Peter Cooper Village

This story, in slightly different form, originally appeared in the New York Law Journal.

ALBANY-Gov. David Paterson on Wednesday offered legislation that he said would resolve uncertainty over purported rent overcharges in some 40,000 apartments as the result of a Court of Appeals ruling in October of last year. The proposal is part of a larger package that would extend rent regulation for eight years, increase the monthly legal rent threshold for luxury decontrol to $3,000 from $2,000, and require owners to notify tenants and the New York State Division of Housing and Community Renewal when an apartment has been deregulated.

The proposal comes roughly seven months after the Court of Appeals held that the owners of the massive Stuyvesant Town and Peter Cooper Village complex had illegally deregulated thousands of rent-stabilized apartments while receiving tax abatements. However, the Court in Roberts v. Tishman Speyer Properties left open a number of unanswered questions, including whether the ruling should be applied retroactively to owners and landlords who relied on a 1996 advisory letter issued by the 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.

Former and current owners of the Stuy-Town complex and other landlords who have received the tax abatements have argued that they should not be penalized for relying in good faith on government regulations that had been on the books for 15 years. The plaintiffs in Roberts and other tenants have countered that failing to apply the decision retroactively would effectively eviscerate the Court’s ruling and discourage plaintiffs from filing similar suits in the future. The retroactivity issue currently is being litigated before Manhattan Supreme Court Justice Richard Lowe, who is overseeing the Roberts case in the trial courts.

Under Paterson’s bill, owners of units affected by Roberts would have 90 days from passage to inform tenants that their units are subject to the new legislation and six months to refund any amount collected in excess of the legal rent for the four years prior to the Roberts ruling on Oct. 22, 2009. The payment would amount to the difference between the rent charged and the rent that would have been charged if the units had not been deregulated.

Tenants who do not agree to be bound by the landlord’s calculation could file a complaint with DHCR. Those tenants could receive back payments for the four years prior to the filing of the complaint.

On Wednesday, DHCR Commissioner Brian Lawlor told reporters in a conference call that the bill was a “balanced approach to bring some stability back to the [rent-regulation] system” in the wake of Roberts. He said the issues left up in the air by the Court of Appeals had “really caused quite a bit of confusion and uncertainty in the real estate market” and “hampered our efforts to administer the rent laws. As an agency, we are the only ones who can resolve this issue.” According to Lawlor, about 40,000 units in some 4,000 buildings are impacted by Roberts.

Michael Weber, Paterson’s assistant secretary for housing and infrastructure, says that while legislation generally is labeled pro-tenant or landlord, the governor’s bill strikes an “elegant balance.”

But William J. Gribben, whose firm Himmelstein McConnell Gribben Donoghue & Joseph represents plaintiffs in three class actions brought by tenants alleging overcharges in the wake of Roberts, disagrees. He says that he understood the bill to mean that leases entered into after Roberts would not be subject to rent regulation even though the owners received J-51 benefits.

“I don’t get it. I don’t understand why anyone in government would think about giving the landlords a free pass and essentially eviscerate Roberts,” Gribben says. And while he welcomes increasing the rent at which landlords could deregulate a unit, he says he believes that vacancy deregulation should be repealed.

However, if there is a cap, says Gribben, it should go into effect immediately, rather than in 2011, as the governor has proposed. “It’s poor piece of legislation, to say the least,” he says.

Harvey Epstein of the Urban Justice Center also criticizes the proposal. Although he says the legislation marked “an improvement over what we have today,” he faults Paterson for relying on landlords to inform tenants of their rights. “Why shouldn’t DHCR be responsible for notifying tenants right now? They created this mishap in the first place,” Epstein says.

Deborah Riegel of Rosenberg & Estis, which represents the landlord group Rent Stabilization Association of New York in Roberts, complains that the legislation would unfairly burden owners by requiring them to go back and search all of their records to determine what the regulated rent would have been four years before Roberts. “It really shifts the burden with respect to a rent overcharge claim from the tenant to the owner,” she says. Riegel adds that increasing the decontrol threshold vacancy to $3,000 does nothing to prevent wealthy individuals who were shielding income from holding on to apartments that should be deregulated.

Alexander Schmidt of Wolf Haldenstein Adler Freeman & Herz, who represents the plaintiffs in Roberts, says the bill is a “good thing” to the extent that it reduces the incentive for litigation by encouraging landlords to negotiate a solution with tenants before a suit is filed. He maintains that the bill would not affect the plaintiffs in Roberts or other tenants who filed actions before the bill becomes law, but said that it reaffirms that the Court of Appeal’s ruling should be applied retroactively.

Meanwhile, State Sen. Pedro Espada Jr., D-Bronx, has introduced legislation that would allow owners to return J-51 tax benefits and to waive future benefits. In exchange, their units would be eligible for luxury decontrol. The monies from the bill, S.6811, would be used to freeze rents for tenants who earn less than $45,000 a year and spend more than one-third of their income on rent.

In an e-mail, Espada, who serves as chairman of the Senate Standing Committee on Housing, Construction and Community Development, says that while he has not yet reviewed the entire bill proposed by the governor, he agrees with certain aspects of the legislation, including the “principle that extending regulations for eight years would eliminate the uncertainty of affordable housing for tenants and landlords.” But he says that the proposal does not go far enough.

“The Governor’s legislation, at the maximum point, although addressing the Court of Appeals decision, would aid only 40,000 rent-regulated apartments, most of them in Manhattan,” Espada says. “Mine would aid over 200,000 households, approximately 600,000 tenants, with the majority of those low- and middle-class working families in the outer boroughs and low-income areas of Manhattan.”

Mitchell Posilkin, general counsel for the landlords’ group, Rent Stabilization Association, says it is reviewing the provisions of Paterson’s legislation that relate to Roberts. But regarding the increase in rent to $3,000 from $2,000 per month for luxury decontrol, Posilkin says it is “difficult to understand why the governor would want to increase rent protections for the wealthiest New Yorkers, those who can afford to pay $36,000 per year for rent.” He asks, “What purpose is served by that and who benefits?”

Noeleen G. Walder can be reached at nwalder@alm.com.