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

(CITY LIMITS.ORG) Tenants across three buildings in Brooklyn, Queens and Manhattan sued their landlords in state Supreme Court Wednesday, claiming the corporate owners have tried to “hoodwink” residents and a state oversight agency by illegally inflating rents in violation of the rules related to hefty 421a tax breaks.

The landlords—a series of limited liability companies (LLCs) tied to large real estate firms Atlas Capital Group, Heatherwood and Artimus Construction—are permitted to pay a fraction of their property tax bill by participating in the state’s 421a program, which mandates that recipients adhere to rent stabilization rules as a condition of the abatement. But all three falsely registered initial rents with the state Division of Homes and Community Renewal (HCR) in order to charge tenants more money than legally permitted at renewal or on new leases, the legal complaints allege.

The three class action lawsuits outline how, rather than register the lower rents they were actually charging tenants—so-called “preferential rents”—as mandated by 421a rules, the owners allegedly listed higher amounts and used those as the basis for future increases allowed by the city’s Rent Guidelines Board (RGB). The board sets annual percentage increases that owners of more than 1 million rent regulated apartments in New York City must follow.

“It’s shameful,” said attorney Lucas Ferrara, a partner in the law firm Newman Ferrara and a professor at New York Law School, who is representing the tenants. “They’re manufacturing these silly loopholes and workarounds to sidestep the very purpose of the law, which was to increase the availability of affordable housing.”

Ferrara’s colleague Roger Sachar said owners “taking millions in tax benefits while not following rent regulation” is rampant across New York City. But with HCR facing staff shortages and lengthy complaint backlogs, it’s rarely enforced.

City Limits reached out to the corporations tied to the buildings’ LLC owners as well as attorneys who have represented the owners in past cases, but none have provided a response to phone calls and emails by press time. This story will be updated should they respond.