Dan Garodnick Q&A: The Senate Bill That Would Bail Out Landlords and Gut Court Ruling on Stuy Town Rents

David Shankbone
In 2009, a landmark state appeals court ruling found that the owners of Stuyvesant Town-Peter Cooper Village had illegally deregulated 4,400 apartments while enjoying special tax breaks from the city. Its impact wasn't quite clear; no one was sure what the legal rents of those apartments should be or how much the wronged tenants should receive in rebates.

Now, a bill is making its way through the state Senate that, as the Times succinctly puts it, "would allow landlords to buy their way out of the problem."

Tenant advocates and Dan Garodnick, the councilman who represents Stuy Town, hotly oppose the bill. Garodnick — who was also born and raised and still lives there — gives Runnin' Scared his take.

The new law would allow the landlords to pay the taxes that they had avoided, while the apartments that were improperly deregulated into market rate units would stay that way. Here's our (edited) conversation with Garodnick:

Does the bill affect only Stuy Town?

There are about 40,000 units in New York City that were removed from rent stabilization by building owners who were who were receiving a tax break from the city — known as J-51. Basically, it's a tax break for landlords who are doing improvements on their buildings, but while you are getting it, you need to keep the units rent-stabilized.

And the court case found that developer Tishman Speyer had been using the tax break illegally.

The Roberts vs. Tishman Speyer case established that landlords that were getting the tax break could not, at the same time, remove units from rent stabilization. That was always the legislature's stated intent and that continues to be the law today. But building owners continue to violate it.

Even after the ruling?

Yes, there are people who are part of J-51 buildings who continue to pay market rent, not realizing they are covered by this lawsuit.

How do you know?

We know there are buildings out there, but not all people know they have additional rights as a result of this lawsuit.

Tell us about this new bill.

The bill that's pending in Albany would eviscerate the court ruling. It would allow landlords to return their tax breaks and opt out of the J-51 program. That, unfortunately, would deprive tenants of their rights . . .

To live in a rent-regulated apt?

Yes, and it would also deprive them of their right to rebates for rent overpayments and also to have their rent adjusted to the legal level. And, if the landlords do not opt of J-51, the bill gives landlords the right to set the rent at 2005 levels, which was the height of real estate market in the city.

The president of the Real Estate Board of New York, Steven Spinola, told the Times that the bill would generate hundreds of millions of dollars in revenue for the city. Spinola says: "It would allow people to people to pay back the tax benefits, and free them from back rent claims and the requirement to go back to rent regulation." How do you respond to that? I'm sure that you feel landlords who broke the law should be paying back rent claims.

It would certainly generate a windfall for the building owners who circumvented the law for all of those years and deny tenants who were overcharged their right to any recovery.

What would this mean for you and your neighbors in Stuy Town? You see this as a total reversal of the lawsuit you won?

The 4,400 units that were deregulated would go to the market, and the current and former occupants would lose their right to recovery for the harm they were caused. It is a total reversal, without any questions. And it would do more than just roll back a court decision It would threaten the long-term affordability of these units.

But why shouldn't landlords who want to deregulate apartments be able to out of the tax benefit?

It's one thing to change the law, but the current law says you cannot opt of the program if you are in it. Today they are in it. This was their decision. They wanted to take a tax break for building renovations. And once they decided they wanted to participate, it came with a term of years and a requirement that they keep the units rent-stabilized.

So basically, if they hadn't gotten the tax break, they could have just freely deregulated all of Stuy Town?

If they had followed basic rent guidelines for deregulation.

Right, with incremental increases, but J-51 allowed them to deregulate all at once. So what you're really saying is, "Why should they have the privilege of turning back the clock?"

But that's not what being proposed. What's being proposed is to allow them to pay the taxes and keep their apartments at market level today. And that's not fair. It doesn't address the thousands of individuals who are harmed, it ignores the law, and it ignores the fact that we've lost thousands of otherwise affordable units.


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Interested Observer
Interested Observer

Please note that if the law is not changed then the re-controlled buildings will produce lower rents and pay lower real estate tax bills. (That's how the City assesses income-producing property.) The City must pay its bills somehow so the taxes not paid by these re-controlled buildings will be spread to all other properties and taxpayers. Everyone else is effectively subsidizing the rent-stabilized tenants.

Reform the Rent Laws
Reform the Rent Laws

Mr. Garodnick's point of view borders on delusional but at the very least, is misleading to the less informed. First, he repeatedly suggests that law that would be passed by the state legislature "ignores the law." Let's look at that again - a bill that would be passed by our state lawmakers is somehow illegitimate because Garodnick (or any citizen) disagrees with it? As a lawyer, I can confirm that lawmakers regularly pass laws to clarify old ones and to rectify what the legislature views as unintended interpretations by the judicial branch. Secondly, did Garodnick forget to mention the fact that landlords relied upon the declarations of the Department of Housing and Community Renewal (DHCR) that their actions were within the law? So let's be clear hear - a city agency says "it's OK" but years later the court says, "no it's not." Well, of course the court wins. But the legislature is now trying to fix the confusion by saying "pay back the tax benefits you received and you won't be penalized further since you relied upon the DHCR." On top of that, Mr. Garodnick looks at rent stabilized tenants as the only stakeholders in this equation. If landlords can't take the J-51 tax benefit and accept market rent, I would much rather see all NYC tax payers benefit by having the tax benefits repaid to the city then to see landlords keep the benefit but pay some tenants for rent overcharges. Keep in mind that the tenants that would be repaid all entered into market rate leases under the impression that they were and should be market rate leases at market rate rent. It was only when the court decision came down that it was determined those apartments should have been stabilized since the tax benefit was also taken (which DHCR said could done). It would be an unacceptable windfall to now make landlords send a check to tenants who signed a market rate lease. Give the money back to the city by repaying the tax benefits and let the legislature clarify what they want the law to be moving forward. I'm sick of these "tenant advocates" (advocates of the .0003% of NY'rs that would benefit from this) looking after their own self interest.

Let's Shoot Straight Folks
Let's Shoot Straight Folks

Yes, but that's what the rent laws have stood for since their inception -- a policy choice whereby we all subsidize affordable housing in the City to assure diversity and the long-term stability of neighborhoods throughout the City, particularly in Manhattan, where if the rent laws expired the great demand for the limited supply of apartments would very quickly cause rents to rise steeply, forcing out low and middle income people altogether and leaving Manhattan an enclave for only the very rich. If that's the type of City a majority of us want, the Legislature should take up that debate and change the laws. But no landlord who disagrees with the policy choice the laws currently reflect should be permitted to ignore or violate or manipulate the laws to make hundreds of millions of dollars of illegal profits, and then get the Legislature to give them a special break to let them off the hook when they get caught. That's not government "by the people and for the people," its a government that works for the special interests who make big political donations.

Gerald Guterman
Gerald Guterman

It is very seldom that a family or individual who rents an apartment in New York City, looks behind the reasons for the rental price being charged by the owner of the property.

More often than not, it is the prospective tenant's perception of legality and the frustration of finding an affordable home in New York City, that motivates a tenant to sign that specific lease and probably pay as much or more, than can be comfortably afforded.

As a long time professional investor in New York City residential property, I sincerely believe that every owner who applied for and received J-51 tax benefits, was fully familiar with the governing rules and regulations. If the owner did not take the time to understand the rules, that same owner certainly took the time to receive and keep the tax benefits.

When an owner deliberately deceives and misrepresents (the legal rent for a specific unit), that owner should have no special benefits when they get caught. Certainly our legislature should not be pandering to special interest groups, to void a law whose benefits and liabilities were agreed to by the individual property owner and entered into voluntarily.

Clarifying the Facts
Clarifying the Facts

You make some valid points, but to when you intimate that the bill currently in the legislature is there to "rectify what the legislature views as unintended interpretations by the judicial branch," you're either being disingenuous or are very misinformed. The J-51 tax benefits were explicitly crafted by the legislature to give tax breaks to landlords to improve their properties, and as a consequence they would have to keep those properties in the rent stabilization program for a specified duration of time. The law is very clear, and the recorded minutes on the floor of the legislature at the time, while contemplating the ramifications of the j-51 program, confirmed the intentions of the law - that no apartments would be removed from rent stabilization as a consequence of the program. The DHCR may have been lobbied by real estate interests when it ruled erroneously that landlords could at once receive tax benefits from the city while at the same time depriving the city of its desire to keep affordable housing units. But the courts correctly found that decision to be contrary to the law, not to mention contrary to common sense.

The only law that hasn't been broken here is the law of unintended consequences. I agree with you that the rent laws need to be reformed, and that far too many non-needy people are living in apartments that are well beneath market rates. But that's a different argument.

Let's Shoot Straight Folks
Let's Shoot Straight Folks

Clarifying the Facts is being too generous to Reform the Rent Laws. If you actually take the time to read the court decisions in the case you will see what the courts undoubtedly saw -- corruption plain and simple. The deregulation statute very clearly bars deregulation of any J-51 building because those landlords get taxpayer funds in exchange for keeping their apartments rent stabilized. That's exactly how the DHCR originally read the law. Then a real estate industry lawyer wrote letters to the DHCR asking it to adopt an "alternative" interpretation that would allow landlords to deregulate 40,000 apartments in buildings built before 1974, even though they were getting tax breaks that were designed to subsidize rent regulation, not subsidize deregulation. Then, during the landlord-friendly Pataki administration, the DHCR issued a regulation that added a word to the statute and changed its entire meaning, thereby making the landlords' interpretation official agency policy. But unelected agency bureaucrats are not allowed to make or change the law, as any landlord's lawyer worth salt knows. So landlords had no business relying on what DHCR did, and they knew it. The whole thing was a scam. It was landlords illegally grabbing hundreds of millions of dollars from unsuspecting tenants with a "nod nod, wink wink" from DHCR. It wasn't corruption in the sense of money changing hands, but the kind of special interest favoritism corruption that makes ordinary, unconnected people lose faith in government and politicians. The new bill would just layer a new level of that same type of corruption on top of the old to let the landlords get away with what they did, again at the expense of the tenants. The court was absolutely right to do what it did, and the new industry sponsored bill stinks beyond high heaven.

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