Bank Street case reveals threat to a million tenants

Volume 2, Number 18 | The Weekly Newspaper of Chelsea | February 1 - 7, 2008

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Chelsea Now photos by Jefferson Siegel

Among the multitude of J-51 complexes throughout the city, several are located in Chelsea, including buildings at 225 W. 23rd St. (above) and 231 W. 25th St.

Bank Street case reveals threat to a million tenants

By Chris Lombardi

Last week, residents of One Bank Street met at the office of State Sen.Thomas Duane hoping for good news in their fight to avoid eviction. What they actually heard was that due to some recent court decisions, neither the city or state agencies charged with protecting tenants’ rights was willing to tell their landlord he was prohibited from evicting his tenants while receiving tax benefits to upgrade the building.

When Duane’s office convened the meeting, he and the tenants thought that the Department of Housing Preservation and Development and the New York State Division of Housing and Community Renewal would agree to tell the owner of One Bank Street, Lucky Bhalla, that because he receives substantial tax benefits under the popular J-51 program, he is required by law to renew their leases. The answer they got instead was the equivalent of this single reply: You’d better hire a lawyer.

For nearly 60 years, the J-51 program has rewarded tax breaks to owners of multiple dwellings who upgrade their buildings while protecting their tenants from sharp rent increases, even if their apartments were otherwise deregulated. When the City Council and Mayor Bloomberg agreed in December to extend J-51 until December 2011, City Council Speaker Christine Quinn said that the measure would “maintain the quality of affordable housing by reducing potential rent increases for tenants, [and] will help preserve existing housing and neighborhood character by encouraging building owners to make improvements to their property.”

But after the two court rulings last summer, neither HPD nor DHCR were willing to take action to prevent evictions at Bank Street—or take public positions at all on the extent of J-51 tenant protections.

Now, as Duane, Quinn and other local officials explore the implications of this dispute—given the hundreds of thousands of tenants living in buildings currently under J-51—the Bank Street tenants feel betrayed by their own government.

Walking away from your own program

The tenants at One Bank Street, many with active eviction notices, have been working since October to stop Marolda Properties and Bhalla from turning their building into a hotel for short-term, transient visitors. When Duane’s office discovered that Bhalla had five years left to go before his tax abatement under J-51 expired, they thought they had discovered short-term reprieve. In December, Marolda Properties ignored a letter from Duane’s office informing them of this fact, telling the Village Voice that they saw no need to act “until a tenant contacts us.”

Duane then convened the Jan. 18 meeting to bring the tenants together with officials from HPD, which administers J-51, and DHCR, which enforces its tenant provisions.

According to Duane’s office, both agencies brought lawyers: HPD’s Barbara Flynn, commissioner Shaun Donovan’s chief of staff, came with an army of attorneys including legal chief Matthew Shafit. Leslie Torres, DHCR deputy commissioner for rent regulation, brought managing attorney Sheldon Melnitsky. With the residents was tenant attorney Seth Miller, who himself was counsel for DHCR in the late 1980s before forming his own firm.

Duane asked both commissioners to intervene on the tenants’ behalf, starting with ordering a stay of any eviction proceedings. Miller, who is currently representing a different group of tenants in a J-51 lawsuit, asked if the agencies would file legal papers that affirmed what he sees as a simple fact: that in order to receive J-51 tax breaks, landlords were required to leave their tenants alone.

But Flynn, Torres and their attorneys spent the next hour telling Duane, Miller and the tenants that they could do no such thing. They had to instead wait for the outcome of two lawsuits currently making their way through the courts, in which judges have offered clearly distinct opinions on the reach, scope and even purpose of the massive J-51 program.

First offered in 1955 to help with postwar recovery, the J-51 Tax Incentive Program offers property owners both tax-abatement and tax-exemption benefits if they upgrade and renovate their buildings, while also regulating how much of the cost of the improvements can be passed on to tenants. Many of these buildings have been rent stabilized or participate in other forms of rent regulation, such as the 421-a tax abatement or the Mitchell-Lama program.

The only affordable housing program, sometimes

In each of the years since the program started, according to HPD’s own estimates, between 70,000 and 100,000 units have been renovated with help from J-51. That number rose sharply in recent years: In Fiscal Year 2007, the program gave out 14,479 exemptions and 143,438 abatements, for a total of $910 million and 739,674 apartments.

All along, J-51 has been seen as a way to keep rents affordable, from 1980s legislators calling J-51 “Koch’s only affordable housing program,” to Mayor Bloomberg’s comments as he signed the 2007 J-51 extension: “Adoption of this law will lead to more housing production, including the affordable housing that we so desperately need.”

In July 2007, as the federal government held hearings about the Brooklyn Mitchell-Lama complex Starrett City, HPD Commissioner Shaun Donovan told Congress that J-51 benefits received by the complex’s owner “requires [the apartments] to remain at affordable Mitchell-Lama rents or under rent stabilization.” Yet as Donovan was speaking, two state Supreme Court cases questioned that very statement. The case of Roberts v. Tishman/Speyer, a class-action suit brought by tenants at Stuyvesant Town who sought to have rent increases blocked due to the owner’s extensive J-51 benefits, came to the court of state Supreme Court Judge Richard B. Lowe. Meanwhile, Judge Marcy Friedman was hearing a similar case, Diaz v. Independence Plaza Associates, brought by attorney Seth Miller on behalf of the tenant association at the former Mitchell-Lama complex in Tribeca. The resulting decisions were mirror images of each other.

In August Judge Lowe, quoting 1993 and 2001 vacancy decontrol legislation and a Pataki-era opinion from DHCR, dismissed the Tishman case, ruling that J-51 could not regulate units otherwise subject to “luxury decontrol.” In September Judge Friedman disagreed, saying, as she refused to dismiss the Diaz case, “[The law] requires a building receiving J-51 benefits to be subject to rent regulation.”

Now, as the Diaz case moves on to a full hearing, the Roberts case is under appeal to the state’s appellate division. Given the billions of dollars paid by Tishman to MetLife for the two complexes, sources in Duane’s office expect that whatever the appellate court says, the Roberts case will be resolved only in New York’s highest court—the Court of Appeals—a process that could take years.

Until Jan. 18, neither Duane nor the Bank Street tenants were aware that the agencies felt limited by these court decisions. “It was kind of remarkable,” said Duane aide Colin Casey. “Two powerful agencies telling us that their hands are tied until the courts decide.”

At issue is the meaning of the regulations, which were written to enforce New York’s rent laws and mention units being regulated “by virtue of receiving tax benefits” like J-51. They imply that such units become deregulated after rent reaches $2,000. To Seth Miller, the ambiguous “by virtue of” language is deceptive since the most recent actual law states that all apartments except J-51 have such a $2,000 threshold.

“The statutes are crystal clear on this subject: They speak in harmony,” said Miller. “That regulation contradicts statutory language—what the law actually says.”

But Roberts case judge Lowe and others point to an opinion memo issued by DHCR under former Governor George Pataki, which stated that “high rent regulation” mandated in other contexts did not apply to J-51. DHCR’s staff told Duane and the tenants that the previous opinion made it even harder for them to act until the Court of Appeals makes its decision. “How can we tell the judge what to do?” one member of DHCR’s staff asked.

Seth Miller told HPD’s Shafit and DHCR’s Melnitsky that they could file an amicus brief in both cases on the side of the tenants, confirming what both agencies had been enforcing routinely for years. And Duane asked the agencies to consider advocating on behalf of the Bank Street tenants, at the very least acting to block eviction proceedings until the cases are resolved. After much whispered consultation, according to Casey, both Flynn and Torres said they would bring it to their commissioners.

This could get really big, really fast

This week, Duane’s HPD contacts told him they still didn’t feel free to do anything until the court cases are resolved. There’s also no word yet on whether DHCR will step in. (By press time, press relations at both agencies had declined to comment for this story.)

Casey said that he understands that DHCR is already working hard to undo other Pataki legacies. “I know they’re working on phony demolitions and harassment, and a host of other issues. But these court cases take time—and meanwhile, these Bank Street tenants all have eviction proceedings scheduled now.” Casey also noted that with a million-plus tenants living in J-51 buildings, “this could get really big, really fast.”

When Chelsea Now asked the office of Speaker Quinn, who represents the Bank Street tenants (and whose district includes scores of J-51 buildings), about the J-51 dispute and its implications for affordable housing, one source said confidentially that they were currently agonizing not about whether to respond, but how. After a few days, Quinn spokesperson Andrew Doba offered an official response: “We are considering our options, but obviously any litigation that can so drastically diminish our stock of affordable housing is of great concern to the Speaker.”

In the meantime, Casey is going one by one to housing court, accompanying Bank Street tenants like Albert Wilking, who spoke to Chelsea Now last October. But others are quietly preparing to give up, saying that they lack the funds to hire a firm like Miller’s—whose initial retainer estimate was for $25,000—to try to hold Bhalla accountable on their own. One e-mail to Chelsea Now described their dilemma:

“Either spend many thousands of dollars to retain legal teams for an unspecified period of time, for an impossible to predict outcome in order to clarify the city’s laws,” wrote one tenant, “or simply choose to admit that we have been victimized by a criminal landlord who is supported by intentionally ambiguous city regulations, and vacate as directed.”