Court Says Ban on J-51 Deregulation Is Retroactive

A state appeals court ruling on Aug. 18 may open the way for illegally deregulated tenants to get rent reductions and back rent if their landlords were getting J-51 tax benefits.

The ruling extends the 2009 Roberts v. Tishman Speyer case, in which the Court of Appeals, the state’s highest court, held that apartments in Stuyvesant Town/Peter Cooper Village could not be deregulated because the owners had received J-51 tax breaks specifically intended to help landlords improve rent-stabilized apartments. The Appellate Division, First Department held that the ban on rent overcharges applies retroactively. That could mean that affected tenants throughout the city will get their rent reduced and be reimbursed for the overcharges they paid.

 “The impact of retroactive application of Roberts would be to protect, where applicable, tenants from rent increases in excess of those allowed by the RSL [rent stabilization law],” Judge Dianne Renwick wrote in the court’s opinion. “A contrary ruling would allow landlords throughout the city to collect rent in excess of those allowed by the RSL based upon a faulty statutory interpretation.”

The Real Deal, a real-estate newspaper, said the decision “could open the floodgates to millions of dollars in rent overcharges at other developments.” The landlords in the case, with Rent Guidelines Board owner representative Magda Cruz as their lawyer, argued that Roberts should apply “prospectively”—that is, tenants whose apartments were illegally deregulated before the decision should not be entitled to rent reductions or reimbursement.

The tenants who filed the suit, Bernard Gersten and Cora Cahan Gersten, actually lost their case, but on different grounds. Their Greenwich Village apartment was deregulated in 1999, after they’d been living there for 31 years. The couple made more than $175,000 a year, and their rent was over $2,000 a month, so they exceeded the threshold for high-income deregulation. However, they did not challenge that deregulation until December 2009, after the Roberts decision. The Appellate Division upheld a lower-court ruling that they had waited too long. The building received J-51 benefits from 1990 to 2009, so the court said the Gerstens could have raised the J-51 issue themselves.

Still, Sam Himmelstein, the Gerstens’ attorney, hailed the ruling. “The Court of Appeals, when they decided Roberts, specifically left open the question of retroactivity,” he told The Real Deal. “Landlords have been making motions to dismiss these cases saying that it shouldn’t be applied retroactively. Even though we lost the case, it’s a massive victory for tenants at large.”

Several other lawsuits based on Roberts are pending, including a challenge to rent overcharges at London Terrace in Chelsea and Stuy Town/Peter Cooper tenants’ attempt to get reimbursed.

“The Appellate Division must still make it official in the Roberts case itself, but yesterday’s important decision gets us very close,” City Councilmember Daniel Garodnick, who represents the Stuy Town/Peter Cooper area, said in a statement Aug. 19. “It will add great weight to the damage claims of residents whose apartments should never have left rent stabilization. We hope and expect it will bring the parties closer to resolution in the Roberts case itself, so that the tenants can finally get the appropriate compensation for their landlords’ years of overcharges.”