the rent was too high

Tenants of 6,000 Downtown Apartments May Be Owed Back Rent

Tenants of 90 West Street (right) have been fighting a legal battle over rent regulations for year.
Tenants of 90 West Street (right) have been fighting a legal battle over rent regulations for year. Photo: Ben Fractenberg /THE CITY

Thousands of renters in Lower Manhattan should have had stabilized leases and may be owed years of back rent, according to a recent court ruling — but few know it.

Those who do have been waging a legal battle over a rent-stabilization deal that was not applied or enforced for years.

Renters in two buildings  — 50 Murray St. and 90 West St. — started with separate court battles, but ended with a united legal victory. New York’s highest court ruled 6 to 1 in June that because the landlords reaped millions of dollars in tax benefits under a 1995 program, their tenants should have had stabilized leases.

Serge Joseph, who represented the tenants, said the ruling could be a boon for thousands of other downtowners whose landlords got the same tax break — and predicted more battles to come.

“It would not surprise me if landlords throughout Lower Manhattan disregard the decision altogether,” he said.

The ruling opens the door for current or former tenants of the affected buildings to claim they were overcharged rent going back six years, Joseph said — a statute of limitations recently extended from four years by rent reforms made in Albany.

Chissy Nkemere, a former tenant at 90 West St., said she feels lucky — not just because of the legal conclusion, but because she and her neighbors were able to stick out the case since 2015.

“You have to really be in a privileged position in order to even fight these things,” she told THE CITY. “Most people just leave and give up.”

A Deal for Developers

The tax-break program in question is known as 421-g, which dates back more than two decades. In the mid-1990s, lawmakers were looking for ways to bring more residents to Lower Manhattan, and offered financial incentives to developers who converted office buildings into apartments that included affordable housing.

According to previous reporting by ProPublica, the State Senate approved a tax abatement bill in 1995 only after including in the official record a letter written by then-Mayor Rudy Giuliani to then-Senate Leader Joseph Bruno that suggested capping stabilization-eligible apartments under the 421-g program at $2,000 a month.

With no debate, the letter was read into the record just before the vote took place. In it, Giuliani declared “high income” apartments shouldn’t be regulated under 421-g and for years afterward, his letter was treated as law. That effectively gave a no-strings-attached tax break to landlords who had set rent higher than $2,000, which meant about 75% of all 421-g-eligible units, ProPublica found.

Nearly two decades later, Nkemere and her roommate moved to the ornate, 410-unit building on West Street just south of the World Trade Center in 2012.

At the time, it was relatively affordable for the area — especially since the two young women shared a 400-square-foot, one-bedroom apartment, she said. She declined to say what her rent was then, but StreetEasy data shows one-bedrooms in the building then advertised rents between $2,575 and $2,995 a month.

But their landlord started jacking rents by double-digit percentages in the spring and summer of 2015. That’s when neighbors started talking, and getting organized.

Nkemere learned from neighbor Jessica West that the building’s landlord, Kibel Company, likely should have given tenants stabilized rents — because they had been receiving millions in tax benefits under 421-g.

As of last fiscal year, records from the Department of Finance show the City of New York has lost at least $763.1 million in taxes through exemptions and abatements given to buildings in the 421-g program.

Through a spokesperson, Kibel declined to speak to THE CITY, saying only the company does not comment on pending litigation. The company behind 50 Murray St., Clipper Equity, has filed a motion to reargue the Court of Appeals decision. Clipper Equity’s Jacob Bistricer did not respond to a request for comment.

‘Just Want What’s Fair’

Jessica West, a mother of three who’d moved to the 90 West St. with her husband Taylor in 2009, had no idea of the history of 421-g when Kibel increased her rent by 33% weeks before her kids were to return to local public schools.

90 West Street tenant association leaders Jessica West, Taylor West and Jay Friedlander (l-r). Photo: Ben Fractenberg/THE CITY

But she had a strong sense she was “completely being taken advantage of,” she said, and wanted to do something about it.

“It’s hard to feel like you’re being kicked out of your home and your neighborhood,” said West. “This area has been home to us since I was pregnant with our first child.”

For her husband, Taylor West, and Jay Friedlander, the building tenant association’s president and vice president, respectively, it’s a matter of principle beyond any one resident’s lease: If the landlord got a break by way of public funds, they should give tenants the protections originally written into the law.

“They’re going to get hundreds of millions of dollars in tax abatements, and then be able to charge market-rent? That’s double-dipping and that’s a problem,” said Taylor West.

“We just want what’s fair,” added Friedlander.

Thousands Potentially Affected

As the rent increases came down, the Wests, Nkemere and others made flyers, stuck them under every door in the building and scheduled a town-hall style meeting in the neighborhood. They also retained Serge Joseph, who specializes in stabilization-related law.

Joseph was already representing some tenants in other 421-g related cases, including Joel Roodman and Jill Tafrate, formerly of 85 John St., a couple whose story, as told in June 2015 in The Wall Street Journal, helped Jessica West get a handle on the issue. The lawyer has since taken on clients in several other Lower Manhattan buildings with similar issues, he said.

But his clients make up a small fraction of the total number of households the ruling may effect.

According to an analysis by THE CITY of Department of Finance records obtained through the Independent Budget Office, at least 39 buildings with a total of 6,088 units began receiving the 421-g tax benefit between 1995 and 2006, when the program was active. The tax break lasted for up to 14 years, according to the city’s Housing Preservation and Development department.

The map above shows 39 current and former rental buildings that got a 421-g tax break and are likely affected by the Court of Appeals ruling, according to THE CITY’s analysis of Department of Finance records compiled by the Independent Budget Office.

They range from a three-unit apartment building inside a 1913 townhouse on South William Street to huge, luxury rental complexes such as 10 Hanover Square and the former New York Evening Post building, known as Post Towers, on the West Side Highway.

Joseph believes the June ruling means any tenant, past or present, who lived in those buildings when their landlord received a tax benefit through the 421-g program should have rent-stabilized lease — and, potentially, is owed back rent for up to six years.

Whether they actually will get it, however, is another question. Who is responsible for enforcing the ruling? Effectively, it’s up to individual tenants, Joseph said he tells his clients.

“You have to get up from your butt and do something,” he said, laughing. “Someone has to actually seek redress and compel enforcement.”

‘A Very Attractive Place to Live’

Technically, it’s up to the affordable housing agencies — the state’s Division of Housing & Community Renewal and HPD — to make sure landlords who take advantage of similar tax breaks actually give tenants the correct lease and rent. But budgets and staff are miniscule compared to the number of units that need oversight.

“The scale of these programs are so large,” said Matthew Murphy, executive director at the NYU Furman Center, which analyzes housing policy issues. “A lot enforcement is outsourced to the tenant, which is why it’s kind of like, ‘Call this number if you’re in this situation.’”

Whether or not it was due to 421-g, the stated goal of the program — to attract permanent residents to Lower Manhattan by enticing developers to convert old office building to residential buildings — has been met.

Between 1995 and 2006, the population in Lower Manhattan roughly doubled, according to the Downtown Alliance, which manages the area’s Business Improvement District. During the same period, 90% of new residential buildings were conversions of former office buildings. Since 421-g was implemented, there’s no doubt the area has become “a very attractive place to live,” said Alliance President Jessica Lappin.

“You wouldn’t need the abatement today,” she said.

Feeling Optimistic

If it hadn’t been for the super-heated downtown market, Nkemere isn’t sure any of her old neighbors would have found out about the rent-stabilization issue in the first place. The tenants of 90 West St. started investigating their rights immediately after Kibel raised the rent, she said.

“They got greedy,” she said of the landlords.

Now, Joseph is determining what his clients may be owed. The process may take a while, and will involve a third-party referee, because of differing circumstances among tenants.

The Court of Appeals said the payment should be based on a lower court’s formula: whatever the lowest rent-stabilized apartment in the building cost when the tenant moved in. If no unit was ever registered as rent-stabilized in a given building, the rent would be determined by state data on rent-regulated rental prices in the immediate neighborhood.

Before rent reform was passed two months ago, the maximum rent for an apartment to be eligible for rent-stabilization was $2,774 per month. The current median rental price for a Lower Manhattan unit is $3,895 per month, according to the most recent analysis from StreetEasy.

Given the stakes, at least one of the landlords cited in the Court of Appeals ruling is not giving up yet. An attorney for 50 Murray Street Acquisition LLC has filed one last motion to reargue the case before the Court of Appeals. That motion is pending.

In his experience, Joseph said it’s “extremely rare,” for a court to grant a reargument of a case once it has been decided. But, he noted, “these are very deep-pocketed parties” and they are exhausting all options.

At 90 West St., tenants are happy about the ruling, but are waiting for the legal battle to end.

“I don’t want to start popping bottles of champagne,” Jessica West said, “but I feel optimistic.”

Is your building on the map? THE CITY wants to hear from you. Will you try to get a stabilized lease, or get back overcharged rent? What has the response been like from your landlord? Contact reporter Rachel Holliday Smith at rsmith@thecity.nyc.

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