A real-estate firm that received a $100 million tax break from Mayor Bill de Blasio’s administration in exchange for preserving affordable housing has allegedly overcharged rent-stabilized tenants across New York City, according to a lawsuit filed Tuesday.
The lawsuit, filed in state Supreme Court in Manhattan, accuses Douglas Eisenberg and his company, A&E Real Estate Holdings, of engaging in a “blatant attempt to circumvent” New York City’s rent regulations. The company fraudulently raised rents by artificially inflating the amount of money spent on improvements to the apartments, the lawsuit alleges.
“Left unchecked, this conduct will force countless tenants from their homes, and continue the demise of affordable rental housing in New York City,” according to the complaint.
Michele de Milly, a spokeswoman for A&E, said the company complies “fully with all laws” governing rent-regulated housing.
“We stand by our company’s proven ability to stabilize and improve multifamily housing that prior owners have allowed to fall into severe disrepair,” she said.
The lawsuit, which involves buildings in four of the city’s five boroughs, is one of the largest tenant lawsuits ever filed in New York City, according to housing-rights advocates. The attorneys are seeking class-action status.
Mr. Eisenberg, who co-organized a fundraiser for Mr. de Blasio’s 2013 campaign, has come to play a pivotal role in the mayor’s plan to preserve and build 200,000 units of affordable housing over 10 years. In December, A&E agreed to keep 975 apartments in Harlem’s Riverton Houses rent-stabilized for 30 years in exchange for $100 million worth of tax breaks and incentives.
The deal, which was approved by the City Council late last year, is among the single largest blocs of affordable housing preserved by the city since Mr. de Blasio, a Democrat, took office in 2014. The lawsuit doesn’t accuse the company of rent overcharges at Riverton Houses.
“These are serious allegations,” said Melissa Grace, a spokeswoman for the mayor.
Mr. de Blasio’s administration works closely with the state to protect tenants in rent-stabilized housing, Ms. Grace said, and the city is confident “our aggressive monitoring and enforcement” will prevent abuse.
The lawsuit involves 68 tenants in 22 buildings owned by A&E, which was founded by Mr. Eisenberg and John Arrillaga Jr., who is also named in the complaint.
The city’s Rent Guidelines Board, a panel appointed by the mayor, sets the allowable percentage increase for the city’s rent-stabilized apartments. Landlords can get higher rents if they invest money to improve apartments.
Tenants interviewed by The Wall Street Journal said A&E has raised their rents based on what their attorneys say are questionable costs for upgrades made to apartments.
John Rivera, a plaintiff in a one-bedroom apartment in the Jackson Heights neighborhood of Queens, alleged A&E is overcharging him based on what appears to be artificially inflated costs to upgrade his apartment. The improvements would have had to amount to tens of thousands of dollars to justify the rent increases, he said.
Mr. Rivera currently pays $1,485 in rent and has recently been offered a new lease at $1,614.
“It’s a small place,” said Mr. Rivera, a 45-year-old social worker whose apartment is rent stabilized. “If they made $30,000 in improvements it should look like the Taj Mahal and it doesn’t.”
In another A&E building in Jackson Heights, where plaintiff Mohammad Haque and his wife Lailatul Ferdouse pay $1,875 for the tidy, one bedroom apartment they share with their two young children, the money worries are constant.
“If it keeps going up like this, we’ll have to move,” said Mr. Haque, a taxi driver. “I’m not sure where we’ll go.”
Cynthia Allen, president of the Riverton Tenants Association, defended A&E as a good owner.
“I have absolutely no complaints,” she said. "And I would tell you if I did.”
Lucas A. Ferrara, an attorney representing the tenants in the lawsuit, said rent overcharges are often used across the city by landlords hoping to replace rent-stabilized apartments with market-rate ones. He said the tactic is made easier because the regulatory system for rent-stabilized apartments relies on tenants to contest rent increases.
“There’s a very simple way to maintain affordable housing. You don’t need any new rules,” Mr. Ferrara said. “Just enforce the ones that are already on the books.”
Joseph Strasburg, president of the Rent Stabilization Association, which represents 25,000 building owners and managers in rent-regulated buildings, said landlords follow strict rules set by the state when they apply for rent increases for improvements. They are required to provide canceled checks and bills, he said.
Aaron Carr of the Housing Rights Initiative, a nonprofit group whose investigation of A&E led to the lawsuit, said rent overcharges present a serious threat to the city’s affordable-housing stock.
“This is about a systematic effort to remove affordable apartments from rent regulation and raise rents in violation of our city and state laws,” Mr. Carr said.
Mr. Eisenberg co-hosted a fundraiser for Mr. de Blasio’s 2013 campaign for mayor in October of that year. Within days of the event, a dozen A&E employees donated. Mr. Arrillaga contributed $4,950, the maximum amount, to the mayor’s 2013 campaign.
—Josh Barbanel contributed to this article.
Write to Mara Gay at mara.gay@wsj.com
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