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178 Buildings Getting Tax Breaks Are Flouting Rent Regulation Rules: City

By Amy Zimmer | November 22, 2016 1:42pm
 A view from a Williamsburg apartment building.
A view from a Williamsburg apartment building.
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Evan Joseph for Keller Williams NYC

MANHATTAN — The city’s Department of Housing Preservation and Development has sent out letters warning owners of 178 residential buildings that their 421-a tax benefits will be revoked retroactively if they don’t comply with the tax abatement program’s requirements.

The Tuesday announcement from Mayor Bill de Blasio, Attorney General Eric Schneiderman and Gov. Andrew M. Cuomo — which affects buildings with a total of 1,400 rental apartments and could mean landlords have to pay back up to $4.5 million doled out to date — is the latest action from the Real Estate Tax Compliance Program, a joint initiative of the Attorney General, HPD and the Governor’s Tenant Protection Unit.

Under the tax break program, owners must register apartments as rent-regulated units, and the apartments are subjected to limits on annual rent increases — whether they are units set aside for low-income renters or whether the units command market-rate rents.

“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,” Schneiderman said in a statement. “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.”

State lawmakers will soon be voting on whether to approve a new, expanded version of the now-suspended 421-a program, which currently costs the city roughly $1.2 billion in foregone taxes and might swell to $2.4 billion, according to advocates.

The enforcement letters sent to building owners on Monday gives them 90 days to comply. The 178 buildings were co-ops and condos that receive 421-a benefits but have been operating as rental buildings without fulfilling the requirements, including having their rent rolls approved by HPD and registering their units as rent-regulated with the state’s Division of Homes and Community Renewal.

The vast majority of these buildings have less than 50 units and are located in all boroughs except Manhattan, with the majority in Brooklyn and Queens. Officials did not name individual properties or landlords.

“This is the latest shot across the bow at landlords who don’t play by the rules,” HPD Commissioner Vicki Been said in a statement. “We will not stop until every property is brought into compliance.” 

The agencies began coordinating their tax compliance and enforcement efforts in 2014, when the Attorney General’s office began investigating rental buildings that claimed to be operating as co-ops or condos. As a result, in 2015, compliance letters were sent to 285 buildings, and the Real Estate Tax Compliance Program was established to address 421-a-related violations.

In September, as part of the program, HPD instructed the city’s Department of Finance to revoke benefits to 35 buildings, which had 244 apartments.

Those buildings would have collectively received $4.5 million in tax breaks under 421-a, officials said.

Even if the benefits are revoked, officials noted, tenants are still entitled to the protections of a rent-stabilized lease by their landlords, as required under the 421-a rules.

City Council members last week introduced legislation requiring HPD to audit 20 percent of the buildings receiving the 421-a tax break each year to ensure that owners are complying with the rent-registration, affordability, and application requirements, according to Pro Publica, which found that nearly two-thirds of the almost 6,400 rental properties paying reduced property taxes do not have an approved application on file with the city Finance Department.  

Under the new 421-agreement recently brokered by the Real Estate Board of New York and the Construction Trades Council of Greater New York — which is pending approval from the state legislature — developers in certain areas will face some increased scrutiny, at least when it comes to construction workers’ wages.

Buildings in Manhattan with 300 rental units or more south of 96th Street — which will have to pay, on average, an hourly wage of $60 — and buildings in Brooklyn and Queens’ Community Boards 1 and 2 within a mile of the nearest waterfront bulkhead — which will pay construction workers on average, an hourly wage of $45 — are slated to get a 100 percent tax exemption benefit for 35 years in exchange for keeping income limits for renters in place for 40 years.

The agreement requires developers of these buildings to hire independent monitors to audit certified payrolls to ensure compliance and enforcement of the wage and benefits agreement. The independent monitor would certify to HPD within 120 days of receiving the final Certificate of Occupancy that the required average wages and benefits were paid.