Appellate Division Overturns Lower Court Decision on Luxury Decontrol

logoRosenberg & Estis, P.C. Files Amicus Curiae Brief on Behalf of REBNY



Kuzmich et al. v 50 Murray Street Acquisition LLC
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In a big win for New York City residential property owners and developers, the Appellate Division, First Department has ruled that apartments in buildings receiving Real Property Tax Law (RPTL) § 421-g tax benefits can use luxury deregulation in the same manner as other rent-stabilized apartments.

Rosenberg & Estis, P.C. submitted an amicus curiae brief to the Appellate Division on behalf of the Real Estate Board of New York (REBNY), a trade association which acts on behalf of over 17,000 owners, builders, brokers, managers, and many other individuals and institutions involved in the New York State real estate industry. The firm's brief strongly advocated for the legal position ultimately adopted by the Appellate Division and provided valuable assistance to the Court in reaching its conclusion.

The Rosenberg & Estis, P.C. team that worked on the brief included Luise A. Barrack, managing member; Nicholas Kamillatos, member; Alexander Lycoyannis, member.

In 1995, then-Mayor Rudolph Giuliani proposed the Lower Manhattan Revitalization Plan (LMRP) as a way to reverse the decline of lower Manhattan. A key component of the LMRP - enacted later that same year - was the 421-g program, which provided tax benefits to owners of underutilized office buildings that converted either all or part of their buildings to residential apartments. The new law provided that apartments in 421-g buildings would be subject to rent stabilization -- including its luxury deregulation provisions.

However, many years after the program was enacted, a group of market-rent apartment tenants in 421-g buildings commenced an action claiming that their apartments had been wrongfully luxury deregulated, and, as a result, seeking, among other things, a judgment declaring their apartments to be subject to rent stabilization. A Supreme Court justice had granted the tenants summary judgment on their claims.

On January 18, however, the Appellate Division reversed Supreme Court's ruling and declared that the apartments had been properly deregulated and were not subject to rent stabilization. Rosenberg & Estis, P.C.'s amicus brief assisted the Court in reaching this holding in two important respects.

First, the tenants argued that certain language in the 421-g statute, viewed in isolation, prevented their apartments from being luxury deregulated. The amicus brief explained to the Appellate Division that while the luxury deregulation statute (Rent Stabilization Law [RSL] § 26-504.2[a], enacted in 1993) specifically exempted three classes of buildings from luxury deregulation, the Legislature did not add 421-g buildings to these enumerated exceptions when it enacted RPTL § 421-g a mere two years later - thus establishing that the Legislature intended for these buildings to be subject to luxury deregulation. The brief also detailed the relevant legislative history, which confirmed this conclusion. The Court understood and agreed with these arguments, holding that "421-g buildings are subject to the luxury decontrol provisions of [RSL] § 26-504.2(a). . ."

Second, the tenants argued that their apartments had been improperly deregulated because the initial rents after they were first constructed were above the deregulation threshold, as a result of which the owner - pursuant to administrative guidance - had always treated them as decontrolled. In other words, the tenants argued that in order to be deregulated, the apartments had to have first been regulated. Rosenberg & Estis's brief, however, established that the Court had recently rejected a similar argument and held that newly-created apartments with initial rents exceeding the statutory threshold qualify for high-rent deregulation. Again, the Court agreed with this argument, citing an even newer decision standing for the same proposition.

"In short, this decision means that owners of 421-g buildings may luxury deregulate apartments in the same manner and pursuant to the same rules that generally apply to rent-stabilized apartments," said Barrack. "The result is a clear win for the New York City real estate industry, and affirms that owners, developers, lenders and other investors should be able to rely on clear statutory language in making investment decisions regarding the New York City real estate market."