Latest action by joint Real Estate Tax Compliance Program to protect City tenants and taxpayer dollars means owners lose tax benefits retroactively unless they comply
Mayor Bill de Blasio, Attorney General Eric T. Schneiderman and Governor Andrew M. Cuomo today announced that the Department of Housing Preservation and Development (HPD) issued letters notifying owners of 178 residential buildings – with a total of 1,400 rental apartments – that their 421-a tax benefits will be revoked retroactively if they don’t comply with the requirements of the 421-a program, including registering their apartments as rent-regulated.
“Owners wrongfully receiving 421-a are on notice – comply with the law or your tax benefits will be revoked. Since day one, my Administration has made enforcement of rent regulation laws and protecting tenants a priority. With our state and law enforcement partners, we will continue to fight for a reformed 421-a program that better serves New Yorkers,” said Mayor Bill de Blasio.
"We're taking aggressive action to protect rent-regulated tenants from those who seek to cheat the system and deprive hardworking New Yorkers of a safe, affordable place to call home. These latest actions send a strong message – bad actors will be held accountable, these unscrupulous practices will not be tolerated and this Administration, with our local partners, will always work to protect the rights of millions of tenants across New York," said Governor Andrew M. Cuomo.
“The 421-a tax program is a two-way street: landlords who receive these lucrative tax benefits must afford their tenants rent-stabilized leases and protections. But investigations conducted by my office have found that some landlords are flouting these requirements and instead, using the tax break to simply increase their profits,” said Attorney General Eric T. Schneiderman. “We will never hesitate to protect tenants or New York City’s affordable housing stock, which is critical to the economic stability of many families.”
This is the latest action under the Real Estate Tax Compliance Program, a joint initiative of the Attorney General, HPD and the Governor’s Tenant Protection Unit to ensure building owners receiving 421-a benefits are in compliance with the law.
In September, as part of the enforcement program, HPD instructed the City’s Department of Finance to revoke benefits to 35 other buildings. Those buildings have a total of 244 apartments, and would receive a total value of $4.5 million in tax benefits under 421-a.
The enforcement letters mailed yesterday are focused on 178 cooperative and condominium buildings that receive 421-a benefits but that have been operating as rental buildings without fulfilling the law’s rent-regulation requirements, including having their initial aggregate rent roll approved by HPD and registering their apartments as rent-regulated with DHCR.
In 2014, the agencies began coordinating on a broad tax compliance and enforcement effort. That year, the Attorney General initiated an investigation of multifamily rental buildings that claimed to be operating as cooperatives or condominiums. As a result, in 2015, compliance letters were sent to landlords of 285 buildings targeted by the Attorney General’s investigation, and the Real Estate Tax Compliance Program was established to address ongoing violations of rent stabilization requirements of the 421-a law.
Of the 285 buildings, 35 had their benefits revoked in September, and an additional 178 were sent revocation notices . The rest either proved they are in compliance, or are curing the violations that have been uncovered.
“This is the latest shot across the bow at landlords who don’t play by the rules,” said HPD Commissioner Vicki Been. “Since the start of this Administration, we have sought to crack down on those who would abuse the system, cooperating across levels of government to use all of our enforcement powers to go after owners who try and skirt the law. We will not stop until every property is brought into compliance.”
New York State Homes and Community Renewal Commissioner James S. Rubin, said, “The law is clear and so are we: arbitrary noncompliance with the rent laws is not an option. These buildings that received these 421-a benefits are subject to rent regulation; the apartments must be registered; owners must provide rent-regulated leases to the tenants; and annual rent increases must be limited to what is prescribed by the New York City Rent Guidelines Board and the Rent Stabilization Law. This collaborative enforcement initiative draws on the full force of both the State and the local municipality to impose penalties. Under the Governor’s leadership the Tenant Protection Unit is poised to address any violations of the rent laws.”
Tenants in rental buildings identified as non-compliant are entitled to the protections of a rent-stabilized lease by their landlords. Even if benefits are revoked, the 421-a law provides that the owners do not get out of the 421-a tax exemption requirements, including rent stabilization. In addition to HPD commencing proceedings to revoke their tax benefits, DHCR’s Tenant Protection Unit can simultaneously pursue additional actions against owners.
The vast majority of buildings identified as non-compliant contain less than 50 units and are located in four boroughs, all but Manhattan and with the majority in Brooklyn and Queens.
The Tenant Protection Unit (TPU), established by Governor Cuomo in 2012, created a new frontier in enforcement of the rent laws. Since its inception, the TPU has used data analytics, metrics, audits and investigations to proactively identify if landlords are complying with the rent regulation statutes. This initiative, along with the creation of the joint Tenant Harassment Prevention Task Force, is one TPU’s many multi-agency enforcement actions that protect tenants from harassment. To date, the Tenant Protection Unit has successfully returned more than 55,000 units to rent regulation.
Tenant Protection Unit staff working on the 421-a initiative include Attorney Thomas Mennecke, Special Assistant Jamie Reyes, TPU Legal Director Vernitta N. Chambers, and Forensics Director Harvey Akerman, under the supervision TPU Bureau Chief Gregory C. Fewer and under the overall supervision of DHCR Deputy Commissioner Richard R. White.
New York State enacted Section 421-a of the Real Property Tax Law in 1971 to incentivize the construction of rent- regulated housing and condominiums in New York City. The law provides a partial exemption from New York City property taxes for the owners of newly-constructed, residential multi-family buildings for at least ten years. Under the Governor’s’ leadership, when the current iteration of 421-a expired, additional affordability options were added to the law as well as fairer wage guidelines for those involved in the construction of these buildings. The current agreement negotiated by the Real Estate Board of New York and the Construction Trades Council of Greater New York, based on the framework supported by Governor Cuomo, provides for more affordability for lower-income families and a fair wage for workers. In 2015, the de Blasio administration worked to significantly reform the 421-a law to increase the amount of affordable housing required of every developer receiving the subsidy, require affordability for lower incomes than ever before, and demand affordable housing everywhere in the City. These reforms were captured in the 2015 state reauthorization of the program. The reauthorization also included a provision that suspended the law unless the Real Estate Board of New York and the construction trade unions agreed on the wages that would be paid to construction workers hired to build the projects receiving the tax exemption. The law remains suspended until the legislature re-enacts the program, or until REBNY and the Trades reach an agreement that does not require legislative action.
Further information on the Real Estate Tax Compliance Program is available on the Attorney General’s website, at http://www.ag.ny.gov/421a-