well above his 1.5% increase allowed by state law based on preferential rent, the lawsuit says. On its second renewal earlier this year, the owner eliminated preferential rent and increased costs to the registered monthly total. This is $3,097, which is 37% higher than the initial lease amount.

The building is owned by Manhattan-based ultimus constructiondid not respond to emails and phone calls seeking comment on Wednesday.

The class action lawsuits were each filed by the tenants following an investigation by the Housing Rights Initiative (HRI), a housing watchdog. Often targets owners Suspected 421a fraud. HRI founder and executive his director Aaron Carr has urged HCR and other state agencies to take tougher policies against 421a fraud and help owners and developers get tax relief rewards. I discouraged him and urged him not to abide by the rent law.

“The 421-a program will cost taxpayers $1.7 billion a year, which is more than the entire city of Denver’s budget,” Carr said. “The fact that the New York state government continues to extend its tax obligations to organizations with a fraction of its budget is not just a tragedy, it is a full-blown scandal.”

HCR declined to comment on pending litigation.

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