Four class-action suits target NYC landlords abusing J-51 tax program

BY EMILY NONKO NOV 29, 2017, 11:33AM EST

Four class action lawsuits were filed today against three New York landlords—the Scharfman Organization, Chestnut Holdings, and KMR Amsterdam—believed to be among the biggest abusers of the J-51 tax program in the city. The suits were filed in New York County Supreme Court by the law firm Newman Ferrara after an investigation by the non-profit watchdog group, Housing Rights Initiative.

The J-51 tax program offers developers an as-of-right tax exemption and abatement for rehabs or conversions of multi-family dwellings. Upon completion, the landlord has to rent stabilized all of the units for at least the duration of the tax benefit, and can only increase the rents in accordance with the rent guidelines board. Landlords get up to a 34-year exemption from increases in real estate taxes resulting from the work. In addition, existing real estate taxes receive an abatement of up to 12.5 percent.

J-51 was in the spotlight back in 2009, when Tishman Speyer was held responsible for not keeping all the apartments in Stuyvesant Town rent regulated, despite utilizing the tax exemption. (Tishman Speyer is no longer an owner of the massive east side complex.) Despite the court ruling, according to Housing Rights Initiative, "the Department of Homes and Community Renewal, the state’s housing enforcement agency, has effectively disregarded the ruling through a failure to enforce it."

Tens of thousands of units illegally destabilized under J-51 were never placed back on rent stabilization by landlords—which is bad news for a city struggling with an affordable housing crisis. In response, Governor Cuomo launched an initiative at the beginning of 2016 that sought to re-stabilize 50,000 illegally deregulated units by sending landlords voluntary compliance letters.

For its part, HRI says Cuomo's J-51 initiative is "the same kind of hands-off-enforcement approach that caused this problem to go unabated for over nine years” after the Stuy Town case.

This leads us to the current lawsuits, which are targeting landlords who are still allegedly abusing the J-51 tax exemption. All of the landlords named in the suit own buildings in upper Manhattan: Two class action suits were filed against Scharfman Organization, landlord of 55 Cooper Street in Inwood and 260 Convent Avenue in Hamilton Heights. The third suit was filed against Chestnut Holdings, landlord of 310 Convent Avenue in Hamilton Heights. A fourth suit was filed against KMR Amsterdam, landlord of Washington Height's 2201 Amsterdam Avenue.

According to HRI, these firms have either disregarded Cuomo's voluntary compliance letter and failed to re-stabilize illegally deregulated units, or have "created the illusion of compliance" by re-stabilizing illegally deregulated units at illegal amounts.

The suits have been filed on behalf of hundreds of former and current tenants in over 200 units across all the buildings. Aaron Carr, founder of Housing Rights Initiative, calls it "a historic opportunity to return tens of thousands of units back to the rent stabilization rolls amid an affordable housing crisis." He adds, "The only way this can be done is through transparency and mandatory compliance."

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