After Big Stuy Town Ruling, All Eyes on Appeal

On Thursday morning, Alexander Schmidt, a partner at Wolf Haldenstein Adler Freeman & Herz, received a phone call from an appellate court clerk. A decision was on its way about Roberts v. Tishman Speyer, the clerk said, a major rent-stabilization case in which Mr. Schmidt represented a group of tenants suing the mega-landlord of Stuyvesant Town/Peter Cooper Village, Tishman Speyer.

Minutes later a decision from the First Department of the state court’s appellate division appeared on the state’s Web site, overturning a lower court’s decision and handing Mr. Schmidt’s clients a momentous victory. At once, the decision sent shockwaves through the world of tenant advocates and landlords alike, as potentially tens of thousands of formerly rent-regulated apartments citywide could be re-regulated, and landlords would owe back pay that could total hundreds of millions of dollars.

Detailed implications of the case are not yet clear—nor is it clear how many apartments are affected—but in coming weeks, all eyes are certain to be fixated on the appeals process, as Tishman Speyer has said it will challenge the ruling.

“People are totally stunned by this determination,” said Joseph Strasburg, president of the Rent Stabilization Association, which represents landlords. “It is so huge in its impact, not just for Tishman Speyer, but for a whole host of other investors and builders in this city.

“This has tremendous ramifications.”

The 4-0 decision calls for all the Stuyvesant Town/Peter Cooper Village apartments that were taken out of rent stabilization to be put back into the program, with Tishman Speyer liable for back rent. With no hard numbers available, Mr. Schmidt estimates that there are more than 3,000 units that fall within this category, and he calculates that Tishman Speyer would owe in the ballpark of $200 million. Should the landlord indeed have to re-regulate its apartments, their financial troubles at the property would grow markedly, casting further doubt on their ability to afford their debt payments.

The case, which was dismissed in State Supreme Court by Justice Robert Lowe in August 2007, centered around whether landlords are able to take apartments out of rent stabilization at the same time that they are receiving benefits from the widely used renovation incentive program, J-51. That program grants landlords abatements or exemptions from property taxes if they improve their apartments. Typically, landlords are able to take properties out of rent stabilization when the apartments go vacant and landlords are able to charge more than $2,000 a month, regardless of apartment size. There are about one million rent-stabilized apartments in the city, though the number that receive J-51 benefits numbers in the tens of thousands.

At least until Thursday, the rules with rent stabilization and J-51 were complex.

For landlords with newer buildings that were not previously subject to rent regulations, they suddenly had to enter all their apartments into rent stabilization, and leave them stabilized for all the time in which they received the J-51 benefits. But any landlord that owned a building subject to rent stabilization (generally all rental buildings built before 1974, Stuyvesant Town/Cooper Village included) saw no changes to the rent-regulation rules when they entered the program, and could turn stabilized apartments into market-rate ones once they became vacant.

This led to a system in which landlords of the older buildings that received J-51 could deregulate their apartments when they became vacant, but the landlords in the newer buildings receiving J-51 could not.

Because Tishman Speyer’s apartments were already rent stabilized before they entered into J-51 in 1992, they proceeded to deregulate units that went vacant, a key part of their strategy to boost the income from the 11,000-apartment complexes.  

This system of rules for the incentives, the four-judge appeals panel found, “is to invite absurd and irrational results.”

Looking to the appeal, first Tishman Speyer must gain permission from the appellate court to petition the state’s top court, the Court of Appeals, which does not hear every case that applies. In a statement, Tishman Speyer said, “We remain firmly convinced that Justice Lowe’s decision to dismiss was the correct one.  We intend to continue to pursue all potential appeals and defenses.”