Housing

How to Catch Your Landlord Cheating on Rents

A Flushing building owner applied for tax breaks for stabilized housing while charging market rents. Here’s what happened when tenants fought back.

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One stormy evening last summer, in a corner of a playground on Union Street in Flushing, a small crowd gathered. They were residents of 140-35 Franklin Avenue one block to the south, and they were there to hear Aaron Carr, a former state legislative aide who now runs the nonprofit Housing Rights Initiative, explain how their landlord had been swindling them out of hundreds of thousands of dollars in rent money.

Their building, a six-story apartment complex typical of this low-rise immigrant neighborhood, had turned up during a trawl by HRI staffers through city tax records, Carr explained. The building’s owner, Hewlett Associates, had filed with the state in July 2007 for a J-51 tax abatement, a rebate available to landlords who upgrade their buildings. By law, anyone getting J-51 money for a building must agree to keep it rent-regulated as long as it receives the tax break; Hewlett, however, had recently filed a property tax form with the New York City Department of Finance that casually listed its J-51 benefits while listing only 14 rent-stabilized units — in a building of 113 apartments.

“This is pretty heinous stuff,” explained Carr, who displays a perpetual air of good-natured exasperation. “They are not just cheating tenants. They are cheating on their taxes. I’ve never seen anything like this before.”

That’s saying something, because in New York City, tenants and their advocates have seen just about everything. Tales of landlords scamming tenants out of rent money they’re not entitled to are nothing new: As just one example, when investigators with the state’s Tenant Protection Unit performed audits of landlords who had raised rents on the grounds that they had conducted major renovations on their buildings or on individual apartments, they found that in 40 percent of cases, the building owners had no evidence that the work had actually been done. “When a tenant shows me a lease where there’s not fraud, that’s when I’m surprised,” Carr quipped to the playground crowd.

Carr and Legal Aid attorneys were in Flushing that day to collect evidence for a class-action suit on behalf of tenants, one of more than twenty such actions that HRI has organized since mid-2016. But once tenants started organizing, something not entirely expected happened: The building’s management company, Kaled Management — run by Ed Kalikow, one of the general partners of the family-owned Hewlett Associates, and the first cousin of real estate baron and former MTA chair and New York Post publisher Peter Kalikow — immediately offered to restabilize apartments and reimburse tenants for past overcharges.

It was a surprising, if welcome, outcome — even if Carr and tenants weren’t entirely convinced that Kaled was offering to make good on all that it had overcharged. (Tenants are still considering a class-action suit to seek additional rebates.) But it’s also a worrying sign that as New York State officials have shown little interest in enforcing rent laws, standard operating practice for many landlords is: Don’t obey the law until you get caught.

***

Flushing is best known these days as the home of Queens’s Chinatown, which has grown in recent years to compete with Sunset Park as the city’s largest Chinese enclave. But the neighborhood is actually among New York City’s more diverse, with Chinese, Spanish, Korean, Hindi, Urdu, and Russian all commonly heard on the streets; the tenants from 140-35 Franklin who turned out at the playground represented a United Nations of the pissed-off.

Tim McCarthy moved his family to a two-bedroom apartment at 140-35 Franklin — which, like many Queens addresses, bears an alias for its cross street, 42-52 Union Street, as well being dubbed the Trafalgar — from another nearby building in 2008. He says that when Carr first knocked on his door a few months ago and told him that his apartment was supposed to be rent-stabilized, “it completely threw me for a loop.” Shortly afterward, he and his neighbors were contacted by Legal Aid attorneys to work out a plan of action.

One of those neighbors was Sudesh Chohan, who has lived in the building since the mid-1980s. A year after he moved from one apartment to another in the building in 1989, he says, he started receiving leases with no rent stabilization included. (Other units at the building, Carr later discovered, were listed by Hewlett with the state as “exempt apartment — reg not required” as far back as 1987.)

At first, says Chohan, his landlord didn’t raise rents much; Flushing remained a largely low-rent neighborhood, and the market wouldn’t bear much more anyway. But in recent years, his rent started to creep up, ultimately to $1,475 a month for his one-bedroom junior four. He assumes that his landlords had spotted the area’s growing gentrification and grown dollars signs in their eyes: “The rents in the Flushing area are crazy,” he says.

Sudden jumps in rents as the result of increased demand are precisely what rent stabilization was meant to prevent when it was first established by the federal government in 1943, in response to wartime inflation. (The program was taken over by New York State in 1950, and has been revised several times since.) And though the city inserted some major loopholes under Rudy Giuliani in 1994 that would allow landlords to start charging market rents, particularly “vacancy decontrol,” which deregulated apartments that became vacant once their rents were $2,000 a month or more, none of the units at 140-35 Franklin are known to have ever approached that threshold.

And in any case, the building’s J-51 abatements should have doubly secured its rent-regulated status. J-51, first passed by the state legislature in 1955 to encourage landlords to install hot water in their buildings, has expanded to cost the city more than $250 million a year, as landlords can apply for rebates for up to 100 percent of the costs of certain approved renovation projects; in exchange, landlords must keep a building’s apartments rent-stabilized as long as they receive the tax break. And as a landmark 2009 case determined when Tishman Speyer tried to hike rents at Stuyvesant Town–Peter Cooper Village after getting $24.5 million in tax breaks, even vacancy decontrol couldn’t be used to get around this requirement: Once J-51 benefits kick in, the only way out of rent stabilization is to wait for the tax breaks to expire.

McCarthy, Chohan, and their neighbors should have all been protected several times over from sudden rent hikes. Instead, for nearly thirty years, the building’s residents received leases saying that they were not bound by any rent regulations at all.

“You’re thinking good will, that people are stating what it is, and they’re not willfully trying to deceive you,” says McCarthy. In a reasonable world, he says, “it’s not up to the tenants to find out whether they’re being cheated.”

***

The obvious question, then, is why the overcharges went unnoticed for almost three full decades. The apparent answer is that no one was looking, at least not at the state agency that is tasked with overseeing rent laws.

The ever-changing byzantine rules of city rent regulation are overseen by the state’s Division of Housing and Community Renewal (DHCR) — a consequence of the same dependence on state action for city rent laws that sees New York renters holding their breaths every few years to see if Albany will renew them. (The current law, last revised in 2015, is set to expire in 2019.)

While DHCR requires landlords to file documentation of which apartments remain rent-regulated each year, it has been widely criticized for doing little to actually check their work, leaving it up to building owners to report their buildings’ status honestly. As Carr likes to point out, the official DHCR rent histories that tenants can receive on request include a glaring disclaimer at the bottom: “DHCR does not attest to the truthfulness of the owner’s statements or the legality of the rents reported in this document.”

“The largest affordable housing program in New York City is based on an honor system,” he says.

As a result, while the Stuy Town ruling made headlines, it did not immediately change landlords’ treatment of tenants in J-51 buildings. Even when Governor Andrew Cuomo announced a crackdown in January 2016 on landlords who’d illegally deregulated J-51 buildings, this amounted to DHCR sending out letters to every building owner in the program (but, significantly, not their tenants) to remind them of the law’s requirements — and there was no penalty for ignoring the letter. As a result, a ProPublica investigation later that year revealed, only about 22,500 apartments in J-51 buildings were returned to the rolls, far short of the 50,000 units that Cuomo had promised. (DHCR says that an additional 1,580 units were returned to the rolls earlier this year.)

Kaled was apparently one landlord that ignored the Cuomo letter. A company press spokesperson did not answer a direct query as to why the building remained unregulated even after January 2016, forwarding only this statement from Ed Kalikow: “After spending several months reviewing court challenges to the law and thoroughly reviewing and analyzing tenant rental histories at the Trafalgar, we acted quickly to refund the residents who were inadvertently overcharged for their rent, plus statutory interest. Making residents financially whole was not only legally compliant, but it was the right thing to do. We continue to monitor the frequent changes to the rent stabilization laws to protect the rights of residents who make the buildings we manage their home.”*

Judith Goldiner, a longtime Legal Aid lawyer who serves as supervising attorney for the organization’s Law Reform Unit, says, “There’s just been absolutely zero oversight by the city or the state for a very long time, and so I’m not surprised we’re seeing this kind of case. This is a particularly blatant one, but we see so many of these kinds of cases that it’s pretty appalling — but not shocking.”

Carr left State Assembly Member Michael Blake’s office, where he had served as chief of staff, in early 2016 in part because he was tired of hearing so many stories from Bronx tenants who were facing unwarranted overcharges, and wanted to do something about it. After launching HRI, he set out to scour public records to find evidence of buildings where landlords looked to be bilking the system, even if tenants weren’t yet aware of it. In the case of the Flushing building, all it took was flipping through city tax records and looking for filings that revealed tax abatements for rent-regulated housing in buildings where the number of rent-stabilized units didn’t match the total number of apartments. “That’s the sad thing,” says Carr. “You can train junior high students to do this.”

Housing experts have long complained that DHCR is a do-nothing agency, something they attribute to both bureaucratic mismanagement and a lack of sufficient funding for enforcement. (Landlords learn to “just fill out anything as dishonestly or honestly as you choose, because no one’s ever going to look at it to cross-check you unless there’s a tenant complaint,” State Senator Liz Krueger told the Voice in 2016.) In response to such complaints, Governor Cuomo had the agency set up a Tenant Protection Unit in 2012 — only to have it beset by similar problems with funding that have left it with only about 25 staffers to cover all of New York City.

Asked about its enforcement of rent laws, a DHCR spokesperson responded via email: “Our goal is always to ensure that all rental apartments are correctly registered and that tenants enjoy the rights and privileges that rent regulation laws confer. New York State has zero tolerance for landlords who benefit from this city-administered tax abatement program and flaunt [sic] the law by denying tenants their right to rent regulated housing.”

Landlords who don’t comply, DHCR said, “will be subject to the full range of measures available to the Office of Rent Administration.” The agency says it opened formal proceedings to restore about 2,150 units to rent regulation last year — ultimately assessing a total of about $4,000 in penalties.

“I think that the TPU does everything they can do,” says Goldiner. “They are people of good faith, and they are trying the best they can with a very, very limited staff. I think there is a lot of resistance outside the TPU at the agency to forcing landlords to comply. I asked them on numerous occasions for the list of landlords who agreed to come into compliance with the rent laws so we can reach out to the tenants in those buildings, and they won’t give us that information.”

Carr minces fewer words about DHCR’s inaction. “I think there’s an important distinction to be made between a failure to notice something and a failure to care about something,” he says. “DHCR knows exactly which landlords are receiving tax benefits, and which are cheating. They’re just using a hands-off enforcement approach.”

“The attorney general’s office is really remiss in not going after these bad actors,” adds Goldiner. The problem ultimately comes down to political will, she says — and the money that sways it. “Look where the landlords’ money is going,” she says. “Follow campaign donations and you’ll see why we don’t have better enforcement.”

***

The good news from the tale of 140-35 Franklin is that it shows when tenants push back against egregious violations of rent laws, landlords will often back down. “After the second or third meeting, I got an immediate check with a ‘no hard feelings’ kind of letter,” says McCarthy. “I was surprised, because generally they’re so stingy with money.”

In addition to his rent rebate check, McCarthy received a $260-a-month rent reduction off his $1,700-a-month rent, though he thinks he could be entitled to more, if the landlord was already charging an illegally high rent when he moved in. Chohan, who had been on the verge of going on a hunt for a new apartment he could afford, will instead stay put after receiving a $217 rent decrease and $6,000 in a lump-sum check.

“He was afraid,” Goldiner concludes of Kalikow. “Once he saw the tenants were getting lawyers and getting organized, he realized he didn’t have a leg to stand on.”

The less-good news is that, in a system where it’s left entirely up to tenants to discover they’re being screwed over and then figure out how to report them, it requires a handful of nonprofit staff to page through tax filings in order to find which buildings are flouting the law — and then overworked legal aid attorneys to file court cases to bring landlords to the table.

Carr says that when sued, landlords typically restabilize the units — and then “litigate over what the rent refunds and rent reductions should be.” He notes that the J-51 program prohibits setting an apartment’s legal rent at more than what its tenants are actually paying — so-called preferential rents. If landlords can duck out of enforcement of this provision via a quick settlement with tenants, they can quickly jack up rents once residents move out, even if the building is back on the rent regulation rolls.

“There’s a lot of landlords that are probably taking advantage of this J-51 tax abatement,” says McCarthy. Step one for concerned tenants, he advises, is to order your rental history from DHCR to begin to track the building’s record of legally registered rents. “Beyond that, contact Aaron or people like Aaron” to get help with researching possible violations. (HRI holds neighborhood meetings to train tenants in how to investigate landlords’ rental histories.)

“This is egregious, and I really hate the fact that you have to fight so hard to battle something that seems so plainly an example of injustice,” McCarthy adds. “They’re going to continue doing it until they’re caught — and then if they’re caught, they just get a slap on the wrist. People in my building have been cheated for forty years. And it’s going to take thirty years to find out that you’ve been doing something wrong?”

It’s an exasperation shared by Carr, but he also shares the hope that tenants can begin to take advantage of publicly available data — and public-interest lawyers — to start reversing that trend. As he instructed in his parting words to the assembled tenants in the playground last summer: “Talk to your neighbors. Turn this into a beautiful thing.”

*UPDATE: A Kaled spokesperson wrote in after publication of this article to say that the building owner did not ignore the DHCR letter to landlords who received J-51 benefits, but that it took a year and a half to conduct a review of the company’s properties. 

Ed Kalikow wrote in an accompanying email, “As we stated in our comment in the story, Kaled had already been engaged in a complex accounting of all buildings we manage after receiving notification from the state in January 2016. Once that review was complete, we moved quickly to refund overpaid rent plus statutory interest and adjusted the rents in every applicable case.” He concluded: “We work continually with our tenants to make sure the rents are charged accurately and within the letter of the law.”

 

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