Roberts v. Tishman Speyer Properties, L.P.

• Decision Date: 05 March 2009
• Docket Number: 4165.
• Parties: AMY L. ROBERTS et al., on Behalf of Themselves and All Others Similarly Situated, Appellants, v. TISHMAN SPEYER PROPERTIES, L.P., et al., Respondents.
• Court: New York Supreme Court — Appellate Division

62 A.D.3d 71

874 N.Y.S.2d 97

2009 NY Slip Op 01595

AMY L. ROBERTS et al., on Behalf of Themselves and All Others Similarly Situated, Appellants, v. TISHMAN SPEYER PROPERTIES, L.P., et al., Respondents.

4165.

Appellate Division of the Supreme Court of New York, First Department.

March 5, 2009.

Wolf Haldenstein Adler Freeman & Herz LLP, New York City (Alexander H. Schmidt, Daniel W. Krasner and Eric B. Levine of counsel), for Amy L. Roberts and others, appellants.

Bernstein Liebhard & Lifshitz, LLP, New York City (Robert J. Berg, Ronald J. Aranoff and Hanna R. Neier of counsel), for Margaret Carroll, appellant.

Skadden, Arps, Slate, Meagher & Flom LLP, New York City (Jay B. Kasner, Scott D. Musoff and Christopher R. Gette of counsel), and Belkin Burden Wenig & Goldman LLP, New York City (Sherwin Belkin and Magda Cruz of counsel), for Tishman Speyer Properties, L.P., and another, respondents.

Greenberg Traurig, LLP, New York City (Daniel J. Ansell and Steven Kirkpatrick of counsel), for Metropolitan Insurance and Annuity Company and another, respondents.

Borah, Goldstein, Altschuler Nahins & Goidel, P.C., New York City (Jeffrey R. Metz of counsel), for Community Housing Improvement Program, Inc., and another, amici curiae.

Rosenberg & Estis, P.C., New York City (Jeffrey Turkel of counsel), for Rent Stabilization Association of NYC, Inc., amicus curiae.

Steven Banks, The Legal Aid Society, New York City (Alan Canner of counsel), for Legal Aid Society, amicus curiae.

Jimmy Yan, New York City, for Office of the Manhattan Borough President, amicus curiae.

OPINION OF THE COURT

NARDELLI, J.

This appeal raises an issue of statutory construction regarding the luxury decontrol provisions of the Rent Stabilization Law (Administrative Code of City of NY §§ 26-504.1, 26-504.2) and, specifically, whether the motion court properly determined that the phrase "by virtue of" is equivalent in meaning to "solely by virtue of," thereby leading to the incongruous result of prohibiting landlords from decontrolling certain regulated units if they are subject to rent stabilization solely by virtue of New York City's J-51 tax abatement program (see Administrative Code § 11-243 [formerly § J51-2.5] [the J-51 program]) but, on the other hand, allowing landlords to decontrol the same category of units which are subject to rent stabilization for one or more reasons in addition to their participation in the J-51 program.

Overview

Plaintiffs, current and former tenants of apartments in the Peter Cooper Village/Stuyvesant Town Complex (the Complex), commenced this putative class action in January 2007, asserting that their apartments, which had been subject to the protections afforded by the Rent Stabilization Law (Administrative Code of City of NY, tit 26, ch 4), had been improperly deregulated. Two months prior to the commencement of this action, the Complex had been purchased, for approximately $5.4 billion, by defendant PCV ST Owner LP, the general partner of which is defendant Tishman Speyer Properties, L.P. (the Tishman defendants), from defendant Metropolitan Tower Life Insurance Company, the successor by merger to defendant Metropolitan Insurance and Annuity Company (the Met Life defendants).

The Complex was originally developed in the 1940s by Met Life with the laudable goal of providing affordable housing for middle-income families. The Complex, the largest of its kind in New York City, covers approximately 80 acres, or a full 10 city blocks, between First Avenue and Avenue C, and 14th Street and 23rd Street, and consists of 110 apartment buildings comprising 11,200 units, which house at least 20,000 people.

Met Life, in order to finance the development of the Complex, entered into an agreement with the City of New York pursuant to the New York Redevelopment Companies Law, which is now codified as article V of the Private Housing Finance Law. The agreement provided Met Life, inter alia, with considerable assistance in acquiring the designated land and necessary financing, and afforded it a real estate tax exemption for 25 years. In 1974, the New York State Legislature enacted an amendment to the Real Property Tax Law which provided that upon expiration of the 25-year tax exemption, real property taxes payable on the Complex would be phased in over a 10-year period, and, in connection therewith, the apartment units in the Complex would become subject to the New York City Rent Stabilization Law.

In 1992, Met Life applied for and began receiving property tax benefits under New York City's J-51 tax abatement program which provided incentives for owners to rehabilitate and improve their buildings. One of the caveats of the J-51 program was that the rent deregulation of residential units in buildings receiving J-51 abatements was prohibited. Met Life and the successor owners of the Complex have received approximately $24.5 million in real estate tax benefits since entering the program, and are scheduled to remain in the program, and to continue to receive additional tax abatements, until 2017.

Plaintiffs now allege that more than 25% of the Complex's units, or an estimated 3,000 apartments, have been illegally deregulated under the high-rent/high-income decontrol provisions of the Rent Stabilization Law, because those same provisions specifically prohibit deregulation during the period in which the owner is receiving J-51 tax benefits. Plaintiffs seek, inter alia, recovery of rent overcharges for the four years preceding commencement of the action, attorney's fees, and a judgment declaring that their apartments are subject to the Rent Stabilization Law and that all the apartments in the Complex will continue to be subject to rent stabilization for the duration of time in which defendants receive J-51 tax benefits.

Defendants maintain, among other things, that the prohibition against deregulation for apartments enrolled in the J-51 tax benefit program applies only to those apartments that are rent stabilized solely because of J-51, and that apartments that were already rent stabilized when they were enrolled in J-51 may be luxury decontrolled prior to the expiration of, and despite the fact that the owners are continuing to receive, tax benefits. In support of their argument, defendants rely on the New York State Division of Housing and Community Renewal's (DHCR) regulations, as well as DHCR Fact Sheet 36, together which stand for the proposition that the exception to luxury decontrol for properties receiving J-51 tax benefits only applies when an apartment is subject to rent stabilization "solely by virtue of" the receipt of J-51 tax abatements (see Rent Stabilization Code [9 NYCRR] § 2520.11 [f] [5] [i]; [s] [2] [i]).

Defendants, by separate notices of motion, subsequently moved to dismiss the complaint, pursuant to CPLR 3211 (a) (1) and (7),¹ on the basis of documentary evidence and for failure to state a cause of action. The motion court, by judgment entered August 23, 2007, granted the motions and dismissed the complaint. In doing so, the court adopted the DHCR's view that the term "by virtue of" means for "the sole reason" of and concluded that since the Complex became subject to "rent stabilization in 1974 pursuant to the [Private Housing Finance Law], 18 years before applying for J-51 tax benefits, defendants did not become subject to rent stabilization [solely] by virtue of receiving J-51 tax benefits" (2007 NY Slip Op 32639[U], *15, *11). The court, noting that the Legislature neglected to amend the statute after the DHCR promulgated its regulations, concluded that the Complex is therefore not exempt from the high-rent/high-income decontrol provisions of the Rent Stabilization Law, despite receiving J-51 tax abatements. We disagree and reverse.

The Statutory and Regulatory Framework

The New York State Legislature, in 1955, in an endeavor to improve and maintain the urban housing inventory, enacted the predecessor to Real Property Tax Law § 489, which authorized cities to promulgate local laws that would provide multiple dwelling owners with tax incentives to rehabilitate their properties or convert them to residential use. In accordance therewith, the City of New York, in 1960, adopted Administrative Code § J51-2.5 (now Administrative Code § 11-243), the objective of which was to "reward[] residential major capital improvement, moderate rehabilitation and conversion projects with real property tax exemption and abatement benefits" (Matter of 31171 Owners Corp. v New York City Dept. of Hous. Preserv. & Dev., 190 AD2d 441, 443 [1993]).

Administrative Code § 11-243 (i) (1)² provides that the benefits of the J-51 program are limited to the owners of buildings that are subject to rent stabilization, rent control or the Private Housing Finance Law. The Rules of the City of New York likewise require a building receiving J-51 benefits to be subject to rent regulation for the duration of the period in which such benefits are received (28 RCNY 5-03 [f] [1]).³ The Legislature, in 1985, amended RPTL 489 so as to allow rent regulation to continue after expiration of the J-51 benefits until the first vacancy thereafter, unless the lease contains a prominent notice informing the tenant that rent regulation will expire when the tax benefits expire, and the approximate date thereof (RPTL 489 [7] [b] [2], as amended by L 1985, ch 289, § 2; Administrative Code § 26-504 [c], as amended by L 1985, ch 288, § 7; see Matter of Bleecker St. Mgt. Co. v New York State Div. of Hous. & Community Renewal, 284 AD2d 174, 176 [2001], lv denied 97 NY2d 606 [2001]). Finally, the J-51 program is administered by the New York City Department of Housing Preservation and Development (HPD), which promulgates regulations to implement the program (id. at 175; see also Marosu Realty Corp. v Community Preserv. Corp., 26 AD3d 74 [2005]).

The Rent Stabilization Law (RSL) was enacted by the New York City Council in 1969 (see Administrative Code of...