Judge Rules for Retroactive Rent Rollbacks at Stuy Town

As Stuyvesant Town gets ready for foreclosure, a judge recently ruled that current owner Tishman Speyer and past owner MetLife must pay back tenants retroactive rent rollbacks. In other words, the tenants are entitled to be reimbursed for years of rent overcharges on apartments whose rents were unlawfully deregulated.

The ruling stems from a court decision last October, which said that the owners of the sprawling Manhattan residential complex were not entitled to deregulate rents while they were receiving a particular type of tax abatement. The Court of Appeals ruled that Tishman Speyer illegally raised rents of 4,400 former rent-stabilized apartments while still receiving tax breaks from the city. At that time, the Court of Appeals didn't rule on the issue of retroactive payments. The matter was sent back to the lower court to decide that issue.

Reliance on DHCR Advisory Letter

After the October ruling, Tishman Speyer had been pursuing a settlement. Tishman Speyer had already agreed to roll back rents for six months from the beginning of this year. However, former owner MetLife chose to try to get the case against it dismissed.

MetLife argued that the ruling should not apply to it because the decision came several years after the company sold the property to Tishman Speyer and that “it had relied in good faith on a 1996 advisory letter issued by the New York State Division of Housing and Community Renewal (DHCR), which concluded that owners could seek luxury decontrol of housing units receiving J-51 tax abatements, so long as the receipt of the benefits was not the only reason the units were subject to rent regulation.”

In his ruling, the judge held that the Court of Appeals' decision in Roberts v. Tishman Speyer Properties “merely interpreted” the Rent Regulation Reform Act of 1993 “in accordance with the Legislature's intent at the time the statute was enacted. Therefore, the retroactive application of the Decision is neither ‘unexpected and indefensible by reference to the law as it existed’…nor an ‘arbitrary change in the law,’” the judge wrote.

With regard to MetLife's claim that the DHCR's 1996 interpretation of the luxury decontrol statute had been “consistent and unchallenged,” the judge noted that prior to its 1996 advisory opinion, the DHCR issued a 1995 operational bulletin stating that the deregulation of high-rent housing units “shall not apply to housing accommodations which are subject to rent regulation by virtue of receiving tax benefits pursuant to sections 421-a or 489 of the Real Property Tax Law, until the expiration of the tax abatement period.” “This too foreshadowed the Decision,” he wrote.

Decision's Impact

The decision's impact on other properties is unclear. The ruling is likely to spur owners receiving the abatement to start rolling back rents in rent-stabilized units. However, after the October decision, experts expected a rush of tenant lawsuits to be filed to capitalize on the Tishman Speyer ruling. However, only a handful has been filed and these are now trickling through the judicial system.

In one recent decision, 13 unregulated tenants sued an owner in State Supreme Court for rent overcharge. They claimed that, since 2001, the owner charged them market rents while collecting J-51 tax benefits. The tenants argued that, under the ruling of New York's highest court in Roberts v. Tishman Speyer Properties LP, they were subject to rent stabilization. The owner asked the court to dismiss the case, claiming that the tenants should file their complaints with the DHCR, not the court, since the DHCR had more expertise on rent overcharge issues. The court ruled against the owner, deciding that tenants can sue owners in court for damages based on rent overcharge. They didn't have to go to the DHCR [Nezry v. Haven Avenue Owner LLC, July 2010].

What to Expect

According to attorney Niles Welikson, this decision is definitely not the last word. The decision binds only the parties to that case, although there is no doubt that tenants and tenant advocates will attempt to use it to buttress their position with all owners. Welikson believes the defendants will probably appeal and, if they don't, there are other cases out there like this, so someone will eventually go to the Appellate Division and, thereafter, the issue will go to the Court of Appeals.

“There is also a chance that the issue of retroactivity will be resolved via legislation, which is the most appropriate vehicle considering the chaotic state of affairs that presently exists over this case,” says Welikson. Governor Paterson has recently proposed a bill that addresses the issue and State Senator Espada previously did so.

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