The Stuy Town Decision and Economic Rule-Breaking
Two weeks ago, New York’s highest court ruled that residential apartment units in buildings receiving J-51 tax benefits could not be removed from rent regulation via High-Rent Vacancy Decontrol or High-Rent High-Income Decontrol. This landmark case pitted several tenants against the owners of the Stuyvesant Town–Peter Cooper Village apartment complexes. This decision is impactful mainly because it gives no weight whatsoever to the Department of Housing and Community Renewal’s (DHCR) policies and also ignores the manner in which the Department of Housing Preservation and Development (HPD) has overseen the J-51 program.
DHCR is vested with “a broad mandate to promulgate regulation in furtherance of the rent control and rent stabilization laws” and is the entity from which multifamily property owners in New York rely for guidance on how to interpret and implement the regulations. Since 1993, DHCR has issued guidance indicating that apartment units could be decontrolled in buildings receiving J-51 benefits, provided the units did not become regulated simply because of the benefits. Over the past 16 years, investors and lenders have made business decisions involving billions of dollars based upon DHCR’s guidance. These decisions not only included purchases, sales and refinancings of apartment properties, but day-to-day management decisions by operators of these buildings.
In addition to relying on DHCR’s guidance, property owners were comforted by the manner in which HPD actually administered the J-51 program. After all, HPD was responsible for oversight of the program and had direct involvement with the Peter Cooper Village complex. In 2003, HPD reduced the J-51 benefit that 350 First Avenue received in proportion to the number of luxury-decontrolled units in the building (a standard operating procedure), consistent with DHCR’s interpretation and regulation.
Since the decision, there has been a tremendous amount written about the potential impact, containing much speculation about how it will affect tenants, owners of these buildings and the investors who want to buy them. Unfortunately, speculation is all there is, as the decision, other than affirming the Appellate Division’s findings, was relatively vague and leaves much, if not all, of the details up to the lower court to decide. Even the decision issued by the court indicates that the impact of its decision will “depend, among other things, on issues yet to be decided, including retroactivity, class certification, the statute of limitations, and other defenses that may be applicable to particular tenants.”
There is no doubt that specifics will only be derived after dozens, if not hundreds, of lawsuits and years upon years upon years of litigation.