Bill in State Senate Would Relax Rent Rules

Many landlords would like to turn back the clock to 2008, when it was easier to deregulate thousands of vacant apartments and increase rents by hundreds of dollars or more.

A bill pending in the State Senate would let them do just that.

The bill would offer what supporters call a “legislative solution” to a 2009 ruling by the New York Court of Appeals that said the owners of the Stuyvesant Town and Peter Cooper Village complexes in Manhattan had improperly deregulated thousands of apartments while taking special tax benefits from the city. The ruling also affected an estimated 40,000 other apartments in similar circumstances, mostly in Manhattan.

But 18 months after the ruling, no one is quite sure what the legal rents of those apartments should be or how much in rebates the tenants are entitled to. The proposed legislation would essentially allow landlords to buy their way out of the problem by paying back the tax breaks, enabling them to keep the apartments renting at free-market rates.

Tenant advocates are outraged, but real estate executives say the bill would put an end to what could be years of litigation over the issue and uncertainty racking the industry.

“We need a legislative solution,” said Steven Spinola, president of the Real Estate Board of New York. “It’s a bill that would generate substantial money for the city, anywhere from $100 million to $300 million. It would allow people to pay back the tax benefits, and free them from back-rent claims and the requirement to go back to rent regulation.”

But tenant advocates and their lawyers say the bill would offer help to landlords who broke the law.

“Why you would allow a landlord to benefit from circumventing the rent regulation laws is beyond me,” said Daniel R. Garodnick, a city councilman who rents a market-rate apartment at Peter Cooper Village that has been re-regulated as a result of the Court of Appeals ruling.

The court said the complexes’ owners had improperly turned rent-stabilized apartments into free-market apartments while also participating in the city’s J-51 program, which gives tax breaks to landlords who rehabilitate their properties. The ruling affected about 4,400 of the 11,226 apartments at Stuyvesant Town and Peter Cooper Village.

There is little question that the bill, which was sponsored by Senator Catharine Young, a Republican from Olean in western New York, would benefit landlords. The bill would allow the owners of Stuyvesant Town to repay more than $24 million in tax breaks at 9 percent interest, a total of at least $26.16 million. The landlords would not have to roll back rents or repay what tenant advocates estimate is $200 million in rent overcharges.

Though the bill could provide a windfall for the city, opponents say it would cost tenants far more in additional rent.

The improper deregulation began under the complexes’ original owners, the Metropolitan Life Insurance Company, and continued after Tishman Speyer, the real estate firm, and a partner bought them for $5.4 billion in 2006. But the rent roll could not support Tishman Speyer’s debt. The new owners defaulted and the complex is now controlled by CW Capital, a company representing a group of lenders.

The bill is one of several real-estate matters under consideration in Albany, and it is unclear which of them will ultimately pass both houses. The state’s rent regulations are set to expire June 15, and Gov. Andrew M. Cuomo and the Democratic-led Assembly want to extend and expand the regulations, giving tenants more protection.

The Rent Stabilization Association, which represents landlords, is focused on stopping any expansion of the rent laws. In a March presentation to his members that can now be seen on YouTube, Joseph Strasburg, president of the association, said that the organization had “emptied our piggy bank” on behalf of the State Senate majority leader, Dean G. Skelos, and other Republicans willing to hold the line on rent regulation.

The Real Estate Board, which represents many developers, is interested in another issue: the extension of tax breaks for new residential buildings, a proposal Mayor Michael R. Bloomberg has opposed because, officials say, the benefits it provides are so generous that the city might as well build affordable units itself.

Both Mr. Strasburg and Mr. Spinola acknowledge that the legislation related to the Stuyvesant Town court decision is less of a priority for them than those other issues. But it is important for Adam R. Rose, a president of Rose Associates, which manages Stuyvesant Town and Peter Cooper Village for CW Capital.

He said the tenants affected by the ruling, and the bill in Albany, were “high-earning tenants” who signed market-rent leases, “never dreaming that the apartments would be rent regulated.”

“It makes no sense that these well-heeled tenants should gain a windfall from this court decision,” he said. “The only way this will end with some sort of certainty is with a legislative solution.”

But Alexander H. Schmidt, the lawyer for the nine plaintiffs in the Stuyvesant Town case, said that before the court ruling, landlords had tried to “do an end run around legislation that was clearly intended to prohibit deregulation.”

And the consequences were clear for people like Thomas I. Shamy and his wife, who lived in a one-bedroom, free-market apartment at Stuyvesant Town for three years when the new owner notified him in 2006 that his monthly rent would jump 28 percent to $2,750. Unable to afford the increase, the Shamys moved to a smaller apartment elsewhere. Under the court ruling, the apartment should have been rent-stabilized, limiting rent increases to a few percentage points a year.

“Giving up my home was not something I wanted to do,” Mr. Shamy said in a deposition in the case. “At the time, my wife was four months pregnant with our first child, and we anticipated remaining in the child-friendly Stuyvesant Town community.”



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