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Owners of four Brooklyn properties  -- located at 180 Franklin Ave., 670 Pacific St., 3052 Brighton First St., and 1209 Dekalb Ave. -- could end up paying millions of dollars for violating the requirements of a New York City tax-credit program.

Late last week, Newman Ferrara LLP filed class-action lawsuits against four property owners, contending that they violated the requirements of the 421-a tax abatement program, by charging their tenants artificially inflated rents.

The suits claim that these landlords offered rent-stabilized tenants "discounts" on their leases (often "waiving" one or two months rent), but failed to report that lower annualized sum as the “legal regulated rent.” By declaring the higher, non-discounted amount, landlords would then base rent increases off of that greater number.  [In exchange for a tax break under the 421-a program, all units in a building must be treated as rent stabilized. The program was changed in 2016, and many high-rent apartments no longer need to be regulated, as long as each building sets aside certain affordable units.]

By availing themselves of tax breaks, and by reporting falsely inflated rents to the Division of Housing and Community Renewal (DHCR), “[l]andlords are committing dual theft — on tenants and taxpayers,” according to Aaron Carr, executive director at Housing Rights Initiative, an organization that seeks to clampdown on dishonest New York City landlords. “They’re setting the initial rent at an inflated amount and now every subsequent increase will also be inflated,” said Carr. “What happened in the past is now screwing everyone in the future.”

And this type of “creative accounting” is not limited to these four properties, according to Newman Ferrara partner, Lucas A. Ferrara, who is also an adjunct professor at New York Law School. “We believe there are countless thousands of other tenants whose landlords have failed them and whose government has failed them,” noted Ferrara. These four properties are “just the tip of the iceberg,” he said.

Spotting this illegal practice is relatively easy, noted Roger Sachar, senior associate at Newman Ferrara. “You look at the DHCR registry, and then you look at the tenant’s first lease . . . That’s it.” With so many buildings advertising discounted, net-effective prices—especially in the wake of the pandemic where owners are desperate to sign or renew leases—Sachar urges rent-stabilized tenants to compare these reduced amounts with what’s listed on the apartment’s rent history, as registered with the DHCR.

Public Advocate Jumaane Williams criticized DHCR for its inaction, despite having access to all pertinent records. Williams believes that it is incumbent on the agency to enforce the law and ensure landlords’ compliance. “Time and time again, we see that leaving it to people to honestly report things doesn’t work,” he said.

But until that happens, Newman Ferrara is leading the charge to hold these and other bad actors to account.


Click here to read The City’s recent story on this issue.


If you (or someone you know) experienced a similar scam, please feel free to get in touch with one of our attorneys to find out if you have a possible overcharge claim.