Q & A on DHCR's J-51 Rent Registration Initiative
In January, Gov. Andrew Cuomo ordered owners who received J-51 tax benefits to re-register 50,000 units for rent protection. This followed New York courts’ decisions that any apartment subject to rent stabilization at the time that the J-51 benefits were received must register those units as rent stabilized. The order affected 4,149 buildings throughout the city; 1,986 in Manhattan, 859 in Brooklyn, 741 in Queens, 657 in the Bronx, and 16 on Staten Island.
The DHCR sent notices to the buildings’ 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.
Specifically, under the J-51 Rent Registration Initiative, owners of buildings currently receiving J-51 benefits, who have treated tenants as deregulated or who listed apartments as exempt based on high-rent vacancy, must re-register those apartments in the 2016 registration cycle, commencing April 1, 2016, and provide each tenant with a stabilized lease renewal offer, as required by the Rent Stabilization Code, prior to the expiration of his or her current lease.
Additionally, with respect to buildings where J-51 benefits have expired, if the tenant at the time J-51 benefits expired (or their legal successor) remains as the present tenant, those owners who have treated tenants as deregulated or who listed apartments as deregulated based on high-rent vacancy, must re-register those apartments and provide those tenants with a stabilized lease renewal offer prior to the expiration of the current lease.
If you are uncertain about your building’s J-51 tax benefit status, you can go to NYC.Gov to determine if the J-51 tax benefit is currently in effect and to determine when a previously expired benefit began and ended. Owners can obtain their building’s block and lot number at http://webapps.nyc.gov:8084/cics/fin2/find001i and then can inquire about the J-51 tax benefit status with regard to their building at http://webapps.nyc.gov:8084/cics/cwba/dfhwbtta/abhq.
In response to numerous questions that arose regarding how to comply with the notice, the DHCR recently issued FAQs to address some those concerns. The following are the DHCR’s answers that relate only to the J-51 Rent Registration Initiative.
Registrations for Prior Years
Q Are owners required to file registrations for previous years?
A Under the J-51 Rent Registration Initiative, owners are not currently being directed to file amended registrations for the prior registrations that indicated the deregulation event, nor are they being directed to amend the 2015 registration. Owners are also not being directed to file late registrations for missing years subsequent to the registration that indicated the deregulation event.
Nevertheless, late registrations for missing years will be accepted by the DHCR if they are submitted along with a copy of the J-51 Rent Registration notice that was received and an explanatory cover letter.
Q May owners file amended registrations for previous years?
A As registrations reflect the actual treatment of the unit and the rent charged for the relevant period, the DHCR will not be accepting amended registrations as part of this initiative, unless part of an order or directive issued by the DHCR, the courts, or another governmental agency that supervises housing accommodations. Such order or directive must include a complete rental history review by the issuing entity and a directive to refund any overcharges.
In calculating rent under this re-registration initiative, no additional penalties will be imposed by the DHCR for not amending past registrations. In cases where owners do not take advantage of this re-registration opportunity, the DHCR may pursue additional penalties.
Legal Rent Calculations and Overpayments
Q With respect to an apartment to be re-registered under the J-51 Rent Registration Initiative, how does an owner calculate the legal rent to be registered for the subject apartment?
A According to the DHCR, the law in this area is continuing to evolve. At this time, for the purpose of this initiative, the DHCR’s guidance is that an owner may calculate and register rent on a stabilized apartment that was improperly deregulated while subject to J-51 by:
- Identifying the rent stated in the most recent stabilized lease prior to the improper deregulation; then
- Identifying and adding to the rent, all subsequent vacancy and renewal leases and applying the appropriate statutory vacancy/longevity adjustments and guideline increases set by the New York City Rent Guidelines Board that were in effect at that time, as well as adding any other lawful and documented rent increases for Individual Apartment Improvements (IAIs) and/or Major Capital Improvement (MCI) rent increases. In calculating rent under this re-registration initiative, no additional penalties will be imposed by the DHCR for not amending past registrations.
If the rent resulting from these calculations is less than the rent being charged to the current tenant, the rent being charged should be adjusted to the calculated rent and registered. Appropriate refunds or credits should be given to the tenant for overpayments made in the past four years.
If the rent resulting from these calculations is more than the rent actually charged to the current tenant, the rent actually charged should be registered. The legal regulated rent to be registered cannot exceed the actual rent being paid by the tenant.
Unrelated to this initiative, as always, in cases where an independent fraudulent scheme to deregulate or willful overcharges exist, greater penalties may be imposed. The DHCR advises owners to retain all records and calculations used in arriving at the recalculation of the rent and rent overpayments.
Timing of Renewal Leases and Expiration of Benefit Period
Q When should an owner offer a DHCR renewal lease to the tenant?
A The DHCR renewal lease should be offered at least 90 days and not more than 150 days before the expiration of the lease currently in effect. Depending on the specific apartment situation, this may occur before or after the upcoming 2016 registration cycle.
Q With respect to the J-51 Rent Registration Initiative, are these units required to be rent regulated in perpetuity? Must owners register annually?
A The units should be registered as long as they receive J-51 benefits and until the first vacancy that occurs after the expiration of the J-51 tax benefits. If the building would not otherwise be subject to the Rent Stabilization Law but for the receipt of J-51 benefits, the owner must continue to register until the tenant in occupancy at the end of the benefit period vacates.
The expiration of the J-51 tax benefit period does not affect the status of apartments, which by other law, remain under rent regulation.
Challenges and Questions
Q What if the owner believes that the DHCR records were mistaken and that J-51 tax benefits were never received?
A The owner should submit a letter to the DHCR and attach a copy of the J-51 Rent Registration Initiative notice they received, along with any supporting documentation. Owners should keep a copy of the submission and supporting documentation, in the event they are asked to supply it in response to a tenant application or complaint, or for review by the DHCR in any instance.
To discuss generally the J-51 notice you’ve received, the DHCR recommends that you raise your concerns in an email and submit it to email@example.com.