State, City Crack Down on Building Owners For Non-Compliance With 421-A Regulations

Real Estate In-Depth | December 2016

New York State Attorney General Eric Schneiderman

NEW YORK—Attorney General Eric T. Schneiderman, New York City Mayor Bill de Blasio and Governor Andrew M. Cuomo recently announced that the New York City Department of Housing Preservation and Development issued letters notifying owners of 178 residential buildings—with a total of 1,400 rental apartments—that their 421-a tax benefits will be revoked retroactively if they don’t comply with the requirements of the 421-a program, including registering their apartments as rent-regulated.

“The 421-a tax program is a two-way street: landlords who receive these lucrative tax benefits must afford their tenants rent-stabilized leases and protections. But investigations conducted by my office have found that some landlords are flouting these requirements and instead, using the tax break to simply increase their profits,” said Attorney General Schneiderman. “We will never hesitate to protect tenants or New York City’s affordable housing stock, which is critical to the economic stability of many families.”

“Owners wrongfully receiving 421-a are on notice—comply with the law or your tax benefits will be revoked,” said New York City Mayor Bill de Blasio.

“We’re taking aggressive action to protect rent-regulated tenants from those who seek to cheat the system and deprive hardworking New Yorkers of a safe, affordable place to call home. These latest actions send a strong message—bad actors will be held accountable, these unscrupulous practices will not be tolerated and this Administration, with our local partners, will always work to protect the rights of millions of tenants across New York,” said Governor Andrew M. Cuomo.

This is the latest action under the Real Estate Tax Compliance Program, a joint initiative of the Attorney General, HPD and the governor’s Tenant Protection Unit to ensure building owners receiving 421-a benefits are in compliance with the law. The vast majority of buildings identified as non-compliant contain less than 50 units and are located in four boroughs (all but Manhattan) and with the majority in Brooklyn and Queens.

In September, as part of the enforcement program, HPD instructed the city’s Department of Finance to revoke benefits to 35 other buildings. Those buildings have a total of 244 apartments, and would receive a total value of $4.5 million in tax benefits under 421-a.

The enforcement letters mailed last month are focused on 178 cooperative and condominium buildings that receive 421-a benefits, but that have been operating as rental buildings without fulfilling the law’s rent-regulation requirements, including having their initial aggregate rent roll approved by HPD and registering their apartments as rent-regulated with DHCR.

In 2015 compliance letters were sent to landlords of 285 buildings targeted by an Attorney General investigation and the Real Estate Tax Compliance Program was established to address ongoing violations of rent stabilization requirements of the 421-a law.

Of the 285 buildings, 35 had their benefits revoked in September, and an additional 178 were sent revocation notices in October. The rest either proved they are in compliance, or are curing the violations that have been uncovered.

Tenants in rental buildings identified as non-compliant are entitled to the protections of a rent-stabilized lease by their landlords. Even if benefits are revoked, the 421-a law provides that the owners do not get out of the 421-a tax exemption requirements, including rent stabilization. In addition to HPD commencing proceedings to revoke their tax benefits, DHCR’s Tenant Protection Unit can simultaneously pursue additional actions against owners.