By Cezary Podkul and Marcelo Rochabrun, ProPublica
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 — known as a “preferential” rent — would be the amount she paid.
It looked like a good deal — 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 — 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 — it’s embarrassing as well as maddening,” said Renwick.
The Rabsky Group — which owns many other buildings in its home borough of Brooklyn — 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 — 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 — 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.”
These days, 421-a buildings aren’t hard to spot. Virtually every tall, shiny, glass-covered doorman building in Manhattan receives tax reductions under 421-a, and it has spawned big, luxury apartment complexes in Long Island City in Queens and downtown Brooklyn.
In theory, landlords who fail to comply with rent stabilization rules can lose their tax benefits. But revocations are rare — they have happened only twice in the last three years, city officials said.
The city’s Department of Finance gives landlords their property tax breaks but lacks the authority to take them away. That power rests with the city’s Housing Preservation and Development Department (HPD), which has no jurisdiction over rent stabilization.
Primary oversight of rent stabilization rests with a state agency, the Division of Housing and Community Renewal (DHCR). The agency handles tenant complaints and collects data on rents that landlords must report each year, but it doesn’t check them for accuracy.
These rent histories, which list legal and preferential rents, come with a disclaimer: “DHCR does not attest to the truthfulness of the owner’s statements or the legality of the rents.” (Renters can get their apartment’s rent history. Click here to find out how).
“No one is really enforcing what’s happening,” said state Sen. Jesse Hamilton, a Brooklyn Democrat who says his district is rapidly losing rent-stabilized apartments because landlords are flouting the law in a variety of ways.
With no referee in the game, tenant groups are left to fill the gap.
“So much of what we deal with is simply enforcement of existing housing law,” said Daniel Moraff, an organizer at the Metropolitan Council on Housing, a tenants’ rights group. “The lives of tenants would improve immensely if the state would only do its job.”
The state’s DHCR did not respond to repeated emails, voicemails and phone calls about the agency’s enforcement of rent stabilization in buildings receiving 421-a tax breaks. A spokeswoman, Catie Marshall, would only say: “Talk to HPD. It’s their program.”
Had regulators been curious, rents at The Driggs might have raised concern from the start.
In housing court files, ProPublica found a schedule filed with DHCR listing initial rents for 112 apartments in The Driggs. Preferential rents were universal; the average discount from the stated legal rent was $686, a gap that created the potential for hundreds of thousands of dollars in rent overcharges building-wide.
The seven-story complex sits on a quiet corner in a neighborhood known for its mix of hipsters and wealthy professionals. Some residents told reporters their rents topped $6,000 a month.
Half a dozen initial tenants contacted by ProPublica were charged increases that exceeded the caps imposed by the Rent Guidelines Board, according to leases they provided or, in two cases, court records. Most asked not to be identified for fear of retaliation.
Leases provided by a second-floor tenant showed that he paid an 11 percent increase on his first renewal. The tenant said it would cost him more to take a week off to find a new apartment than to pay the $225-a-month increase — five times what the law allowed.
Earlier this year, though, he moved out rather than accept another increase that would have set his rent at 25 percent above the initial preferential rent.
“I definitely wondered,” he said about the increases. “But I lived in New York now for just about 16 years and have seen all kinds of weird, shady kind of things, and so I didn’t really know exactly how it worked.”
Another tenant — a real estate broker — moved out after a cumulative 14 percent rent hike over three years, more than double the applicable Rent Guidelines Board caps.
The woman said building employees told her when she moved in that The Driggs was a market-rate building not subject to rent limits. So she was surprised when her renewal lease said the apartment was rent-stabilized. “This landlord was being totally sketchy and trying to skirt the stabilization that they were given, in my opinion,” she said.
Renwick compared preferential rent to “a fake sale price. It’s like, ‘We’re going to mark it up and then give you a sale price that is wrong.'”
Renwick sensed something wasn’t quite right when she moved in. The Driggs asked her for six months’ rent upfront, comprised of four months’ security deposit and first and last months’ rent, totaling $17,250, she said. Landlords can’t charge more than one month’s security deposit in rent-stabilized apartments, nor can they charge the last month’s rent in advance. But Renwick didn’t know and paid up.
One day, an upstairs neighbor, Mark Burstiner, slipped a piece of paper underneath her door. Burstiner was in a dispute with the landlord over his lease and the fact that he had paid four months of rent upfront before moving in. He hoped to organize tenants around the issue of rent stabilization.
The Driggs sued Burstiner for withholding rent in the dispute. In late April 2013, Burstiner met with a senior executive from Rabsky Group to talk things over. Burstiner attempted to lay out his complaints, including that he wasn’t given a rent-stabilized lease.
“I’m standing up for my rights as a tenant in New York state,” Burstiner exclaimed in the session, which he recorded and posted later on YouTube.
“You may have rights and you have everything,” the executive shot back, “but the one thing you should know is I have more time and deeper pockets.”
When Burstiner said his steep security deposit broke the law, the executive said: “You know, a lot of people think they studied the law. They go online, they print it out. That’s bullshit. There’s a way to get through that. All you got to do is stay focused to the end — where I win and you lose.”
A housing court judge initially sided with Burstiner. But the landlord persuaded a second judge to reverse that decision. Burstiner settled, agreeing to pay $32,650 in back rent.
Burstiner has since moved out of the building and left New York. He hopes to move back someday but dreads that future landlords might consider the dispute a mark against him.
“How can we be expected to protect our rights if exercising our rights gets us banned from living in New York?” he said.
Tenants aren’t necessarily doomed to lose. Take the case of 1111 Gerard Avenue, an unassuming beige building just north of Yankee Stadium, with a sign out front that says, “Stop Illegal Rent Increase.”
The building’s initial owners were granted a 25-year property tax break under the 421-a program around 1991. Just like The Driggs, the landlord registered higher “legal” rents than the amounts actually charged and paid by the first tenants.
In interviews, several tenants shared rent histories listing initial legal rents of $703 per month versus the $407 in preferential rent they actually paid, a gap in today’s dollars of $517.
Diana Caudle has lived in the building since it opened. A single mother of three, she earns $1,600 a month at a day care center. Her last pay raise was three years ago, so Caudle was glad when the Rent Guidelines Board ordered a rent freeze for leases after Oct. 1. It was the first time in the board’s 46-year history that it ordered an increase of zero percent.
But not long after that decision last summer, Caudle said her landlord proposed raising her “preferential” rent by 10 percent, to $1,087 a month. She panicked. “My fear is becoming homeless,” Caudle said. “This is my fear every day.”
Then, in late September, Caudle got a surprising letter from her landlord: Her rent had been “recalculated based on the initial rent charged for your apartment back in 1991–92.”
Her new legal rent is $827 per month — $161 less than the preferential rent Caudle had been paying since November 2014.
Lawyers for the Legal Aid Society and Legal Services NYC had filed a lawsuit on the tenants’ behalf in August, prompting the landlord’s action. Edmund Witter, a lawyer for the tenants, said the case is in settlement talks and the landlord has begun refunding overcharges.
A lawyer for the landlord, Shree Ganesh Bronx LLC, owned by a Long Island doctor, declined to comment. The property’s 421-a tax break was worth $58,350 this year.
Caudle said she had no idea what a 421-a property tax break was. But if it means not being priced out of her apartment, she approves.
“Nobody should have to worry about something like that,” she said.
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