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DHCR Posts “Hit List” of J-51 Buildings with Potential Deregulation Issues

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A Gift to Tenants While DHCR Admits "Inaccuracies May Exist”

At the instigation of tenant advocates, on February 1st, DHCR posted on its website a list of 1,101 J-51 buildings where the owner deregulated apartments and the agency believes continue to not comply with the 2009 ruling of the Court of Appeals in Roberts v. Tishman Speyer Properties. Specifically, DHCR believes that the J-51 buildings:

1. may be out of compliance due to failure to register in 2018

2. may be out of compliance due to listing multiple apartments as permanently exempt in 2018

3. may have been out of compliance at some point from 2012-2017 due to listing multiple apartments as permanently exempt from stabilization

For the lists of the buildings and DHCR’s explanations of their policy, visit the following link: https://bit.ly/2ttVGyd.

Remarkably, DHCR acknowledged that “inaccuracies may exist due to limitations of the source information, discrepancies in building addresses/building identifiers, exemptions from stabilization/filing requirements, recent owner compliance, among other reasons.” Why DHCR could not ensure accuracy prior to their publication remains a mystery to everyone.

Background

The Court of Appeals ruled in Roberts that owners of buildings that were rent stabilized prior to their receipt of J-51 benefits (in other words, the buildings were not regulated only because they received J-51 benefits) could not deregulate their apartments until the expiration of those benefits and were required to re-register those apartments as stabilized. Ever since, owners have dealt with an endless array of issues, litigation, overcharge claims and uncertainty arising from the Court’s decision. Over the past ten years there has been no shortage of confusion resulting in, or arising from, a series of court cases and administrative decisions by DHCR. The most recent chapter in this saga occurred on February 1st, when DHCR announced its new J-51 Registration and Rent-Revision Initiative.

Roberts reversed many years of industry practice that had been authorized by DHCR, the very agency that administers the rent laws. Notwithstanding the fact that owners had deregulated tens of thousands of apartments based upon DHCR’s own interpretation, the Court of Appeals opened a Pandora’s Box of issues. That was exacerbated by the fact that the Court explicitly decided that it would not address certain issues, such as the numerous questions related to overcharges.

Over the past ten years, owners and tenants, as well as DHCR, have been litigating those numerous questions left unanswered by Roberts. For example, was Roberts to be applied retroactively or prospectively? Do the courts or DHCR have primary jurisdiction to adjudicate these overcharge claims? How does the four-year statute of limitations apply? Do owners look back four years from the date of the overcharge claim? Do they do so even if the rent four years prior was unregulated? Do they go back to the last regulated rent, no matter how many years prior? Could tenants band together and pursue their claims by bringing class action lawsuits? The list of questions is seemingly endless.

On the administrative side, there have been numerous questions relating to rent registration. As a result of Roberts, apartments that had been deregulated again became subject to rent stabilization and owners were obligated to register those rents. Of course, the setting of that rent for the purposes of registration also was the subject of much debate. Does the owner register the current unregulated rent as the stabilized rent? Does the owner go back to the last regulated rent, regardless of the number of years, or does the owner go back four years, regardless of whether the rent at that time was regulated or unregulated?

For several years there was no guidance whatsoever provided by DHCR. Finally, in 2016, DHCR announced its J-51 Rent Registration Initiative, which established a mechanism for filing amended and add-on registrations for affected buildings.

2019 DHCR J-51 Rent Registration and Rent-Revision Initiative

As indicated above, the Initiative is comprised of three different sets of circumstances, with an accompanying list of buildings. The categories are set forth below:

1. Buildings that may be out of compliance due to failure to register in 2018. This category is comprised of buildings where no registration has been filed to date for the most recent cycle for buildings with J-51 benefits. The building list initially consisted of 853 buildings, of which 70 buildings have already been removed because they were on the list mistakenly. For the remaining buildings on this list, owners will either (a) receive a letter clearing them of any registration problem if the registrations are duly filed or (b) receive a series of letters ordering compliance, which will ultimately culminate in an administrative hearing in the event of non-compliance.

2. Buildings that may be out of compliance due to listing multiple apartments as permanently exempt for stabilization in 2018. In this category, which consists of 77 J-51 buildings, the 2018 registration was submitted but included multiple permanently exempt apartments. DHCR has indicated that it will accept both amendments and add-ons for the 2018 registration year.

3. Buildings that may have been out of compliance at some point from 2012-2017 due to listing multiple apartments as permanently exempt from stabilization. This list is comprised of 171 J-51 buildings. While DHCR will accept add-ons for registrations, the agency will not accept amendments for the 2012-2017 time period.

In addition, DHCR informed owners who wanted to contest their inclusion on the lists that they were obligated to do so, in writing, by February 20th by contacting DHCR’s J51 Registration Enforcement Unit at 92-31 Union Hall Street, Jamaica, NY 11433 or by email at [email protected]. RSA’s Counsel, Mitch Posilkin, requested that DHCR extend that 20-day time period on the ground that the challenge period was “woefully inadequate.” As a result, on February 19th, DHCR removed the 20-day requirement from its website entirely.

DHCR then explained to owners how they should comply with the new Initiative. Ironically, while DHCR requires owners to re-set the rents and issue “appropriate rent refunds,” the actual methodology for determining how to do so continues to be litigated and, in fact, this area is so unsettled that three cases will be heard by the Court of Appeals in the next few months alone (Regina Metropolitan v. DHCR, Raden v. W78/79, and Taylor v. 72A Realty).

Precisely how owners are supposed to satisfy DHCR’s requirements when those requirements are in flux remains unanswered. Does the owner look back four years from the current rent or from some other date? What if the rent four years ago was unregulated? Does the owner go back to the last regulated rent? Despite these unanswered questions, it is imperative that owners take some steps to re-calculate their rents in consultation with their counsel; not doing so will only strengthen a tenant’s claim for treble damages or fraud.

As DHCR did in 2016, this Initiative lays out the options for owners to update their registration information. J-51 buildings which did not register at all for 2018 must file registrations. J-51 buildings which did file in 2018 but included permanently exempt units in their registrations must either amend or do “add-ons” for that registration, or explain why the apartments were legally regulated. For J-51 buildings which registered permanently exempt apartments between 2012-2017, amendments will not be accepted by DHCR for those years although the agency will accept “add-ons.”

Conclusion

This subject is extraordinarily confusing on every level for owners, given that the procedures are difficult to navigate, the methodology for re-calculating the rent continues to be litigated and unresolved in the courts, and tenant attorneys, undoubtedly, will bring overcharge cases against owners whose buildings are listed. If your building is on the list, whether erroneously or not, you should contact your attorney immediately to decide upon a plan of action. 

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