Makes provisions relating to previously deregulated housing accommodations which again became subject to rent regulation pursuant to a court of appeals decision

Summary of provisions

This bill creates a mechanism for property owners and tenants affected by the Court of Appeals decision in Roberts v. Tishman Speyer properties to proceed in light of the Court's decision.

First it provides the opportunity for property owners to repay to the city of New York the amount of the J-51 benefits, plus interest, that they would have received from the city and to waive the amount of future benefits to which they would otherwise be entitled. The return and waiver of these benefits would remove the basis for subjecting these housing accommodations to rent regulation based on the application of the interpretation of the state Division of Housing and community Renewal ("DHCR"). The bill also provides that owners who intend to make a repayment can obtain a statement from the City setting forth the amount due and the basis for that determination. It also requires that the city provide this information within 30 days.

Second, for those owners who chose not to repay their benefits to the City, the bill establishes a formula for the calculation of the legal rents and refunds due, if any, to the affected tenants, as well as a mechanism and timeframe for the payment of such refund. It also mandates that affected owners provide current tenants with a notice that informs such tenants of the court ruling and provides a calculation of the legal rent and refund amount, if any, due to the tenant. It would also create a mechanism by which, after the owner has provided the tenant with such notice, the parties may enter into a final and binding written agreement regarding the legal rent and refund amount due the tenant. As part of the process of calculating the legal rent, the baseline for that calculation is the amount of rent that was payable on October 22, 2005, the date four years prior to the decision of the Court of Appeals in Roberts. The various other forms of rent increases that owners would otherwise have received during the ensuing period had the units been considered as rent regulated would then be added to that rental amount to determine the current legal rent.

Third, the bill provides that owners who do not repay the City will be obliged to provide so called "J-51 riders" to their regulated tenants

prospectively if they expect to deregulate these apartments upon the expiration of these tax benefits.

Fourth, the bill is intended to make absolutely clear that and to remove any doubt that Roberts in no manner whatsoever applies to rent regulated buildings converted to cooperatives or condominiums.

Lastly, the bill authorizes owners of buildings built after January 1, 1974 and are now rent stabilized due only to the receipt of J-51 benefits to repay those benefits and to authorize any repayments that may have occurred prior to this bill taking effect.

Justification

This bill would address the consequences of the decision by the Court in Roberts v. Tishman Speyer properties. In that decision, the Court of Appeals held that apartment buildings which were rent regulated prior to the receipt of J-51 tax benefits were prohibited from deregulating apartments during the period of those tax benefits. The Court did so even though the deregulation of those apartments occurred since 1993 with the express approval of government agencies, including the State Division of Housing and community Renewal, without challenge from affected tenants, the codification of this practice and policy by DHCR in regulations promulgated in 2000, and without any action to the contrary by the Legislature for all of these years.

Building owners who deregulated thousands of apartments throughout the city while they received these tax benefits are subject, as the result of Roberts, to potential rent rollbacks and enormous rent overcharge claims by thousands of tenants who entered into unregulated leases.

These outstanding claims undermine the economies of numerous buildings which were financed by mortgages based on a rent roll and assessed by the City based upon the accepted lawfulness of deregulation in J-51 buildings. Over 80,000 apartments have been deregulated through the mechanism of high rent vacancy deregulation throughout the city by property owners since 1993 and several thousand more have been deregulated through the process of high income, high rent deregulation, none of which were challenged over these many years by their tenants or their representatives. It has been estimated by the citizens Housing and Planning Council that between 19,000 and 37,000 deregulated units are in buildings that have received J-51 benefits. This situation places these properties at risk and impacts city revenues. Currently, the tenants who occupied unregulated units with no expectation of rent regulatory protection will receive a windfall from the Roberts decision. These tenants entered into these unregulated leases voluntarily, often at rents several of several thousand dollars per month, in contrast to the median rent regulated lease in the City of $950 per month. These unregulated tenants are not the low income and moderate income New Yorkers who need assistance and who deserve the protection of the rent regulation laws or in fact had any expectation of rent protection: rather they entered into free market leases.

The Court of Appeals specifically declined to rule on two major aspects of this issue, namely, (1) whether its decision applied retroactively and (2) whether the four-year statute of limitations on rent overcharges applied to these claims and, if so, in what manner. The Court's failure to provide guidance on these questions has opened the door to many more years of litigation between tenants and owners, placing burdens upon both the courts and the State Division of Housing and Community Renewal. In addition, the financial clouds that have been placed over these properties as the result of Roberts effectively has made many of these buildings unmarketable until these questions are resolved. Finally, prohibiting deregulation in these buildings will, invariably, result in lower property tax assessments, resulting in lower real estate tax payments to the City. No one benefits from this uncertainty.

The Court of Appeals stated in Roberts that if its decision created "unacceptable burdens," relief from those burdens was a matter for the Legislature. This legislation is intended to provide that relief but only under prescribed conditions. Building owners who deregulated apartments in the past or who would do so in the future but for Roberts and who seek to come out from under Roberts would be obligated to return to the City all of the J-5 1 tax benefits they received for their buildings and to waive any future benefits which would otherwise be due to them.

By returning and waiving their benefits, building owners would be allowed to continue to deregulate apartments in their buildings notwithstanding Roberts, and would be insulated from any and all liability resulting from Roberts for the apartments that were deregulated. By making such payments to the City, these building owners also would be providing the City of New York with a critically-needed infusion of revenue at a time when it is most needed.

As a result of the Court's ruling, rents for the affected apartments may have to be reviewed and, in many cases, reduced to bring them into compliance with the requirements of rent regulation. In addition, tenants may well be owed significant sums for the amounts they have paid in excess of rent that they would have been charged had their apartments been continuously rent regulated. Lastly, because the rent rolls for the buildings affected by Roberts may be reduced, the value of these buildings and their assessments would be reduced, raising innumerable legal and financial problems both for property owners and the City.

For those owners who do not repay their benefits to the City, the bill would create a special rent setting procedure for the affected apartment that could be applied uniformly to all of the apartments. It adheres generally to rent-setting procedures applicable in other situations under the rent laws, and would provide needed certainty for tenants, owners and other affected parties. Most importantly, it would establish a mechanism whereby owners and tenants can resolve the Roberts issue between themselves, without the need for intervention by DHCR or the courts.

Legislative history

This is a new bill.

Fiscal implications

None to the State.

Effective date

This act shall take effect immediately.