421a Violations Crackdown & Other Rent Overcharges

David Goldsmith

All Powerful Moderator
Staff member
“Not on my watch”: AG Tish James fines developers who violated 421a
One repeat offender was fined $232K for violating the tax benefit agreement

A new investigation into buildings that benefit from the 421a tax abatement by New York Attorney General Letitia James found that four developers in Brooklyn and Queens received the tax break but didn’t live up to the program’s requirements.
The developers’ misdeeds ranged from falsely reporting a full building was vacant to not offering rent-stabilized leases to tenants as the program requires in most cases.
“Rent-stabilization laws exist to protect tenants, and we will not let landlords or developers circumvent them,” James said in a statement. “The agreements announced today affirm my office’s commitment to promoting access to safe, affordable housing for all New Yorkers. This is a notice to all bad actors seeking to take advantage of tenants: Not on my watch.”
None of the developers named in the latest investigation return requests for comment.

The Real Estate Board of New York issued a statement in support of James, adding that such violations are rare, and underscoring the program’s importance for affordable housing.
“We applaud Attorney General James for taking action to ensure that 421a is used only as intended and required under State law,” said James Whelan, president of the Real Estate Board of New York. “The 421a program continues to play a crucial role in the production of much-needed below-market rate housing across New York City — and while bad actors are rare, it is always unacceptable for any developer to try to utilize the program without complying with its rent-stabilization requirements.”

One firm, Tuhsur Development, tried to evict tenants from its property at 63-36 99th Street in Rego Park even though a state investigation found it had overcharged those tenants $22,042.
That developer was one of four firms that paid $460,000 in penalties after an 2014 investigation by attorney general Eric Schneiderman found it had violated its regulatory agreement.
Tuhsur will pay $159,592 to the Department of Housing Preservation and Development, $43,066 to tenants who were illegally overcharged, and a $30,000 penalty. The firm must also drop the eviction proceedings and lower rents in some units.

At Bridgeview Tower at 23-01 41st Avenue in Long Island City, the owners said in an offering plan that their building would be a condominium, which allows developers to waive rent-stabilization requirements. But the building’s units were instead rented out, and no tenants received rent-stabilized leases. The developer must now pay a $150,000 penalty, provide the correct leases and refund any illegal overcharges.
The investigation also found that 5-11 Realty, LLC, the developer of 5-11 50th Avenue in Queens, told the Attorney General that its building was empty when it was occupied by tenants. The company also overcharged tenants and didn’t give them rent-stabilized leases. It will pay a $178,842 penalty and $21,158 to those who were illegally overcharged, as well as provide rent-stabilized leases to tenants.

Wheelock Development also rented out apartments at its condo development at 33 Bay 41st Street before the building’s offering plan was completed, and did not provide rent-stabilized leases to its tenants, despite receiving tax benefits. According to the settlement, Wheelock will pay a penalty of $31,000 and offer regulated leases.
Progressives have pushed to get rid of the tax break over the years. In October 2019, tenants’-rights group Housing Justice for All called the program “costly” and “wasteful,” and demanded its elimination in order to put the money toward the state’s decaying public housing system. The Association for Neighborhood and Housing Development estimated in 2017 that the program costs $1 billion a year in forgone taxes.

Developers in turn have sought to extend the program, which they argue provides jobs and supports the creation of affordable housing. A 2013 investigation found that Extell’s Gary Barnett shelled out $300,000 in donations to Gov. Andrew Cuomo while he was considering renewal of the tax benefit, which would save Extell $35 million over a decade at its One57 development.
The program was overhauled in 2017 to include construction wage agreements and revived as Affordable New York.
 

David Goldsmith

All Powerful Moderator
Staff member
Lawmakers vow to end 421a as tenants sue landlords getting tax break

Joseph Brunner, David Lubinitsky among landlords accused of overcharging tenants​

Three of the most prolific landlords in Brooklyn and Queens are being cast as villains by state and city legislators seeking to abolish New York developers’ favorite tax abatement.
Three tenants filed lawsuits seeking class-action status against the building owners for allegedly defrauding the 421a program by overcharging tenants by an estimated $10 million. Pointing to the cases, several lawmakers held a virtual press conference Wednesday vowing to support Assembly member Linda Rosenthal’s new bill to abolish 421a.

“Bad landlords will always find a way,” said Queens Sen. Michael Gianaris, who was among the attendees. “But as relentless as they are, we are going to be equally relentless.”
Other senators who threw their support behind the bill were Julia Salazar and Jabari Brisport of Brooklyn.
“I’m ready to regulate the hell out of these landlords,” said Brisport, who was joined in backing the bill by Cea Weaver, a tenant organizer and recent appointee to the City Planning Commission.

The three state lawsuits were filed by tenant attorneys Tuesday in Brooklyn and Queens against Joseph Brunner, one of Brooklyn’s biggest landlords, for rents at 1875 Atlantic Avenue; tech entrepreneur David Lubinitsky for 12-15 Broadway in Astoria; and developer and manager Heatherwood Luxury Rentals for 544 Union Avenue in Williamsburg.

The landlords are accused of extending rent concessions to the initial tenants at their respective projects, which all received the 421a property tax break, but registering a higher legal rent with the state’s Division of Homes and Community Renewal. This enabled the landlords to subsequently raise rents from that higher base, according to the watchdog group Housing Rights Initiative.

The group uncovered the alleged scheme at the three buildings and assisted the tenants in getting legal representation.
An attorney for Brunner called the complaint against the landlord baseless and inaccurate, and denied any overcharges had occurred at 1875 Atlantic Avenue.
“The great majority of tenants are paying less than the occupants who first entered possession,” said Lisa Faham-Selzer, a partner at Kucker Marino Winiarsky & Bittens representing Brunner’s firm, via email. “The owner looks forward to fully vindicating itself in court.”

The other landlords did not immediately respond to requests for comment.
To encourage apartment development, 421a, which has been revised and renamed Affordable New York, provides a substantial property tax break but also limits rents on some units in projects that receive it. Until the tax break expires, those rents cannot increase by more than the percentage allowed for rent-stabilized housing.

HRI made the same allegation last year in four Brooklyn buildings where tenants then initiated suits against the landlords. The plaintiffs are seeking class-action status in those cases as well.
In three of those cases, the city’s three primary trade associations representing landlords have filed a motion to appear in support of the defendants. The groups include the Real Estate Board of New York, the Community Housing Improvement Program and the Rent Stabilization Association. In a joint statement, they argue that offering a one-time concession as compensation for enduring ongoing construction is an “agency- and court-approved” practice.

“When temporary circumstances arise, such as delays or other issues during the final phases of construction at a building, tenants should be able to negotiate a rent concession where appropriate. Additionally, the housing providers should be able to provide one without strings attached,” their statement read.
The trade groups declined to comment on the suits filed this week against Brunner, Lubinitsky and Heatherwood. The plaintiffs also seek class-action status for the new cases.

But HRI, tenant attorneys and lawmakers contend that the section of the Rent Stabilization Code that deals with the establishment of initial rent for units under 421a states that the first legal rent a landlord registers with the state must be equal to the rent tenants actually pay, including concessions.
What position the court takes on these seven suits will be closely followed by the industry and lawmakers alike.

Sen. Brian Kavanagh, who chairs the Senate housing committee, took part in the press event with the other lawmakers and called 421a “problematic” but he did not expressly support Rosenthal’s bill to abolish it. He said he would discuss with city and state agencies administrative remedies and auditing projects receiving the abatement as the court cases played out.

“It is important that we get a judicial interpretation of these rules,” said Kavanagh.
Other lawmakers have already made up their minds. Assembly member Zohran Mamdani, whose district includes Lubinitsky’s 12-15 Broadway, where HRI estimates more than 1,000 tenants have been collectively overcharged $5 million over a decade, is among them.

“This is, in many ways, akin to wage theft,” he said.
He called for ending 421a this year. Putting together political coalitions to modify the program has historically been difficult, a constraint that has led to the expiration of the program in the past.
 

David Goldsmith

All Powerful Moderator
Staff member
New Push To Repeal Affordable New York Opens Old Wounds, Stalling Land Market

The renewal of the Affordable New York Housing Program, a treasured tax abatement among city developers, is still well over a year away. But the real estate community is bracing for major changes to the system, and the uncertainty is taking its toll on the market.​

The program, previously called 421a, was overhauled, renamed and renewed back in 2017. It currently allows developers a tax exemption for 35 years if they set aside 25% to 30% of the units for low- and moderate-income tenants when they build a market-rate rental building with more than 300 units.
But it has long had fierce critics, who say it is simply a giveaway to developers and doesn’t generate enough housing that is actually affordable to low-income New Yorkers to justify the break. The program is set to expire in June 2022, and state bills to repeal it are circulating. Real estate players say the uncertainty is affecting negotiating and pricing on development.
“Nobody has a crystal ball, no one knows exactly how the state will amend the abatement, but it has a huge impact on the way they can build,” B6 Real Estate Advisors Senior Managing Director DJ Johnson said.
To make use of the current program, developers will need to start on their development by June 15, 2022, Johnson said, which means in the world of urban development, the timeline is getting tight.
There is widespread belief, he said, that the political environment is such that the program will undergo some major changes and potentially look more like the city’s Mandatory Inclusionary Housing program, which requires cheaper apartments than the Affordable New York abatement. If that happens, he believes land prices could take as much as a 30% hit.
“If you own real estate, and if you're a real estate developer, I think you should be talking to your senators about how important the abatement program is and how it affects your ability to deliver a project,” he said. “I just don't think it's time to start interfering with the New York rebound. We want to see private investment.”
Just how receptive the elected officials will be is another matter. Democrats now have a supermajority in the legislature, and progressive New York State Assembly member Linda Rosenthal has sponsored a bill to repeal the program entirely, which was reintroduced this year.
“It’s a boondoggle. We are wasting precious funds giving out tax breaks in return for not enough,” she said. “The whole dynamic needs to shift.”
She pointed to the infamous example of Extell Development's millions in tax breaks at One57 that resulted in just 66 affordable housing units being built in the Bronx.
She said investment in Section 8 vouchers and the Mitchell-Lama program is preferable to the program in generating affordable housing, and noted a recently floated proposal from Gov. Andrew Cuomo to convert empty hotels and office buildings into affordable homes is a step in the right direction.
“If [developers] were sincere in the goal of creating affordable housing, they wouldn’t insist on using this outdated scheme that isn’t appropriate for 2021,” she said in response to the argument that removing it will stop investment in its tracks.
State Sen. Zellnor Myrie is sponsoring a bill to repeal the provision, which is co-sponsored by Sens. Liz Krueger, Julia Salazar and Gustavo Rivera.
“The landlords who have taken advantage of tenants and of public funds by abusing the 421a tax benefit program should never have been able to do so,” Salazar said in a statement. “Fraud and lack of accountability in the 421-a program is not an anomaly; it is rampant.”
Meanwhile, the chairman of the Senate Committee on Housing, Construction and Community Development, Sen. Brian Kavanagh, who co-sponsored rent reform legislation in 2019, told Bisnow in a statement the program should no longer exist unless it can be overhauled.
“The current version of the 421-a tax exemption program has meant that the city forgoes an enormous amount of tax revenue in exchange for a limited amount of affordable housing,” his statement said. “The program is far too generous to property owners and costly to the City relative to the public benefit it is supposed to create. In addition, there is evidence that many property owners haven’t complied with the requirements of the program.”
Senate Deputy Leader Michael Gianaris, who led the charge against Amazon’s plans to build a headquarters in Long Island City, said via a statement that the program is often a “tool for bad landlords to game the system and abuse tenants” and said the government must “seriously reevaluate the future of this program.”
City Comptroller Scott Stringer, who is running for mayor, has called for the system to end, arguing it costs the city $1.6B each year and is highly inefficient.
“It’s kind of like déjà vu, we went through this in 2008 and then 2015 … When it got renewed last time, it changed drastically and from the developers' standpoint, the program became stricter with affordability requirements,” said YuhTyng Patka, who is the chair of the New York City Real Estate Tax and Incentives Practice Group at Duval & Stachenfeld and is vehemently against eliminating the program.
She argues that without the incentive, there is simply no way developers will build affordable housing at all. She argues Affordable New York pushes the creation of badly needed middle-income housing for the city and repealing it would slow the production of stabilized units.
“421a is the driving force behind new construction of residential units in New York City, we saw back in 2015 when 421a ceased to exist, and without certainty that it was going to be renewed we saw projects dried up," she said. "Projects stalled and projects died and projects didn’t even happen.”
Samuel Stein, a housing policy analyst at the Community Service Society, said the program has driven up the cost of land in the city, making housing more costly overall. The group supports the repeal, and Stein pointed to 2015 research that showed that of the 163,000 units that scored the tax exemption in 2014, just a small fraction were actually affordable.
“There is a program at the state level right now called the Housing Access voucher program, which would be a New York State Section 8 program,” he said. “The initial funding for that is estimated at $500M. If we got rid of 421a, we could triple the size of that program, and really get people into housing, take a huge bite out of the homelessness crisis statewide."
He’s certain the community will demand a different approach when it comes up for renewal.
“A lot has changed since the program was created," he said. "The city’s budget has tremendous gaps in it, and handing out extremely expensive breaks will look different.”
The Real Estate Board of New York is warning that removing private sector involvement and the use of abatements will cripple affordable housing production.
“Addressing the City’s affordable housing crisis requires the production of much more housing, particularly below market rate rental units,” REBNY President James Whelan said in a statement. “Reality and math show that isn’t possible without private sector financing and some form of property tax abatement to address the immense construction and land costs and the City’s inequitable property tax system that is punitive regarding the creation and ownership of rental housing.”
Slate Property Group principal David Schwartz, who said his company has built about 20 projects using the break, thinks there are some things that should be rejiggered.
“I’m not saying this is a perfect program … [but] if we don’t have some sort of way to make it more economical to build new rental apartments, the cost of those rental apartments will only go up, and the landlords of those apartments will end up making more money,” he said.
He said now is the time to discuss and examine the program in a bipartisan way to see what should be adapted.
But Cea Weaver, the campaign coordinator at Housing Justice for All, a statewide coalition of tenant groups that successfully pushed for 2019’s rent reform, said she will be pushing to have the break removed.
“It costs us billions and billions in foregone tax revenue. To me it’s bonkers,” she said. “I think we need more housing, I don’t disagree with [the real estate community] there. But there are a lot of other people who are willing to build housing that is more affordable and is for the social good and that helps our housing crisis. I don’t really think the shit like Hudson Yards helps solve the housing crisis, and I think it’s a stretch to say that it does.”
 

David Goldsmith

All Powerful Moderator
Staff member

Bill to audit 421a gets hearing as pols put subsidy in crosshairs​

Proposal comes a year ahead of Affordable New York’s expiration​

With the Affordable New York housing program, better known as 421a, expiring next year, lawmakers are targeting the controversial tax break — and racing to pass legislation that would audit projects that get it.
The program offers developers a 35-year property tax break on new residential projects in exchange for making 25 percent to 30 percent of units affordable rentals.

In April, Assembly member Emily Gallagher and Sen. Brad Hoylman introduced a bill to require an annual audit of the program. That legislation is scheduled for a hearing Tuesday morning, and Hoylman expects it will be released for a vote.
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The inaugural audit, to be completed by Dec. 31, would examine projects currently receiving or that previously benefited from 421a abatements, including earlier iterations of the program. Subsequent audits will cover only projects receiving the tax break in the prior year.

The 421a program is New York’s primary subsidy for construction of new apartments, which developers say would virtually stop if no tax breaks were offered. They cite inequitable property taxes and other factors.

But the audit bill comes as a number of lawmakers have committed to abolishing the program, which critics say costs New York City $1.7 billion a year in forsaken property taxes and is an inefficient way of providing affordable housing.
Moreover, eight lawsuits filed by tenants in recent months accuse developers of improperly setting base rents at 421a projects.

One of the complaints targets the landlord of 544 Union Avenue in Williamsburg, in Gallagher’s district. The Assembly member has since met with Housing Rights Initiative, the watchdog group whose investigations led to the lawsuits, and believes that these instances of alleged overcharging are “the tip of the iceberg.”

“My gut is that the system is broken but I want real evidence,” she said. “We want to be able to have an informed debate about what’s going on in 421a.”
Gallagher began drafting the legislation last summer and then approached Hoylman about sponsoring a Senate version of the bill.

Holyman said auditing 421a and holding “bad actors accountable” should happen before the legislature “even thinks about renewing this program.”
Both Gallagher and Hoylman said they are hopeful the bill will pass in both houses by the end of the legislative session, June 10.
“I think there is an opportunity to potentially pass it because I think many share the urgency of it,” said Gallagher. “You can’t really argue with information gathering… especially around fraud with our taxpayers’ money.”

Surprisingly, the real estate industry might also be on board. James Whelan, president of the Real Estate Board of New York, said his group supports an annual 421a audit.
“Anyone utilizing the Affordable New York program must adhere to its requirements,” he said in a statement. He added that lawmakers should remember that “virtually all below-market-rate housing construction” in the city relies on some form of property tax benefit.

Gallagher said the difficulty in building affordable housing was one of the motivating factors for the proposal.
“I want to see what is going on so that we can make better systems in the future — whether that’s a change in 421a or whether that’s a completely new way to build affordable housing,” she said.
 

David Goldsmith

All Powerful Moderator
Staff member


“Our existence is a tragedy”: Housing Rights calls for enforcement overhaul from Hochul​

After $1M settlement, tenant advocacy group founder Aaron Carr called for gov’t action​


The tenant advocacy group that’s made a name for itself taking landlords to court is rounding out 2021 with another win for tenants — and a message for the governor.
The Housing Rights Initiative this week celebrated its investigation into J-51 rent overcharges that secured a $1 million settlement for a group of Bronx renters. The tenants of 3045 Godwin Terrace in 2018 brought a class-action suit against landlord Richard Albert after HRI revealed the managing member of Godwin Realty had signed tenants on for market-rate lease while reaping the benefits of the J-51 tax break. The program requires buildings to keep units stabilized while receiving the benefit.

The tenants are set to receive up to $100,0000 in refunds and current residents can bank on a rent reduction of 20 to 30 percent and see their units returned to stabilization.
HRI founder Aaron Carr seized on the agreement as an opportunity to turn Gov. Kathy Hochul’s head.
In a tweet thread posted Sunday night, Carr called on the governor and state legislature to “overhaul NYS’s housing enforcement agency and put our nonprofit out of business.”

“People may celebrate our organization for combating real estate fraud, but the truth of the matter is our existence is a tragedy,” Carr said in a statement. “Our state housing enforcement agency should do its job.”
spokesperson for New York State Homes and Community Renewal, which oversees and regulates housing, rent regulations and the protection of rent-regulated tenants, responded by detailing the agency’s efforts to ensure tenants get their due under J-51. The agency noted that the city’s Department of Housing Preservation and Development and Department of Finance have a role in administering the program.

HCR said its Office of Rent Administration has conducted “hundreds of investigations, returned more than 89,000 units to regulation and recovered over $6 million in overcharges for tenants.”
Additionally, the agency said it is involved in “an extensive outreach effort to compel landlords receiving the J-51 benefit to appropriately register their apartments” and that the names of owners who failed to register stabilized units are listed on the HCR website.

Despite HCR’s efforts, HRI in recent years has found cause to launch a slew of investigations into J-51 fraud, as well as voucher-based discrimination.
The group helped serve big-name brokers Compass and Corcoran for Section 8 discrimination and forced developers Blackstone and Kushner Companies to settle for $1 million and $88,000, respectively. Last month, a judge ruled in a case against Urban American that the landlord had illegally deregulated units while receiving the J-51 tax break.

“If we keep heading in this direction,” Carr said in a tweet referencing the group’s ongoing cases, “we will be able to get back up to a half a billion dollars for the tenants and taxpayers of New York City.” But some of the lawsuits stemming from Carr’s investigations have been dismissed.
 

David Goldsmith

All Powerful Moderator
Staff member

Landlord who created fake tenants will repay real ones but avoid fines​

Owner gamed rent stabilization to overcharge residents, attorney general says​

A Manhattan landlord sued by tenants for illegally jacking up rents has entered an agreement with the attorney general to repay them tens of thousands of dollars.
Despite the overcharges, the owner, 560-568 Audubon Realty, and its principals, Fred and Alex Hay, won’t be fined. Often regulatory authorities seek penalties to deter would-be offenders.

In the case of 560-568 Audubon Avenue in Upper Manhattan, the landlord concocted fake tenants to hike the maximum rent of stabilized units, using the 20 percent vacancy bonus under the old rent law, the attorney general found.

The owner also claimed it had performed individual apartment improvements that were never done, allowing it to double the legal rent, in some cases. (Such increases were later curbed by the rent law enacted in June 2019, a month after the attorney general’s probe began.)
When 560-568 Audubon Realty wanted to sign a real renter, it would use the same scheme to raise the rent again. All the while, the landlord reported to the state’s Division of Homes and Community Renewal charging rents greater than those listed on the lease. Reporting inflated rents allowed for larger future rents.

“When we looked at a tenant’s lease it would say: You have a preferential rent of $1,000 but the legal rent is $2,000. And then the registration would say the preferential rent is $2,000; the legal rent is $3,000,” said Matthew Chachere, attorney at the Northern Manhattan Improvement Corporation, who represented 30 of the building’s tenants in a suit filed in 2016.

The scheme began to unravel when 560-568 Audubon Realty slapped one of its former tenants with a nonpayment suit.
Chachere said Marlene Santos de Martin, a tenant in 16A, showed up at his office with a letter stating she owed rent. But 560-568 Audubon Realty had evicted de Martin months before.

“That of course makes no sense because if they evicted her, then they terminated the relationship [and] she can’t owe money,” Chachere said.

The firm advised de Martin to request her apartment’s rent-registration history from Homes and Community Renewal, the state agency that polices the rent stabilization. The records showed not only that the apartment was occupied by someone else and “being rented for some astronomical amount,” said Chachere, but that the landlord had leased it to a new tenant in July 2010, nearly a year before de Martin had moved out, according to court documents.

“That person never existed,” said Chachere.
The landlord had created an illusory tenant leasing the apartment at a higher rent than de Martin had paid, so that it could charge a future, actual tenant even more for that unit.
The lease signed by the fake tenant — “Amanda Nunez” — reported a rent of about $2,854 to the state, more than twice the $1,350 that de Martin had paid. To justify $2,854, the owner would have had to spend more than $50,000 on improvements. The lawsuit, filed in 2016, alleged the work never happened.

When a real person named Maria de la Rosa leased the apartment in 2011, she agreed to pay about $3,360 per month. That’s 149 percent more than what de Martin had paid, and would have required $106,200 in improvements plus the vacancy increase, the tenants’ complaint said. For good measure, the landlord told the state she was paying even more — $3,486.

Chachere said his firm took on nonpayment cases from other tenants in the same building and ultimately filed subpoenas for the entire building’s registration history. Documents showed a “huge number of very short-term tenancies that were probably illusory, and massive increases in the rents,” he said.
The attorney said the same pattern existed across more than half of the building’s 90 units.

On a hunch, Chachere subpoenaed refinancing records from 560-568 Audubon Realty’s lender. An affidavit from one of the principals listed the actual rents charged, and they were far less than what the owner had reported to the state, Chachere said.
That put Audubon in an unenviable position.

“They had a Hobson’s choice: They could either admit that they were lying to HCR or they could commit financial fraud by telling the bank the numbers for the leases were in fact not real,” Chachere said.
The owner soon agreed to a settlement, Chachere said, the details of which are confidential. The landlord could not be reached for comment.

The 2019 reform, called the Housing Stability and Tenant Protection Act, subjected owners to six years of treble damages, up from four, increasing the potential payout for tenants.
Chachere said the repayment agreement with the attorney general will cover the 59 stabilized tenants who were not a part of the 2016 suit.

James’ office did not say why it did not penalize 560-568 Audubon Realty beyond reimbursement for the overcharges.
“We do not comment on our negotiation process,” a spokesperson for the attorney general said.
 

David Goldsmith

All Powerful Moderator
Staff member

Brooklyn real estate developers charged with defrauding New York’s affordable housing program​

realestateindictment_2022_10_20_am

Manhattan District Attorney Alvin Bragg announces the indictment Wednesday of six Brooklyn property owners accused of cheating the state’s affordable housing program.

Prosecutors announced that Brooklyn real estate developers were indicted for allegedly defrauding the state’s tax exemption program meant to promote affordable housing.
Joel Kohn, Michael Ambrosino, Alen Paknoush, Mendel Gold, Ioan Sita and Gheorghe Sita, and their real estate corporations, were charged in five separate New York State Supreme Court indictments with multiple charges including Grand Larceny in the Second Degree, City Criminal Tax Fraud and Offering False Instrument for Filing in the First Degree.
“These developers allegedly abused a government program meant to provide New Yorkers access to desperately needed affordable housing. Not only did they illegally charge substantially higher market rents for years, but they did so while personally reaping the benefits of generous property tax abatements. When I announced our Housing & Tenant Protection Unit last week, I said that we would take a targeted approach to complex and pervasive criminal activity that diminished our already limited stock of affordable housing, and this case is an example of just that,” said District Attorney Alvin Bragg.

The 421-a program was a tax benefit designed to incentivize the creation of affordable housing within new multi-family apartment buildings throughout the city. The program grants generous tax breaks to property developers who agree to reserve a certain percentage of the building’s apartments as affordable units.

An investigation revealed that each defendant allegedly violated the terms of the program from 2011 through 2019. According to court documents, the defendants, who owned six buildings in Brooklyn, allegedly submitted documents to the City and State falsely attesting that they were renting the designated affordable units in accordance with 421-a rules. In reality, they were renting units at higher rents to unauthorized tenants who had not been approved by HPD. Some of the charges were more than $1,000 per month above the approved affordable level.
The buildings involved in the indictment are:
  • 70 Bushwick Avenue, Brooklyn, owned by Kohn and Bushwick Powers LLC
  • 300 Eldert Street, Brooklyn, owned by Ambrosino and Ambrosino Equities-300 Eldert LLC
  • 682 Bushwick Avenue, Brooklyn, owned by Paknoush and Bushwick Plaza LLC
  • 305 Stockholm Street, Brooklyn, owned by Ioan Sita and Gheorghe Sita and 305 Stockholm LLC
  • 140 Stanhope Street, Brooklyn, owned by Gold and 140 Stanhope Group, LLC
  • 1140 Bushwick Avenue, Brooklyn, owned by Gold and 1140 Realty Corp. LLC
As a result, the defendants allegedly collectively reaped more than $1.6 million in illegal property tax benefits.

“At a time when affordable housing is crucial for New Yorkers, and for the City’s recovery from the pandemic, these landlords, as charged, enriched themselves by fraudulently obtaining over $1 million in tax credits from the City that were intended to promote affordable housing,” said New York City Department of Investigation Commissioner Jocelyn E. Strauber. “Instead, it is alleged that these landlords charged higher rents to New Yorkers, made no attempt to determine if they qualified for such housing, and made misrepresentations to the City to obtain tax credits to which they were not entitled. DOI and our partners at the Manhattan District Attorney’s Office and the City Department of Housing Preservation and Development will continue to protect affordable housing benefits for New Yorkers who are eligible for them and hold accountable those who exploit these tax credits for their personal gain.”
 

David Goldsmith

All Powerful Moderator
Staff member
Tenants predict wins in 421a overcharge suits. Landlords beg to differ

Housing Rights Initiative claims key ruling last year indicates sea change against owners​

In the string of landlord-tenant lawsuits sparked by Housing Rights Initiative investigations, 421a overcharge cases have been a constant.
Since its formation six years ago, the watchdog group has encouraged dozens of tenants to sue the owners of buildings that scored the lucrative property tax break, claiming their landlords registered inflated rents with the state housing authority to secure larger future increases than should be allowed.

In the past year, landlords have scored victories in three of those suits, and landlord attorneys believe those rulings will be upheld on appeal.

Why, then, has HRI kept encouraging tenants to file complaints alleging the same type of fraud?
As landlords celebrated an Appellate Division win last December, tenants also pocketed a favorable decision, one which HRI claims could set a precedent for 421a overcharge lawsuits to come.
First, some context: Before 421a expired in June, the program extended a 35-year tax break to developers who set aside a percentage of their buildings’ units as affordable, meaning rent increases on those units are subject to limits set each year by the city’s Rent Guidelines Board.

The HRI-inspired suits contend that landlords will offer tenants a lower rent, typically through one free month, to get them in the door, but not factor that concession into the monthly rent they register with the state. This preserves their ability to charge that higher rent in the future and use it as a base for the rent board’s increases.
Landlords have argued that this is common and proper. Tenant advocates say it amounts to illegal rent inflation.

In one case, John Catsimatidis’ Red Apple Group allegedly offered a “one-time construction concession rider” to a tenant on a 13-month, $3,350-per-month lease.

If Red Apple averaged out that free month over the lease term, the tenant would have paid a net-effective rent of $3,092 a month. But Red Apple registered the higher figure with the state, “manipulating the way it assessed a unit’s rent,” according to the tenant’s complaint.
The courts sided with Red Apple, and the decision was upheld on appeal last December, with the Appellate Division ruling that “a one-time rent concession that applies to a specific month … does not affect the legal regulated rent.” In other words, landlords don’t need to factor a discount into monthly rent paid — or tell the state about it.

“The court is saying there is no concept of net-effective rent under rent stabilization,” said Sherwin Belkin, of Belkin Burden Goldman, who has represented Red Apple and many other landlords in overcharge suits, adding that his team couldn’t find a single statute in New York where the phrase was used.
It was the third such win for landlords last year. Two months earlier, a lower court sided with Muss Development and Heatherwood Luxury Rentals, ruling that one-time concessions did not need to be reported in a legal regulated rent.

But the Red Apple case included another crucial detail: When the tenant received the free month’s rent by way of a construction rider, the building was under a temporary certificate of occupancy — something afforded to new buildings that are safe to occupy but may need some finishing touches. They may be missing amenities or have minor ongoing construction.

“It is not unusual in the sense that that first tenant might be given some concession because they are moving into what is not a finished product,” Belkin said.
The same day the Red Apple decision came down, the Appellate Division issued a separate ruling in an overcharge case brought against Spruce Capital Partners. That decision upheld that a lower court was in the right when it denied Spruce Capital’s attempt to dismiss tenants’ claim that the landlord had evaded 421a’s requirements to charge higher rents by offering construction concessions well after construction had wrapped.

The Appellate Division subsequently kicked the case back to the Supreme Court for further proceedings.
In a press release, HRI touted the decision as a victory in its “crusade against 421a fraud,” as every case the group has helped to generate or could generate falls under the rubric of its Spruce Capital Partners suit.
“The decision … ensures the floodgates of 421a litigation have been opened,” HRI executive director Aaron Carr said in a statement at the time.

In the year since, lawsuits spawned by HRI alleging overcharges by Chetrit Group and Tishman Speyer have nabbed class-action status; others have defeated landlords’ motions to dismiss.
In August, for example, the Supreme Court denied Essex Capital Partners’ attempt to toss an overcharge suit, noting the Red Apple decision was irrelevant as the building in question had wrapped construction when concessions were offered.

“There is an issue as to whether there actually was construction ongoing that could justify a concession or, as [the tenants] argue, the concession was just a ruse to allow it to register a higher rent,” court filings read.
Belkin doesn’t view those developments as an indicator that tenant advocates have gained ground.

While the Red Apple decision tossed tenants’ claim that any concession should be factored into the legal rent, Belkin said of the Spruce Capital decision, “All they won is that the case wasn’t dismissed outright.”
“Their basic position has been dismissed so they are trying to alter their position.” he added, noting that the class-action status achieved by tenants in two cases “has nothing to do with the merits.”

Despite those doubts, tenants, helped by HRI, have appealed real estate’s wins in the Muss Development and Heatherwood cases, and are continuing to file suits this year, confident that their reworked argument could influence future decisions.
Newman Ferrara, which represents the tenants in the pending suits, was unavailable to comment. HRI’s Carr declined to comment.
 
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