Landlords who have been cheating the 421-a tax credit program are on track to make some 1,823 apartments rent-stabilized after fraudulently listing them as condos. The Attorney General's Office announced that its campaign of investigation and cajoling got more than 100 building owners to agree to stop overcharging for apartments that were supposed to be condos under a version of the lucrative and controversial tax credit meant to promote home-ownership.
"Landlords of rental buildings who accept these tax incentives must follow through on their end of the bargain and offer rent-regulated leases to their tenants," Attorney General Eric Schneiderman said in a statement. "That's a central benefit of the 421-a law."
Explaining the ruse in an August press release, Schneiderman's office explained that the investigation targeted:
building owners where 421-a paperwork was previously filed with the Attorney General’s Real Estate Finance Bureau and [the Department of Housing Preservation and Development] indicating that the buildings would become condominiums, thus exempting them from having to register their units as rent regulated. In the aftermath of the market crash of 2008, rather than sell the units as condos as represented, these building owners rented them at market rents without registering them as rent regulated, as required by the law. The 421-a tax break is available to individual condo unit owners or rental building owners provided that those building owners register the units as rent regulated.
The state and city created a Real Estate Tax Compliance Program earlier this year that found 194 landlords were in violation of the 421-a tax credit requirements. Of those, 111 agreed to rectify the situation by registering their 1,415 combined apartments in the rent stabilization program and paying a total of $5 million in fines, to be directed into a city account earmarked for the creation of below-market-rate housing. It is not clear when the apartments will return to rent-stabilization, who will control the housing cash, or what specifically the money can be used for. The Attorney General's Office said that tenants in these 1,415 apartments have been notified of their rights to new leases.
Tenants who have been overcharged in rent-stabilized apartments can be entitled to triple damages, or three times the difference between what they should have been paying and what they paid. Prior to the 2015 push, made in partnership with the Governor's Office, the city Department of Housing Preservation and Development, and the state Division of Housing and Community Renewal, Schneiderman's investigators spent two years probing 421-a compliance and rustled up 18 other 421-a cheaters good for another 408 apartments restored to rent-stabilization.
One violator identified early was 47 East 34th Street, a 110-unit apartment building in Midtown that operated as an illegal hotel instead of a condo building, and 782 Hart Street in Bushwick, a 24-unit rental that appears to have at least belatedly begun the process of condo conversion.
The biggest reformed offender, according to Schneiderman's office, is Aron Kapelyus, a contractor and developer who they say owned 134 apartments in 10 buildings, mostly in Williamsburg and Bedford-Stuyvesant, through shell corporations. He ponied up $103,000 in settlement money. He did not immediately return a call for comment.
At 187 23rd Street in South Slope, Brooklyn, another purportedly affordable building where the owner settled with the state, a studio was listed for $2,250 a month until today.
Another 52 allegedly crooked landlords are unrepentant about screwing taxpayers and tenants, according to Schneiderman's office, and now they're being aired out. Together, these landlords control another 509 apartments that are being improperly kept out of rent stabilization, the attorney general says. In response, the city may revoke their 421-a status and force the owners to pay taxes, and the state's Tenant Protection Unit could bring overcharge complaints on behalf of affected renters.
A full list of the alleged bilkers is here.