A.G. Shneiderman announces settlement in 421-a violation case

Attorney General Eric T. Schneiderman today announced that his office has reached a settlement with 47 East 34th Street (NY), LP, the owners of an apartment building located at 47 East 34th Street in Manhattan, to repay $4,446,153 in unpaid taxes due to the City under Section 421-a of the New York Real Property Tax Law and convert all 110 units of the building to rent-stabilized units. Prior to the Attorney General’s investigation, the building was operating as an illegal extended-stay hotel, which is not permitted under 421-a rules. The settlement brings the building into compliance with New York City’s 421-a program and ensures that tenants will receive rent-stabilized leases for the first time ever.

“I will not allow the 421-a tax exemption to line the pockets of the rich and powerful,” Attorney General Schneiderman said. “The 421-a program provides massive tax benefits to developers in exchange for permanent housing development, and I will continue to make sure that the prerequisites for receiving those benefits are enforced. I am pleased that this company has agreed to do the right thing by paying the City back taxes and offering more than 100 rent-stabilized leases to New Yorkers. My office will continue to crack down on illegal development that exacerbates the City’s severe affordable housing shortage.”

Section 421-a of the New York Real Property Tax Law grants valuable local property tax exemptions on certain new multi-family buildings. In order to qualify, Section 421-a requires that any project receiving the tax exemption be subject to local rent stabilization laws and in some cases requires them to either set aside a number of affordable housing units or pay service staff prevailing wages. Buildings that are owned as either a condominium or a cooperative are exempt from the rent regulation requirement. Buildings that are operated as hotels are not eligible for benefits under the 421-a program.

In the wake of the economic crisis of 2008 and its impact on the real estate market, the Attorney General has discovered that many sponsors of new condominium buildings chose to ride out the storm by illegally changing the use of their buildings from condominium to rental, or by converting to a hostel or hotel, while continuing to receive benefits under the 421-a program and failing to provide rent-stabilized leases, affordable units, and prevailing wages.

“The Attorney General’s aggressive action here is deeply appreciated,” said New York City Mayor Bill de Blasio. “We must protect the affordable housing we have, and ensure the resources we spend maximize the number of new affordable homes for New Yorkers in need. We won’t tolerate this kind of abuse.”

“I thank the Attorney General for his diligence on this case and for his continued partnership in our mission to protect the city’s housing stock and tenants,” said New York City Housing and Preservation Development (HPD) Commissioner Vicki Been. “Today’s announcement sends a clear message that building owners must comply with their legal obligations and will be held accountable when they fail to do so. This settlement will ensure that millions of dollars are recovered and put to good use funding affordable housing.”

“The tax benefits provided under the 421-a program are tied to the creation of new housing units for permanent residents, which our city sorely needs,” said Manhattan Borough President Gale A. Brewer. “When developers or landlords reap the reward of a massive 421-a tax break without providing housing units for actual permanent residents, they need to know they will be held accountable. I applaud Attorney General Schneiderman for sending that message today, loud and clear.”

“If 421-a tax benefits are given, it is essential, at a minimum, that tenants actually receive rent regulation status,” said Adriene Holder, attorney-in-charge in the Civil Practice Unit of The Legal Aid Society. “Thanks to the leadership of the Attorney General in uncovering this landlord fraud, tenants will be protected going forward and the tax benefits will be repaid.”

“It is unacceptable for a landlord to turn a tax-exempted affordable housing unit into a short term rental that commands higher profit margins,” said New York City Public Advocate Letitia James. “There is dire lack of affordable housing in New York City – tonight over 50,000 New Yorkers will have no place to call home. Meanwhile, building owners like this are unlawfully converting much-need affordable units into lucrative short-term businesses. I commend Attorney General Schneiderman for today’s settlement and his ongoing work to return affordable housing to New Yorkers.”

“Thank you, Attorney General Eric Schneiderman, for the investigation and pursuit of the owners of 47 East 34th Street,” said New York State Assemblymember Richard Gottfried. “Not only have these unscrupulous landlords illegally violated the tax law by fraudulently using a 421-a tax exemption, an incentive program which was created to help owners to build affordable housing, but they then used this building as an illegal hotel, a clear violation of the rent stabilization laws. Forcing these owners to pay a $4.5 million financial settlement and giving the tenants rent-stabilized leases is a great victory for all New Yorkers. We must double our efforts to end the abuses of 421-a and the proliferation of illegal hotels by passing stronger housing laws and by increasing enforcement and the penalties for violations of these laws.”

421-a was already brought under the microscope this month, when   The City Council launched a task force to study the efficacy of New York’s tax breaks.

The 11-member group, whose existence was first reported by Capital New York, is the latest example of a recent increase in public scrutiny over tax-abatement programs, including the 421-a program.

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