Appeals Court Rules Apartment Complex Can't Give Up Tax Breaks to Deregulate

A New York state appeals court recently ruled that a Manhattan apartment complex cannot retroactively give up tax incentives in order to deregulate rent-stabilized units. The unanimous ruling by the Appellate Division, First Department, held that London Terrace Gardens, a complex that includes nearly 1,000 apartments, cannot repay the benefits it received under the city's J-51 tax incentive program.

The ruling builds upon the court's landmark 2009 judgment in Roberts v. Tishman Speyer Properties, which held that residential property owners who received J-51 benefits could not deregulate stabilized apartments. The complex owner argued that it would never have sought the tax incentives, which are meant to encourage apartment renovations, in 2003 if it had known that doing so would eventually prevent it from setting market rents. It offered to repay all of the benefits it had received from the city in exchange for nullifying its eligibility retroactively.

But the court ruled that the apartment complex had no available legal remedy under the law because the J-51 program contains no provision for withdrawing from the program and repaying the tax breaks. "The J-51 program is a tax benefit program—there is no contract or agreement to rescind," wrote Justice Sheila Abdus-Salaam for the five-judge panel.