73 Warren Street, LLC v. State of New York Division of Housing & Community Renewal

Citations: 96 A.D.3d 524; 948 N.Y.S.2d 2

Court: Appellate Division of the Supreme Court of the State of New York; June 14, 2012; New York; State Appellate Court

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The Supreme Court of New York County, presided over by Justice Judith J. Gische, affirmed a prior decision on August 13, 2010, which denied a petition from a property owner seeking to annul the denial by the New York Division of Housing and Community Renewal (DHCR) of an application to deregulate a rent-stabilized apartment under high-income rent decontrol provisions. The property owner had rented to Victor Schrager since 1984, and the apartment became rent-stabilized in 1977 when the owner began receiving J-51 tax benefits. Schrager was not informed that the apartment would remain regulated after the expiration of these benefits in 1990.

The owner sought DHCR's approval to verify Schrager's household income—claiming it was below the $175,000 threshold necessary for luxury decontrol. However, DHCR denied the petition, asserting that the Rent Stabilization Law (RSL) exclusion from luxury decontrol applied due to the building's reliance on J-51 tax benefits, which continued to bind the apartment despite the expiration of those benefits. The owner argued that a prior ruling in Roberts v. Tishman Speyer Properties indicated that such exclusions were only applicable while tax benefits were active and contended that Real Property Tax Law (RPTL) 421-a allowed for luxury decontrol post-expiration of tax benefits.

DHCR maintained that the luxury decontrol exclusion applied to all units subject to RSL due solely to tax benefits, regardless of whether those benefits had expired. The court found that the DHCR decision was neither arbitrary nor capricious and dismissed the owner's arguments regarding the applicability of the Roberts case and RPTL 421-a, ultimately affirming the denial of the petition.

Roberts was distinguished as he did not address whether luxury decontrol would be applicable after the expiration of tax benefits. The court clarified that under RSL 26-504.1, luxury decontrol does not apply to properties in the 421-a program, except as outlined in RPTL 421-a (2.f.i), which allows for luxury decontrol only after the benefit period ends. However, no similar provision exists for the J-51 program. The court determined that RPTL 421-a and RPTL 489 should not be interpreted together, asserting that luxury decontrol is not allowed for buildings benefiting from the J-51 program upon the expiration of those benefits. The standard of review for the appeal involves assessing whether DHCR acted arbitrarily, in violation of lawful procedures, or beyond its jurisdiction, with deference given to the agency’s interpretations of relevant statutes and regulations.

Key statutes include Administrative Code 26-504(c), which stipulates that upon the termination of benefits, a dwelling unit remains subject to rent stabilization unless it has been properly notified regarding deregulation. Specifically, a rent-stabilized apartment continues to be so after J-51 benefits end, unless the tenant vacates or has been adequately notified in advance. It is established that since the tenant, Schrager, remained in possession and was not given the necessary notices, the apartment retained its rent-stabilized status after the expiration of the J-51 benefits.

Administrative Code 26-504.1, part of the Rent Regulation Reform Act of 1993, stipulates that housing accommodations occupied by individuals with an annual income exceeding a specified deregulation income threshold for two consecutive years, and with a regulated monthly rent at or above a deregulation rent threshold, are excluded from rent stabilization. However, this exclusion does not apply to apartments that receive tax benefits under sections 421-a or 489 of the Real Property Tax Law or are regulated under article seven-C of the Multiple Dwelling Law. This provision allows for luxury decontrol of eligible stabilized apartments, but apartments benefiting from tax incentives cannot be deregulated based on income or rent.

The petitioner contends that the exclusion does not apply to Schrager’s apartment, arguing that ineligibility for luxury decontrol should be restricted to apartments currently receiving tax benefits. Citing Roberts v Tishman Speyer Props. L.P., the petitioner interprets the court's statements to suggest that following the expiration of J-51 tax benefits, luxury decontrol should be permissible. The court, however, rejects this interpretation, clarifying that the quoted language only pertains to rent stabilization and does not imply the restoration of luxury decontrol after J-51 benefits end. The court emphasizes that in Roberts, the building was still under J-51 benefits, and thus the implications for luxury decontrol post-expiration were not addressed. The petitioner’s argument regarding the phrase “as if [the J-51 benefits] had never applied” is also dismissed, as it misinterprets the court's focus on the broader regulatory framework rather than luxury decontrol eligibility.

The statute indicates that buildings receiving J-51 tax benefits remain regulated after such benefits expire, unless an apartment is vacated or a non-vacating tenant receives a specific notice, allowing the owner to consider luxury decontrol under certain circumstances. In this case, no vacatur or notice occurred, making prior regulation irrelevant. The petitioner further argues that even if the exclusion from luxury decontrol persists post-J-51 benefits, an exception under Administrative Code 26-504.1 applies. This code states that luxury decontrol does not apply to buildings with tax benefit regulations, except as specified in RPTL 421-a, which provides tax exemptions for new multiple dwellings. The petitioner contends that RPTL 421-a should encompass buildings receiving any tax benefits, including J-51, based on a shared legislative goal of promoting residential housing. However, DHCR and Schrager counter that RPTL 421-a explicitly limits luxury decontrol applications to buildings under that specific tax benefit, deliberately excluding J-51 buildings. They argue the two tax benefit schemes differ significantly, with RPTL 421-a aimed at new constructions and J-51 at rehabilitated existing buildings, negating the need for in pari materia comparison. The clear legislative intent does not necessitate examining similarities between the two statutes. Consequently, the court upheld DHCR's rational interpretation, denying the petition for administrative review of the high-rent/high-income decontrol proceeding.