Justice Delayed, But Not Denied

Ten Years Later, It Turns Out That FiDi Tenants Were Entitled to Rent Stabilization

90 West Street: Converted from office use to 410 apartments in 2005

Tenants at two FiDi rental buildings scored a major victory on June 25 when New York State’s highest court ruled that they had been illegally deprived of rent stabilization benefits. The suit, which has been winding its way through the courts for a decade, focused on residents of 90 West Street and 50 Murray Street, but has implications for more than 5,000 apartments spread across more than a dozen buildings throughout Lower Manhattan.

Both 50 Murray and 90 West are former office buildings that were converted to residential use — the former in 1999 and the latter in 2005. The developers sought lucrative tax exemptions and abatements given to such buildings within a zone created by the State legislature (in Lower Manhattan, south of a line created by connecting Murray Street to City Hall and the Brooklyn Bridge) in 1995. This program, known as 421-g, was designed to encourage Downtown’s transformation into a residential district, by offering rich incentives to developers. But it also offered a potent lure for tenants who moved to such buildings: their apartments would be subject to rent stabilization for as long as developers received the tax benefits.

But while the language of the 421-g statute was unequivocal (stating that “the rents of each dwelling unit in an eligible multiple dwelling shall be fully subject to control under such local law”), ambiguity arose when this was considered in the light of another part of New York’s housing law, known as “luxury decontrol,” which allows for rent stabilization be annulled on any apartment once the legal rent reaches a threshold of $2,700 per month.

The problem arose when developers unilaterally set the rent on the vast majority of the apartments they had created in these newly converted buildings at higher than $2,700 per month. This had the effect of erasing the rent stabilization benefit that the legislature had intended for tenants, while preserving the tax benefit for landlords. In the years since, landlords and developers have, in the aggregate, reaped a windfall of tens of millions of dollars from this program. But tenants received very little benefit or protection from the rent stabilization that had been intended for them.

	50 Murray Street: Converted from offices to 389 apartments in 1999

When residents of 50 Murray and 90 West realized that they were being charged market rents, with no limits on increases, and no right to automatic lease renewal (along with other privileges that come with stabilization), while their landlords reaped a bonanza in tax benefits at public expense, they sued for reimbursement.

Lawyers for the tenants argued that legislators would not have written the language about rent stabilization into the 421-g statute if they had intended for such protections to be made moot by rents that began above the threshold of luxury decontrol. Attorneys for the developers and landlords made the case that, if Albany’s lawmakers had intended the 421-g catchment to be an exception from the rules about luxury decontrol that apply elsewhere, they would have made this explicit in the statute, but had not. (They noted, also, that in other, similar situations — such as the 421-a and J-51 tax abatement programs — legislators had specifically exempted such apartments from luxury decontrol, but no such carve-out was created for 421-g.)

In the initial trial, in 2017, the tenants won, with the court ruling that the legislature’s clear intent had been that luxury decontrol would not apply to apartments receiving 421-g tax benefits. Last year, however, the Appellate Division overturned that decision, finding that the lack of an explicit exception made 421-g apartments subject to luxury decontrol. This reversal was influenced, in part, by a filing from former Mayor Rudolph Giuliani, who weighed in on behalf of the landlords, telling the court that it has always been his understanding that vacancy decontrol would apply within the 421-g zone, even if that meant these apartments were effectively removed from rent stabilization on the day the first tenants moved in.

Last month, the case came before the State’s highest panel, the Court of Appeals. During oral arguments before the seven-judge court, Robert Smith, one of the attorneys for the tenants, argued that lawmakers, “could not have meant to eviscerate the very rent control they were enacting.” He also alleged that Mr. Giuliani was, “trying to achieve high-rent decontrol, but trying to achieve it in a statute that does not provide for it, by putting it into the legislative history.”

James McGuire, a lawyer for the landlords, called Lower Manhattan a residential “ghost town” in the 1990s, and said, “when the legislature enacted this program, they obviously hoped it was going to succeed, and a vibrant community was going to ensue. And it did succeed, probably beyond their wildest expectations.”

Citing rents thousands of dollars above the vacancy decontrol threshold of $2,700 per month, Mr. McGuire asked, “does it make any sense whatsoever to think that either house [of the State legislature] thought that people who were paying that kind of rent were deserving of the solicitude and the protections of the rent stabilization law?”

Court of Appeals judge Michael Garcia retorted, “but then why put that provision in at all?”

Mr. Smith noted that, “Mr. McGuire makes a, “come on, you don’t want any rent control for the rich” argument. What those arguments always forget is that if the law had been followed, if the rents were where they should be, the people in those buildings would be considerably less wealthy. You’d have more middle-class people in the buildings, because the rents would be lower, and that’s the whole point.”

Returning to Mr. McGuire’s point about the law’s primary intent being to encourage residential development, Janet DiFiore, the chief judge of the State’s Court of Appeals, asked, “so the purpose is revitalization?

Mr. McGuire answered, “yes, right, of this ghost town.”

Judge Jenny Rivera noted, skeptically, that, “one could seek to revitalize, and also to provide for affordable housing,” adding that, “revitalization, of course, could also mean having affordable housing, where you have a thriving community of tenants who live in that affordable housing. They’re not mutually exclusive.”

When Mr. McGuire tried to point to Mr. Giuliani’s filing as indicative of what the legislature had intended, Judge Leslie Stein asked rhetorically, “since when is the Mayor a part of the legislature?”

Judge Rivera then asked lawyers for both sides, “if the legislative history is completely at odds with the text, and the only sensical reading of the text, which do we choose between?”

Mr. Smith argued that, “the tie breaker is the text, Your Honor. You read the statute is how you figure it out.”

Judge Eugene Fahey seemed to agree, positing that, “we, as a court, always rely first and foremost on the language.”

On June 25, the Court of Appeals handed down its decision, finding (by a margin of six to one) that, “apartments located in buildings receiving tax benefits pursuant to 421-g are not subject to the luxury deregulation provisions of the Rent Stabilization Law.” The Court’s decision hinged both on a plain reading of the language in the 421-g statute, and a distinction between rent stabilization versus all the other provisions contained in the rent stabilization law. In effect, the judges found that the 421-g statue made the apartments created under this program subject only to rent stabilization itself, but not subject to other codicils within the law that governs it, such as vacancy decontrol.

Paul Newell: “That these apartments are no longer subject to ‘luxury’ decontrol means that thousands of Downtown families now have the security of knowing they can live here without fear of eviction or unconscionable rent increases.”

Mr. Newell, who helped lead the legal fight on behalf of 421-g tenants, added, “I am tremendously proud to have worked for over ten years to extend rent regulation to 421g tenants. But the largest credit goes to the champion of Lower Manhattan affordable housing, the late Tom Goodkind. Tom’s passing earlier this year was a huge loss to our community. So it is especially moving to see his legacy so affirmed and made permanent today.”

The late Tom Goodkind: “The revival in Lower Manhattan’s residential population has been primarily due to 421-g conversion from office to apartments in the Financial District. The ongoing problem of landlords receiving 421-g tax abatements but not giving our neighbors stabilization in return has always been abhorrent.”

Mr. Goodkind was a longtime member of Community Board 1, who served as the first chair of that panel’s Housing Committee, and fought relentlessly to preserve affordability protections in Lower Manhattan.

A few months before his death, Mr. Goodkind told the Broadsheet that, “the revival in Lower Manhattan’s residential population has been primarily due to 421-g conversion from office to apartments in the Financial District. The ongoing problem of landlords receiving 421-g tax abatements but not giving our neighbors stabilization in return has always been abhorrent.”