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Debt & Equity

AG sets his sight on 421-a tax scofflaws

The state is going after nearly 200 New York City landlords who violated state law by accepting lucrative tax breaks then failing to provide the required rental protections to tenants.

Attorney General Eric Schneiderman, Gov. Andrew Cuomo and New York City housing officials have sent compliance notices to the 194 landlords, whose buildings house more than 2,400 families in all five boroughs.

Schneiderman’s office said “a high concentration” of the buildings are in Brooklyn and most have fewer than 50 units.

The building owners could see their 421a tax benefit revoked, rents frozen or damages amounting to treble the charges the made against tenants.

The initiative is part of Attorney General Schneiderman’s ongoing investigation into violations of the 421-a property tax exemption program and is aimed at ensuring building owners are in compliance with the law.

“Landlords of rental buildings who accept these tax incentives must follow through on their end of the bargain and offer rent-regulated leases to their tenants,” Attorney General Schneiderman said.

“The Real Estate Tax Compliance Program we are announcing will safeguard tenants’ rights, protect more than two thousand units of New York City’s rent-regulated housing stock, and ensure that our important and limited tax dollars are properly spent.”

Governor Andrew M. Cuomo said, “We will not tolerate landlords who break the law and deny their tenants rent-regulated leases, plain and simple. This partnership will help ensure that building owners who benefit from the 421-a program are living up to their responsibilities.

“Owners who are not currently in compliance should get their act together immediately or face the real possibility of having the TPU freeze rents, pursue overcharges and seek damages.”

As part of an ongoing investigation, the Attorney General’s Office identified 194 building owners who have received 421-a tax benefits, but have not registered their apartments as rent-regulated.

The owners had received an exemption and then filed for, but failed to follow through with, a condominium offering plan.

Under the law, if if an owner has not sold units under a condominium offering plan, they are a rental building and must register those units as rent regulated.

The 421-a compliance initiative will return apartments to regulation, protecting the rights of tenants to have annual lease renewals with reasonable rent increases.

As part of an ongoing investigation conducted in close collaboration with HCR’s TPU and HPD, the Attorney General’s Office identified 194 building owners who have received 421-a tax benefits, but have not registered their apartments as rent-regulated. The notices, sent yesterday, alert these owners to the potential legal consequences they face – including revocation of 421-a tax benefits – if they do not come into compliance by registering their apartments as rent-regulated and supplying their tenants with rent-regulated leases.

TPU will be monitoring registrations filed by the identified owners that benefited from the 421-a program.

If an owner fails to register or fails to register properly, TPU can seek an administrative order freezing the current rents, as well as pursue overcharge actions against the owners for collecting improper rents and will seek treble damages on behalf of the effected tenants.

The notices were sent to building owners where 421-a paperwork was previously filed with the Attorney General’s Real Estate Finance Bureau and HPD indicating that the buildings would become condominiums, thus exempting them from having to register their units as rent regulated.

In the aftermath of the market crash of 2008, rather than sell the units as condos as represented, these building owners rented them at market rents without registering them as rent regulated, as required by the law.

The 421-a tax break is available to individual condo unit owners or rental building owners provided that those building owners register the units as rent regulated.

The buildings deemed not in compliance with the 421-a rent-regulation requirements are located in all five boroughs of New York City, with a high concentration of buildings in the following Brooklyn neighborhoods: Williamsburg, Greenpoint, Bedford-Stuyvesant, Ocean Hill, Coney Island, Brighton Beach, and Bensonhurst.

In Queens, the community districts encompassing Astoria, Long Island City, Corona and Elmhurst have more than two dozen non-compliant buildings.

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.

The 421-a tax benefits are not intended to subsidize the construction of unregulated rental buildings. On June 15 of this year, the 421-a law was extended and modified.

The 194 property owners identified by the Attorney General’s Office – the vast majority of whom own one building of less than 50 units – were sent a notice to cure legal violations through the Real Estate Tax Compliance Program, along with instructions to ensure the rights of their tenants are respected.

The Tenant Protection Unit, 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 of the multi-agency enforcement actions that protect tenants from harassment.

The Tenant Protection Unit has successfully returned more than 41,000 units to rent regulation.

The formation of the Real Estate Tax Compliance Program follows a series of Attorney General settlements with other building owners who wrongfully received 421-a tax benefits.

Those earlier settlements included the recovery of all 421-a tax benefits received by the operator of short-term stay hotel in Midtown Manhattan, and recovery of unpaid wages for the building service employees employed by a Brooklyn landlord.

Housing Preservation & Development Commissioner Vicki Been called the affort “another important step in a long-term multi-agency enforcement effort.ˮ

Been added, “The initiative announced today is the largest enforcement action so far, but it is by no means the last. We will not stop until every property is brought into compliance.”

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