Several Astoria elected officials are backing Housing Rights Initiative (HRI)’s class action lawsuits against one Astoria landlord and two Brooklyn landlords they claim have abused the 421-a tax benefits program by illegally overcharging tenants an estimated $10 million.
HRI, a housing watchdog group, announced the three class action lawsuits during a virtual press conference on Wednesday, Jan. 27. The suit, filed by Newman Ferrara LLP, is in conjunction with the Housing Justice for All Coalition as well as several elected officials from across the city, including Astoria Senate Deputy Leader Michael Gianaris, Assemblyman Zohran Mamdani and Councilman Costa Constantinides.
HRI is suing the landlords of three buildings: David Lubinitsky for 12-15 Broadway in Astoria; Joseph Brunner and Abe Mandel, two of Brooklyn’s biggest landlords, for 1875 Atlantic Ave. in Bedford-Stuyvesant, and Heatherwood Luxury Rentals for 544 Union Ave. in Williamsburg.
HRI claims the landlords have illegally overcharged thousands of former and current tenants about $10 million in rent, while receiving more than $20 million in 421-a tax credits across 427 units of those three buildings.
“Based on our investigation […] it appears that the landlords in question engaged in a systematic rent concession scheme to dupe tenants and taxpayers out of their rent and tax dollars,” said Aaron Carr, founder and executive director of HRI.
421-a is a tax benefit program that landlords receive as-of-right for new construction of multi-family rental housing, HRI explained. As a condition of the benefit, most landlords are required to rent-stabilize 100 percent of their units.
Rent stabilization regulates the initial rent and subsequent rent increases of a rent-regulated unit. In a building receiving 421-a, the initial registered rent of the first occupant of a unit must be equal to the average monthly rent paid by the tenant (also known as the net effective rent). Every subsequent rent increase should be based on that amount, HRI noted.
HRI said that in the cases in question, the landlords gave tenants rent concessions, meaning that at least one month of rent was free. But when calculating the average rent, HRI alleges landlords purposefully didn’t take the concessions into account.
That would be legal for non-rent stabilized units — but in rent-stabilized units, HRI said it’s a “back-door method to illegally raise rents.”
HRI gave an example of how it works: “Say an apartment’s market-rate rent was $2,000, and the landlord gave a one month rent concession to the first tenant. When calculating the average rent, the landlord should have taken into account the free month. In other words, they should have multiplied the $2,000 rent by 11 months, and divided it by 12 months in order to account for the $0 month. That would have made the initial stabilized rent $1,833.33.
Instead, what this landlord did was multiply the $2,000 rent by 12 months, not taking into account the concession, making the initial stabilized rent $2,000 — which is wrong. The landlord then took further increases off that inflated figure.”
At 12-15 Broadway in Astoria, which has 214 apartment buildings, HRI estimates more than 1,000 former and current tenants have been defrauded since 2011.
HRI says they found 12-15 Broadway overcharged tenants by $5 million, while the property received $2 million annually in property taxes through the 421-a program.
Lubinitsky, the owner of 12-15 Broadway, could not be reached for comment by press time.
HRI says tenants who have been overcharged are entitled to “rent refunds, rent reductions, and properly rent stabilized leases by law.”
“As this case makes clear, the 421-a program is too often a tool for bad landlords to game the system and abuse tenants,” Gianaris said. “I am proud our Senate majority enacted the most aggressive tenant protections our state has ever seen but our work is not done, and this lawsuit will help our fight for more truly affordable housing.”
HRI, Housing Justice for All Coalition and lawmakers are calling on Gov. Andrew Cuomo and the Division of Homes and Community Renewal (HCR) to begin a full audit of the 421-a tax program “for fraudulent activities and improprieties.” They cited the city suspending the program for 1,788 landlords for non-compliance in 2018, while hundreds more receive the same violations.
Many of the lawmakers and housing advocates at Wednesday’s press conference want to end the program altogether.
Assemblyman Mamdani said “this is the year to end 421-a.”
“It’s a lie that’s been sold to us that it would incentivize affordable housing, and as is very clear by this press conference and the findings that we’re discussing today, it’s in fact, just something that incentivizes fraud,” Mamdani said. “This is crime. And for too long, we haven’t understood it as such. This is, in many ways, akin to wage theft. And these kinds of buildings, these kinds of developments, make our neighborhoods more unsafe, because they steal from our tenants and they steal from taxpayers across the state.”
Mamdani added that many of the newly elected officials like Brooklyn State Senator Jabari Brisport, who is also backing the lawsuit, ran on a platform to restructure the way development and housing works.
Carr said these new class action lawsuits are part of their “421-a crusade” that’s resulted in 10 class action lawsuits to date. Some of those lawsuits were brought against properties owned by Jared Kushner, Donald Trump’s son-in-law.
“My district has seen far too many abuses of rent stabilized tenants,” Constantinides said. “Unscrupulous types like disgraced presidential son-in-law Jared Kushner keep trying to game the system to take advantage of already suffering Queens residents. I applaud Housing Rights Initiative for fighting to hold these landlords accountable and will pledge to ensure that government does the same.”
Carr said the program, from a compliance perspective, “can best be described as a dumpster fire, inside of a larger dumpster fire, surrounded by 100 other dumpster fires.”
“The 421-a program cost taxpayers around $1.5 billion a year in forgone revenue, or the entire budget of Las Vegas. The 421-a tax program should be put back where it belongs: the bottom of the Hudson River,” Carr said. “It’s important to note that everyone is being screwed here: the tenants who are being defrauded and the taxpayers who are paying into these fraudulent schemes. Taxpayers are not only being forced to subsidize bad tax policy — they are being forced to subsidize tax fraud.”
Other elected officials backing the lawsuit include state Senators Brian Kavanagh, Chair of the Senate Housing Committee, and Julia Salazar; Assembly members Emily Gallagher and Linda B. Rosenthal; and City Councilman Stephen Levin.