Landlord's Bid For Retroactive Exit From J-51 Program Denied

[A slightly different version of this story appeared in the New York Law Journal]

NEW YORK CITY-The owner of a Chelsea apartment complex cannot retroactively leave the J-51 tax abatement program and deregulate its apartments by repaying all the tax credits it received, a unanimous state appellate panel ruled yesterday, the latest in a line of decisions clarifying the implications of the Court of Appeals' ruling in Roberts v. Tishman Speyer.

The Appellate Division, First Department, held yesterday in London Terrace Gardens v. City of New York, that the owner of the London Terrace Gardens complex cannot rescind its participation in J-51 because there is no contract to rescind, affirming a May 2011 opinion by Manhattan Supreme Court Justice Judith Gische.

Justice Sheila Abdus-Salaam wrote the decision for the panel, which included Justices Peter Tom, Angela Mazzarelli, Karla Moskowitz and Dianne Renwick.

Under the J-51 program, landlords get tax breaks if they make certain improvements to their buildings and keep the units rent-stabilized. 

Before the Court of Appeals' Roberts decision, landlords of J-51 buildings would begin charging market rents for individual apartments that became subject to deregulation under the rent-stabilization law. The landlords would claim proportionately lesser J-51 tax benefits when they deregulated apartments.

In Roberts, the Court of Appeals ruled that no apartments in a J-51 building could be deregulated as long as the building was receiving J-51 tax benefits. The ruling led to a slew of lawsuits by tenants of deregulated apartments in J-51 buildings seeking back rent.

The landlord in the Roberts case, Tishman Speyer Properties, argued that the decision should not apply retroactively, an issue left open by the Court of Appeals. The First Department ruled in November 2011 that Roberts could be applied retroactively.

London Terrace took a different tack. The landlord argued that it should be able to retroactively unwind its participation in J-51 by paying back all the tax benefits it received through the program.

When New York City's Department of Housing Preservation and Development rejected that proposal, London Terrace filed an Article 78 petition against the city in 2010. It argued that its participation in J-51 had effectively been a contract between it and the housing agency, and because both parties had misunderstood the relevant law, the contract should be rescinded. The suit also named as a defendant the state's Department of Housing and Community Renewal, which oversees the rent-stabilization program.

Gische denied London Terrace's petition, holding that the J-51 program was a simple statutory scheme, not a contract, and could therefore not be rescinded.