Check Whether Your J-51 Building Is on DHCR 'Problem' List
The DHCR has recently posted a list of J-51 buildings with potentially problematic registration and deregulation issues.
The J-51 tax break program gives owners tax exemptions for carrying out rehabs and renovations of older, multi-dwelling buildings. Renovation work could include such projects as installing hot water, repairing the roof, and installing an elevator. As part of the deal, owners must ensure that all the units within the building are rent regulated for the duration of the tax break, which typically lasts between 14 to 34 years.
In many cases, however, owners had been flouting the rules dictated by the J-51 program and charging significantly higher rents to tenants. New York courts have ruled that any apartment subject to rent stabilization at the time that the J-51 benefits were received must register those units as rent stabilized. In 2016, Governor Andrew Cuomo launched the J-51 rent registration and rent-revision initiative to return 50,000 apartments back to rent regulation.
At the time, the DHCR sent notices to building owners who received J-51 subsidies between 1994 and 2015 and who registered their apartments as being exempt from rent regulation following a vacancy. That exemption allowed owners to charge higher rents and to raise them faster than would otherwise have been possible. The notices instructed owners to re-register and return to rent stabilization any apartments deregulated while the buildings received J-51 benefits.
The J-51 rent registration processing and legal challenges over illegal rent increases at J-51 buildings are not over. Recently, a judge signed an injunction against an owner of a J-51 complex in Queens that’s accused of illegally deregulating apartments. The owner had tried to evict two tenants improperly and as a result of those eviction notices now must screen all its future tenant communications with a state court. Any rent renewals the owner sends that fail to mention the lawsuit could lower tenants’ rent and even win them a settlement. The lawsuit claims that the complex received tax breaks under the J-51 program, which requires that owners keep their apartments rent stabilized. Despite this, the owner had leased out units at market-rate rents, failed to register apartments as rent stabilized with the state, and never provided tenants with rent-stabilized leases, according to the lawsuit.
In a continuing effort to bring J-51 buildings into compliance, the DHCR has posted the following lists:
- Buildings that that may be out of compliance due to failure to register in 2018 (https://hcr.ny.gov/system/files/documents/2019/03/j51buildingslist1.pdf);
- Buildings that may be out of compliance due to listing multiple apartments as permanently exempt from stabilization in 2018 (https://hcr.ny.gov/system/files/documents/2019/03/j51buildingslist2.pdf); and
- Buildings that may have been out of compliance at some point from 2012 to 2017 due to listing multiple apartments as permanently exempt from stabilization (https://hcr.ny.gov/system/files/documents/2019/03/j51buildingslist3.pdf).
According to the DHCR, while the lists were created in good faith, inaccuracies may exist due to limitations of the source information, discrepancies in building addresses/building identifiers, exemptions from stabilization or filing requirements, recent owner compliance, and other reasons. If you own a J-51 building, check to see if you are on any of these lists. If your building is listed and you believe your building is improperly listed as out of compliance, you can respond to the DHCR with a detailed explanation, in writing, by contacting the DHCR’s J51 Registration Enforcement Unit at 92-31 Union Hall Street, Jamaica, NY 11433 or by email at EnforcementUnit@nyshcr.org.
Failing to Register in 2018
The list of buildings that that may be out of compliance due to failure to register in 2018 was based in part on NYC Department of Finance records. Records further indicate that, with respect to 2018, the owners have failed to register the listed buildings with the DHCR as rent stabilized. To correct this, owners must register the identified building with the DHCR for the 2018 annual registration cycle, reflecting the rent-regulated status and reformed rent for each rental unit. Owners must include the new count of rent-stabilized apartments in the Registration Summary Form. And owners must register using the DHCR’s online filing system. The online filing system and the instructions can be found at www.nyshcr.org/Apps/RentReg/.
If you’ve already registered with the DHCR for the 2018 annual registration cycle, but improperly listed any apartments as exempt from rent stabilization, you must amend the 2018 DHCR registration to correct the status of those apartments, reflecting the rent-regulated status and reformed rent for all rental units. You must file your amended registration with the DHCR’s Rent Registration Unit located at 92-31 Union Hall Street, Jamaica, NY 11433. Instructions on amending a previously submitted registration can be found at: www.nyshcr.org/Apps/RentReg/RestrictionsOnFilingRegistrationAmendments.pdf and http://www.nyshcr.org/Apps/RentReg/Registration_Add-On.pdf.
It’s important to note that amendments for prior registration years won’t be accepted without a court order or a specific DHCR directive pertaining to your building.
In addition, a copy of the 2018 apartment registration form, indicating the proper registration status and reformed rent, must be served on the tenants of each unit. And prior to the expiration of the current lease, you must provide the tenant with a rent-stabilized lease renewal offer, reflecting the reformed rent, accompanied by required supporting documents.
Finally, rent for each apartment improperly treated as deregulated must be reformed (adjusted to comply with the rent stabilization laws). The reformed rent must be calculated in accordance with the law and can’t exceed the rent actually being paid by the tenant. Additionally, appropriate rent refunds must be made to tenants currently or previously overcharged, in the last four years, due to improper deregulation or improper rent calculation.
Listing Multiple Apartments as Permanently Exempt
The law requires that owners of buildings with J-51 tax benefits treat rental apartments in those buildings as rent stabilized and register those buildings and rental apartments with the DHCR. Rental apartments in buildings with J-51 tax benefits cannot be deregulated or permanently exempt from rent stabilization based on high rent or for any other reason. While there are limited exceptions to the stabilization/registration requirement, the exceptions are few.
J-51 buildings registered as rent stabilized but with multiple apartments in each building as being permanently exempt from rent stabilization are identified as out of compliance. To correct this, for buildings that have multiple apartments listed as permanently exempt from stabilization in 2018, owners are required to amend the 2018 DHCR registration to correct the status of those apartments, reflecting the rent-regulated status and reformed rent for all rental units. Include the new count of rent-stabilized apartments in the Registration Summary Form. File your amended registration with the DHCR’s Rent Registration Unit located at 92-31 Union Hall Street, Jamaica, NY 11433. Instructions on amending a previously submitted registration can be found at www.nyshcr.org/Apps/RentReg/RestrictionsOnFilingRegistrationAmendments.pdf and http://www.nyshcr.org/Apps/RentReg/Registration_Add-On.pdf.
Also, a copy of the 2018 apartment registration form, as amended, indicating the proper registration status and reformed rent must be served on the tenants of each unit. And prior to the expiration of the current lease, the owner must provide the tenant with a rent-stabilized lease renewal offer, reflecting the reformed rent, accompanied by required supporting documents.
In addition, rent for each apartment improperly treated as deregulated must be reformed (adjusted to comply with the rent stabilization laws). The reformed rent must be calculated in accordance with the law and can’t exceed the rent actually being paid by the tenant. Also, appropriate rent refunds must be made to tenants currently or previously overcharged, in the last four years, due to improper deregulation or improper rent calculation.