N.Y.C. Landlords Flout Rent Limits 2014 But Still Rake In Lucrative Tax Breaks

by Cezary Podkul and Marcelo Rochabrun ProPublica, Nov. 4, 2015, 4 a.m.

As gleaming new housing towers spring up around New York City, thousands of new rent-stabilized apartments are coming onto the market. And in return for following rent limits, developers get a share of $1 billion in property tax breaks handed out by the city.

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But while developers bank the tax savings, an examination by ProPublica found that some renters are getting overcharged as government officials fail to enforce rent limits and tenants fail to grasp whether they apply to newer apartments.

Julie Renwick recently learned she’s among the tenants who should be paying significantly less rent.

In February 2012, Renwick viewed a one-bedroom apartment at The Driggs, a sparkling new luxury building in Brooklyn’s Williamsburg neighborhood with a doorman, gym, rooftop deck and more. The owners of the building, The Rabsky Group, benefitted from a 93 percent reduction in property taxes this year, owing only $47,000 of what would otherwise be a $678,000 tax bill.

When Renwick visited the apartment, she was quoted a rent of $2,875 a month. She figured she could afford it and applied to become the first tenant.

That $2,875 should have been a crucial benchmark. Under the rent stabilization law that covers New York City, all subsequent increases must be calculated against that initial number. But when Renwick sat down to review the lease, she noticed something strange: The rent listed was $3,400 per month.

“What is the actual rent?” she asked.

Her broker said there was “nothing unusual” about the arrangement. He said the $3,400 was just a “legal” rent and meant the landlord could charge no more than that. The $2,875 2014 known as a “preferential” rent 2014 would be the amount she paid.

It looked like a good deal 2014 but not for long. The next year, when the city capped annual rent increases at 4 percent, The Driggs boosted Renwick’s rent 9 percent. More recently, the landlord raised her rent 7 percent even as the city held increases in stabilized units like hers to 1 percent.

Today, Renwick pays $3,350 per month, or nearly 17 percent more than when she moved in three years ago. That’s more than triple what the city allowed.

Renwick had no idea that high-end apartments like hers were subject to New York’s rent-stabilization laws 2014 a common misconception. So far, she has paid almost $6,000 more in rent than she legally should have, according to ProPublica’s estimate.

“I’m a smart, educated person, and to feel swindled by these people 2014 it’s embarrassing as well as maddening,” said Renwick.

The Rabsky Group 2014 which owns many other buildings in its home borough of Brooklyn 2014 did not respond to calls, emails and a hand-delivered letter. Rachel Munoz-Shivers, a lawyer for the group, declined to answer questions about leases at The Driggs.

There is little doubt that The Rabsky Group broke the law.

“It is unfortunate that in the case of The Driggs, the landlord has been able to get away with registering illegal rents,” New York City Public Advocate Letitia James said in response to a request by ProPublica to examine the building’s initial rent schedule and other records. “It is clear that this unscrupulous landlord is violating rent-stabilization laws.”

Just how many people have been overcharged like Renwick? No one can say for sure. That’s why ProPublica and WNYC are inviting New York City tenants to share their stories and help us find out what’s really happening under what has grown to become the city’s single-largest program to subsidize housing.

Abuse of preferential rents is “a huge issue,” said Sheila Garcia, a tenant representative on the city’s Rent Guidelines Board, which sets annual rent limits. “I can imagine that this is happening across the board, no matter what income you have.”

The tax-break program, known as 421-a, was set to expire in June, but lawmakers extended it for six months after a heated debate. Over the last decade, more than 2,600 apartment buildings with 39,000 rental units have received the exemption, according to city Department of Finance data.

Much of the criticism of the 421-a program focused on provisions requiring developers to set aside 20 percent of new units for affordable housing in certain high-priced parts of the city. Critics, including Mayor Bill de Blasio, argued that this was far too little when compared to the size of the tax break.

Little attention was paid to whether landlords have been meeting the law’s requirement to limit rent increases in buildings receiving 421-a tax benefits.

The rent-stabilization rules are clear on how Renwick’s increases should have been calculated. Because she was the first tenant, The Rabsky Group was required to apply the city’s annual caps to the rent “charged and paid.”

Once the original tenant moves out, however, the law allows landlords to raise the rent by as much as 20 percent 2014 and to set that as the new “legal” rent for stabilization. If it’s too high to attract renters, they may charge a lower “preferential” rent. But at that point the city’s limits apply to the higher “legal” rent 2014 not to a preferential rent, if one is offered.

The upshot: The protection afforded tenants from rent limits quickly fades, while the property owners can collect both higher rents and the lucrative tax breaks. Over time, the gap between legal and preferential rents can grow wide, allowing for big rent increases.

“This is really stabilized in name only,” Tom Waters, a housing policy analyst with the Community Service Society, said when ProPublica showed him a renewal lease with a $2,099 difference between the legal and preferential rents.

The enforcement of the rent laws is a bureaucratic tangle of state and city agencies that seldom coordinate efforts.

The state collects rent registrations from landlords, who are supposed to report both the legal and preferential rents for each apartment. Tenants and landlords can access their data, but the information is otherwise exempt from disclosure under New York’s Freedom of Information Law.

ProPublica’s requests for registration data were denied. Questionable rents at The Driggs came to light only because reporters found the building’s initial rent roll in court papers.

Tenants who’ve paid too much can get relief, although it may take a lawsuit.

In a recent case in the Bronx, a landlord reduced rents because of faulty registrations almost 25 years ago involving preferential rents. The move came after tenants sued. Had the landlord not acted, state law potentially entitled tenants to triple the overcharges.

As with The Driggs, the landlord was receiving annual 421-a property tax exemptions.

“The benefit they’re getting is because of the tenants,” said Emmanuel Yusuf, a longtime resident who helped organize the lawsuit, “and if they are not fulfilling that promise they made to the government, that’s totally unacceptable.”

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