Pcdocs #402649 V1 Brief Amicus Curiae

COURT OF APPEALS STATE OF NEW YORK –––––––––––––––––––––––––––– AMY L. ROBERTS, THOMAS I. SHAMY, DAVID AND ANNMARIE HUNTER, MARGARET CARROLL, KELLEY AND TONY LANNI, EVAN HORISK, and BETH ROSNER GIOKAS, on behalf of themselves and all others similarly situated,

X : : : : : : Plaintiffs-Respondents, : : -against: : TISHMAN SPEYER PROPERTIES, L.P., : PCV ST OWNER LP, METROPOLITAN : INSURANCE AND ANNUITY COMPANY, and : METROPOLITAN TOWER LIFE INSURANCE : COMPANY, : : Defendants-Appellants. : : –––––––––––––––––––––––––––– X

Index No. 100956/07

BRIEF OF AMICUS CURIAE RENT STABILIZATION ASSOCIATION OF NYC, INC. IN SUPPORT OF THE APPEALS

ROSENBERG & ESTIS, P.C. Counsel for Amicus Curiae Rent Stabilization Association of NYC, Inc. 733 Third Avenue New York, New York 10017 (212) 867-6000 JEFFREY TURKEL NICHOLAS KAMILLATOS Of Counsel

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TABLE OF CONTENTS Page BRIEF OF AMICUS CURIAE RENT STABILIZATION ASSOCIATION OF NYC, INC. IN SUPPORT OF THE APPEALS...................................1 BRIEF OF AMICUS CURIAE RENT STABILIZATION ASSOCIATION OF NYC, INC. IN SUPPORT OF THE APPEALS...................................1 PRELIMINARY STATEMENT...........................................................1 PRELIMINARY STATEMENT...........................................................1 INTEREST OF AMICUS....................................................................2 INTEREST OF AMICUS....................................................................2 CORPORATE DISCLOSURE STATEMENT.....................................3 CORPORATE DISCLOSURE STATEMENT.....................................3 POINT I RSL § 26-504(c) DOES NOT APPLY TO APARTMENTS THAT ORIGINALLY BECAME SUBJECT TO STABILIZATION FOR REASONS OTHER THAN RECEIVING J-51 BENEFITS, BUT WHICH THEREAFTER RECEIVED SUCH BENEFITS, AND DOES NOT BAR LUXURY DEREGULATION UNDER RSL §§ 26-504.1 AND 26504.2.................................................................................4 A. The J-51 Dichotomy..............................................................7 1. Substantial Rehabilitations...........................................8 2. Improvements and Repairs...........................................9

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B. The City Rent Laws, Since Their Inception in 1962, have Distinguished Between J-51 Regulated Apartments and Otherwise Regulated Apartments.........11 1. The J-51 Statute and Rent Regulation........................11 a. 1955: The State J-51 Enabling Statute............11 b. 1958: A Partial Restriction on J-51 Benefits...11 c. 1958: The Real Property Tax Law...................12 d. 1960: RPTL § 489 and J41-2.5.......................12 2. 1962: The New York City Council Affirmatively Distinguishes Between J-51 Controlled Apartments and Otherwise Controlled Apartments ..............................................................................13 C. RSL § 26-504(c) Maintains the Distinction Between J-51 Regulated Apartments and Otherwise Regulated Apartments, and Applies only to the Former.14 1. The Rent Stabilization Law........................................14 a. 1969: The RSL................................................14 b. 1971: The Vacancy Decontrol Law.................15 c. 1974: The Emergency Tenant Protection Act..15 2. 1975: The City Council Enacts RSL § 26-504(c) and Distinguishes Between J51 Stabilized Apartments and Otherwise Stabilized Apartments ..............................................................................16 3. 1985: The Legislature Amends RSL § 26-504(c) and Continues the Distinction Between J-51 Stabilized Apartments and Otherwise Stabilized Apartments...........................................................17

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4. 1987: DHCR Implements Amended RSL § 26-504(c) as Inapplicable to Otherwise Stabilized Apartments ..............................................................................21 D. 1993: RSL §§ 26-504.1 and 26-504.2 Maintain the Distinction Between J-51 Stabilized Apartments and Otherwise Stabilized Apartments, and Bar Luxury Deregulation only with Respect to the Former............................................................................23 POINT II RSL §§ 26-504.1 AND 26-504.2 ALLOW APARTMENTS LIKE THOSE AT PETER COOPER VILLAGE AND STUYVESANT TOWN TO BE LUXURY DEREGULATED, IRRESPECTIVE OF HOW BROADLY RSL § 26-504(c) IS INTERPRETED.............................................................27 POINT III THE APPELLATE DIVISION, WHEN CONSTRUING RSL §§ 26-504.1 AND 26-504.2, FAILED TO TAKE INTO ACCOUNT THE RENT REGULATORY COMMUNITY’S LONGTERM PRACTICAL CONSTRUCTION OF THOSE PROVISIONS.................................................................34 POINT IV ADOPTING THE TENANTS’ POSITION WOULD GRANT A WINDFALL TO UNDESERVING TENANTS, AND WOULD ADVERSELY AFFECT OWNERS, LENDERS AND THE CITY’S HOUSING STOCK.....38

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A. Adopting the Tenants’ Position Would Result in Approximately One Billion Dollars in “Refunds” and Would Constitute an Extraordinary Windfall to Undeserving Tenants............................................................................38 B. Affirming the Appellate Division’s Ruling, Especially on a Retroactive Basis, Would Financially Devastate the Owner and All Similarly Situated Owners ........................................................................................40 C. An Affirmance Would Injure the Financial Community......42 D. An Adverse Ruling Would Negatively Impact the City’s Housing Stock....................................42 E. An Adverse Ruling, Especially if Made Retroactive, Would Negatively Impact the City’s Real Estate Tax Collections......................................................................44 CONCLUSION..................................................................................45 CONCLUSION..................................................................................45 FOR THE REASONS SET FORTH HEREIN, THE ORDER OF APPELLATE DIVISION SHOULD BE REVERSED...................................................................45

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TABLE OF AUTHORITIES Page Cases 143-145 West 81st Corp. v. Troncelliti, N.Y.L.J., May 23, 1985, at 6, col. 5 (App. T. 1st Dep’t)..........................15 275 Webster Tenants, Inc. v. Wright, 238 A.D.2d 143, 655 N.Y.S.2d 506 (1st Dep’t 1997)..............................10 31171 Owners Corp. v. New York City Dep’t of Housing Preservation & Development, 190 A.D.2d 441, 599 N.Y.S.2d 19 (1st Dep’t 1993)................................43 8200 Realty Corp. v. Lindsay, 27 N.Y.2d 124, 313 N.Y.S.2d 733 (1970)................................................16 City of New York v. New York City Ry. Co., 193 N.Y. 543, 86 N.E. 565 (1908)............................................................37 Dep’t of Finance of the City of New York v. New York Tel. Co., 262 A.D.2d 96, 692 N.Y.S.2d 34 (1st Dep’t 1999)..................................36 Dutchess County Dep’t of Social Services v. Day, 96 N.Y.2d 149, 726 N.Y.S.2d 54 (2001)......................................30, 31, 32 Erie Co. Water Auth. v. Kramer, 4 A.D.2d 545, 167 N.Y.S.2d 557 (4th Dep’t 1957), aff’d 5 N.Y.2d 954, 184 N.Y.S.2d 833 (1959)...................................32, 33 Estate of Lupoli, 275 A.D.2d 44, 714 N.Y.S.2d 497 (2d Dep’t 2000), lv. to appeal denied 99 N.Y.2d 503, 753 N.Y.S.2d 806 (2002)................31 Francois v. Dolan, 95 N.Y.2d 33, 709 N.Y.S.2d 898 (2000)..................................................31 Green Properties, LLC v. Warr, N.Y.L.J., Apr. 22, 1998, at 26, col. 3 (N.Y.C. Civ. Ct.)............................15

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Household Finance Corp. v. Goldring, 263 A.D. 524, 33 N.Y.S.2d 514 (1st Dep’t 1942), aff’d 289 N.Y. 574, 43 N.E.2d 715 (1942)...............................................36 In

re Dubois, N.Y.L.J., Sept. 18, 1976, at 12, col. 1 (Sup. Ct. N.Y. Co.).......................15

Kolb v. Holling, 25 N.Y. 104, 32 N.E.2d 811 (1941)..........................................................36 Kraebel v. New York City Dep’t of Housing Preservation & Development, 959 F.2d 395 (2d Cir. 1992).....................................................................43 KSLM Columbus Apts., Inc. v. New York State Div. of Hous. & Comm. Renewal, 5 N.Y.3d 303, 801 N.Y.S.2d 783 (2005)..................................................15 LaGuardia v. Cavanaugh, 53 N.Y.2d 67, 440 N.Y.S.2d 586 (1981)..................................................13 Matter of Lockport Union-Sun & Journal, Inc. v. Preisch, 8 N.Y.2d 54, 201 N.Y.S.2d 505 (1960)....................................................36 Matter of Metropolitan Life Ins. Co. v. State Tax Commn., 80 A.D.2d 675, 436 N.Y.S.2d 380 (3d Dep’t 1981), aff’d 55 N.Y.2d 758, 447 N.Y.S.2d 245 (1981).......................................20 New York State Crime Victims Board v. T.J.M. Productions, 265 A.D.2d 38, 705 N.Y.S.2d 320 (1st Dep’t 2000)................................31 Niagara Falls Urban Renewal Agency v. O’Hara, 47 A.D.2d 471, 394 N.Y.S.2d 951 (4th Dep’t 1977)................................37 Noto v. Bedford Apts. Co., 21 A.D.3d 762, 801 N.Y.S.2d 21 (1st Dep’t 2005)..................................23 People v. Avilas, Inc., 29 A.D.3d 764, 816 N.Y.S.2d 136 (2d Dep’t 2006).................................30 People v. Mobil Oil Corp., 48 N.Y.2d 192, 422 N.Y.S.2d 33 (1979)..................................................31

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Prospect v. Cohalan, 109 A.D.2d 210, 490 N.Y.S.2d 795 (2d Dep’t 1985), aff’d 65 N.Y.2d 867, 493 N.Y.S.2d 293 (1985).......................................31 Rent Stabilization Ass’n of New York City, Inc. v. Higgins, 83 N.Y.2d 156, 608 N.Y.S.2d 930 (1993)................................................35 Riley v. County of Broome, 95 N.Y.2d 455, 719 N.Y.S.2d 623 (2000)................................................20 Tall Trees Const. Corp. v. Zoning Bd. of Appeals of Town of Huntington, 97 N.Y.2d 86, 735 N.Y.S.2d 873 (2001)..................................................29 Statutes CRL § 26-401................................................................................................13 CRL § 26-403(e)(2)(h)..................................................................................13 CRL § Y41-1.0..............................................................................................13 CRL § Y41-3.0(e)(1)(d)................................................................................13 CRL § Y41-3.0(e)(2)(h)................................................................................13 CRL § Y51-1.0..............................................................................................13 CRL § Y51-3.0(e)(1)(d)....................................................................13, 14, 24 CRL § Y51-3.0(e)(2)(h)................................................................................13 ETPA § 5(a)(5)........................................................................................16, 17 Family Court Act § 413.................................................................................31 Family Court Act § 415.................................................................................31 L. 1950, ch. 250.............................................................................................12 L. 1955, ch. 410.............................................................................................11 L. 1958, ch. 901, § 1......................................................................................11 L. 1958, ch. 959.............................................................................................12 - vii RE\67070\0012\402649v1

L. 1959, ch. 968.............................................................................................12 L. 1962, ch. 21...............................................................................................13 L. 1971, ch. 371.............................................................................................15 L. 1974, ch. 576, § 4......................................................................................15 L. 1974, ch. 576, § 7......................................................................................16 L. 1985, ch. 288.............................................................................................18 L. 1985, ch. 289.............................................................................................18 L. 1985, ch. 888.............................................................................................21 L. 1989, ch. 567.............................................................................................31 L. 1993, ch. 253 § 7.......................................................................................22 L. 1993, ch. 253, § 6......................................................................................22 Loc. Law No. 118 of 1955.............................................................................11 Loc. Law No. 14 of 1959..............................................................................12 Loc. Law No. 20 of 1962..............................................................................13 Loc. Law No. 16 of 1969..............................................................................14 Loc. Law No. 60 of 1975..............................................................................16 N.Y. City Admin. Code § 11-242..................................................................11 N.Y. City Admin. Code § 11-243..............................................................7, 12 N.Y. City Admin. Code § 11-243(b)(2)...........................................................8 N.Y. City Admin. Code § 11-243(b)(3)...........................................................8 N.Y. City Admin. Code § 11-243(b)(4).........................................................10 N.Y. City Admin. Code § 11-243(b)(5).........................................................10 N.Y. City Admin. Code § 11-243(b)(6).........................................................10 - viii RE\67070\0012\402649v1

N.Y. City Admin. Code § 11-243(b)(8)...........................................................8 N.Y. City Admin. Code § 11-244....................................................................7 N.Y. City Admin. Code § J41-2.4..................................................................11 N.Y. City Admin. Code § J41-2.5..................................................................12 N.Y. City Admin. Code § J51-2.4..................................................................11 N.Y. City Admin. Code § J51-2.4(k).............................................................12 N.Y. City Admin. Code § J51-2.5..................................................................12 N.Y. City Admin. Code § J51-2.5(i)..............................................................16 RCNY § 5-01...................................................................................................7 RCNY § 5-03(b)............................................................................................10 RCNY § 5-03(c)............................................................................................10 RCNY § 5-10...................................................................................................7 RPTL § 489...................................................................................................12 RPTL § 489(7)(b)..........................................................................................12 RPTL § 1062(3).............................................................................................12 RSC § 2520.1(h)..............................................................................................9 RSC § 2520.11(o)....................................................................................22, 25 RSC § 2520.11(r)(5)(i)..................................................................................25 RSC § 2520.11(s)(2)(i)..................................................................................25 RSC § 2521.1(h)............................................................................................29 RSL § 26-504................................................................................................27 RSL § 26-504(a).....................................................................................passim RSL § 26-504(b)....................................................................................passim - ix RE\67070\0012\402649v1

RSL § 26-504(c).....................................................................................passim RSL § 26-504.1......................................................................................passim RSL § 26-504.2......................................................................................passim RSL § YY51-1.0............................................................................................14 RSL § YY51-3.0............................................................................................16 RSL § YY51-3.0(a).......................................................................................15 RSL § YY51-3.0(c)...........................................................................17, 18, 25 Tax Law § 5-h..........................................................................................11, 12 Other Authorities After Big Stuy Town Ruling, All Eyes on Appeal, New York Observer, March 6, 2009 at www.observer.com/2009/real-estate/ after-big-stuy-town-ruling-all-eyes-appeal..............................................41 N.Y. Assembly, Debate on L. 1985, ch. 288 and 289, June 30, 1985, at 186-187.................................................................................................18 N.Y. Senate, Debate on L. 1985, ch. 288 and 289, June 29, 1985, at 6780-6781.............................................................................................19 New York State Senate Introducer’s Memorandum in Support of Senate Bill No. S.6198 (submitted by Senator Kemp Hannon), 1993 N.Y. Legis. Ann. at 175........................................................................................................23 www.housingnyc.com/downloads/research/pdf_reports/08HSR.pdf............40 www.housingnyc.com/downloads/research/pdf_reports/changes2008.pdf. .40 www.tandn.org/rent_reg_overview.html.......................................................40

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COURT OF APPEALS STATE OF NEW YORK –––––––––––––––––––––––––––– AMY L. ROBERTS, THOMAS I. SHAMY, DAVID AND ANNMARIE HUNTER, MARGARET CARROLL, KELLEY AND TONY LANNI, EVAN HORISK, and BETH ROSNER GIOKAS, on behalf of themselves and all others similarly situated,

X : : : : : : Plaintiffs-Respondents, : : -against: : TISHMAN SPEYER PROPERTIES, L.P., : PCV ST OWNER LP, METROPOLITAN : INSURANCE AND ANNUITY COMPANY, and : METROPOLITAN TOWER LIFE INSURANCE : COMPANY, : : Defendants-Appellants. : : –––––––––––––––––––––––––––– X

Index No. 100956/07

BRIEF OF AMICUS CURIAE RENT STABILIZATION ASSOCIATION OF NYC, INC. IN SUPPORT OF THE APPEALS PRELIMINARY STATEMENT Amicus curiae Rent Stabilization Association of NYC, Inc. (“RSA”) submits this brief in support of the appeals of defendants-appellants Tishman Speyer Properties, L.P., et al. (collectively, the “Owner”) from an order of the Appellate Division, First Department entered on March 5, 2009 (A. 230-52).1 The Appellate Division’s order reversed a judgment of the Supreme Court, New York County

1

Numbers in parentheses refer to pages in the Appendix.

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(Lowe, J.) and reinstated the complaint of plaintiffs-respondents Amy L. Roberts, et al. (the “Tenants”). The complaint alleges that the Owner, due to its receipt of J51 benefits, had impermissibly deregulated thousands of apartments at the Peter Cooper Village and Stuyvesant Town housing complexes under sections 26-504.1 and 26-504.2 of the Rent Stabilization Law (“RSL”). Rather than reiterating arguments the Owner has raised, RSA will focus on three discrete points: 1.

The Appellate Division misinterpreted RSL § 26-504(c), the section that formed the linchpin of the Appellate Division’s conclusion that luxury deregulation is unavailable for apartments that first became subject to rent stabilization for reasons having nothing to do with receiving J-51 benefits.

2.

No matter how broadly RSL § 26-504(c) is construed, the luxury deregulation provisions of the RSL, i.e., RSL §§ 26-504.1 and 26-504.2, are specific exceptions to RSL § 26-504(c) and permit luxury deregulation for apartments like those at Peter Cooper Village and Stuyvesant Town.

3.

Affirming the Appellate Division’s ruling, especially if that ruling is retroactively applied, will have a catastrophic and unprecedented effect on the New York City real estate industry and financial community, as well as on the City’s housing stock and real estate tax collections. INTEREST OF AMICUS

RSA is a trade association of residential property owners, consisting of approximately 25,000 owners and agents who own or manage over one million apartments throughout New York City. Many of RSA’s members own buildings that (1) are subject to rent stabilization irrespective of receiving J-51 benefits; (2) -2RE\67070\0012\402649v1

are currently receiving J-51 benefits, and (3) contain apartments that have or will become exempt from stabilization coverage through luxury deregulation. Accordingly, many of RSA’s members will be directly, and adversely, affected should this Court rule that luxury deregulation is not available in buildings receiving J-51 benefits, even if those buildings became subject to rent stabilization years before receiving such benefits. CORPORATE DISCLOSURE STATEMENT In compliance with Rule 500.1 of the Rules of Practice for the Court of Appeals of the State of New York, amicus curiae Rent Stabilization Association of New York City, Inc., states that it has no parents, subsidiaries or affiliates.

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POINT I RSL § 26-504(c) DOES NOT APPLY TO APARTMENTS THAT ORIGINALLY BECAME SUBJECT TO STABILIZATION FOR REASONS OTHER THAN RECEIVING J-51 BENEFITS, BUT WHICH THEREAFTER RECEIVED SUCH BENEFITS, AND DOES NOT BAR LUXURY DEREGULATION UNDER RSL §§ 26-504.1 AND 26-504.2 The Appellate Division’s ruling below was premised on its reading of RSL § 26-504(c) (A. 239-40, 249-50). That section, in relevant part, includes within the RSL the following class of apartments: “Dwelling units in a building or structure receiving the benefits of section 11-243 or section 11-244 of the code [J-51 benefits] . . . not owned as a cooperative or as a condominium, except as provided in section three hundred fifty-two-eeee of the general business law and not subject to chapter three of this title [rent control]. Upon expiration or termination for any reason of [J-51] benefits any such dwelling unit shall be subject to this chapter [rent stabilization] until the occurrence of the first vacancy of such unit after such benefits are no longer being received . . . provided, however, that if such dwelling unit would have been subject to this chapter or the emergency tenant protection act of nineteen seventy-four in the absence of this subdivision, such dwelling unit shall, upon the expiration of such benefits, continue to be subject to this chapter or the emergency tenant protection act of nineteen seventy-four to the same extent and in the same manner as if this subdivision had never applied thereto” (material in brackets supplied).

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The Appellate Division broadly -- and erroneously -- interpreted RSL § 26504(c) as applying to two mutually exclusive classes of apartments receiving J-51 benefits, as follows: 1.

Apartments that originally became subject to rent stabilization by virtue of receiving J-51 benefits (hereinafter, “J-51 stabilized apartments”), i.e., apartments that were created on or after January 1, 1974 by converting commercial buildings into apartment houses, or by substantially rehabilitating substandard housing, and

2.

Apartments, like those at Peter Cooper Village and Stuyvesant Town, that had already become subject to stabilization by virtue of (a) RSL § 26-504(a) (generally, housing accommodations in buildings of six units or more constructed between February of 1947 and March of 1969), or (b) RSL § 26-504(b) (generally, housing accommodations in buildings of six units or more constructed between March of 1969 and December of 1973), and which thereafter received J-51 benefits (hereinafter, “otherwise stabilized apartments”).

The Appellate Division therefore reasoned that apartments like those at issue could become “subject to” rent stabilization for multiple reasons: “The RSL expressly acknowledges that a building may be subject to its provisions for more than one reason and states that when both J-51 and another basis concurrently require rent stabilization, the expiration of the J-51 benefits has no effect on the other: ‘[I]f such dwelling unit would have been subject to this chapter or the [ETPA of 1974] in the absence of the subdivision, such dwelling unit shall, upon the expiration of such benefits, continue to be subject to this chapter or the [ETPA of 1974] to the same extent and in the same manner as if this subdivision had never applied thereto’ (RSL § 26504[c] [emphasis added])” (Material in brackets and in italics in original) (A. 239-40). -5RE\67070\0012\402649v1

Based upon its broad view of RSL § 26-504(c), the Appellate Division concluded -- erroneously -- that the limitation on luxury deregulation found in RSL §§ 26-504.1 and 26-504.2 necessarily applied to housing accommodations that became subject to the RSL by virtue of RSL §§ 26-504(a) or (b), and then “became” additionally and redundantly subject to the statute by virtue of RSL § 26-504(c) when they received J-51 benefits years later: “The high rent decontrol provisions of the RSL, which are at the crux of this matter, provide two means of excluding apartments from the coverage of the RSL when the legal rent reaches $2,000, but also provide that the decontrol provisions do not apply to housing accommodations that ‘became or become’ subject to the RSL ‘by virtue of’ receiving J-51 tax benefits. The parties agree that ‘by virtue of’ means ‘because of’ or ‘by reason of,’ and it is clear to us that such phrase does not, in ordinary language, mean that a single cause or reason exists” (A. 247). The Appellate Division’s erroneous conclusion that J-51 is “one size fits all” with respect to RSL coverage and the luxury deregulation limitation was premised on its belief that the New York City rent laws in general -- and RSL §§ 26-504(c), 26-504.1 and 26-504.2 in particular -- do not distinguish between J-51 stabilized apartments and otherwise stabilized apartments. As the Appellate Division wrote: “We also find that the broader interpretation of the phrase ‘by virtue of’ urged by plaintiffs herein is more consistent with the overall statutory scheme, which makes no distinction based on whether a J-51 property was already subject to regulation -6RE\67070\0012\402649v1

prior to the receipt of such benefits” (emphasis supplied) (A. 249-50). The Appellate Division’s interpretation of RSL § 26-504(c) was overly broad, leading to the Court’s overly broad reading of the luxury deregulation limitation. In Point I, RSA will establish:

A.

•

By law and in practice, there are two types of J-51 buildings: (1) those that originally became subject to rent regulation by virtue of receiving J51 benefits in connection with a substantial rehabilitation, and (2) buildings already subject to rent regulation which thereafter receive J51 benefits in connection with capital improvements or repairs;

•

Since 1962, the New York City rent laws have distinguished between apartments that originally became subject to rent regulation by virtue of receiving J-51 benefits (hereinafter “J-51 regulated apartments”) and apartments that originally became regulated for other reasons and thereafter received J-51 benefits (hereinafter “otherwise regulated apartments”);

•

RSL § 26-504(c) maintains the distinction between J-51 regulated apartments and otherwise regulated apartments, and only applies to the former; and

•

RSL §§ 26-504.1 and 26-504.2 also maintain that distinction, and only bar luxury deregulation with respect to J-51 regulated apartments.

The J-51 Dichotomy In Point I(B), infra, RSA will detail the history of the J-51 program, and its

relationship to rent regulation.2 Here, RSA will set forth a general overview as to how work under the J-51 falls into two categories: (1) substantial rehabilitations

2

The J-51 statute is codified at sections 11-243 and 11-244 of the Administrative Code of the City of New York. The implementing regulations of the New York City Department of Housing Preservation and Development (“HPD”) are found at Chapter 5 of Title 28 of the Rules of the City of New York (“RCNY”) (§§ 5-01 through 5-10).

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resulting in the creation of new family units, and (2) improvements and repairs to existing buildings and apartments. 1.

Substantial Rehabilitations

The J-51 program grants real estate tax benefits for building-wide rehabilitations that create new family units. Such work may consist of (1) the conversion of non-residential structures into modern, class “A” apartment buildings, or (2) the rehabilitation of a dilapidated or substandard residential structure (such as a rooming house) so as to create modern apartments for family use.

See N.Y. City Admin. Code §§ 11-243(b)(2), (3) and (8); RCNY §§

5-03(a)(1)-(4), (6) and (7). The tax benefits associated with such projects are substantial. Although this type of conversion work will invariably increase the market value, and hence the assessed value (“AV”), of the property, the J-51 statute exempts the building from real estate taxes to the extent that said rehabilitation increases the AV of the building (A. 184). In addition, existing taxes on the property are abated (A. 185, 197-203). Newly created housing accommodations, but for the receipt of J-51 or other tax benefits, are almost invariably exempt from rent regulation. 3 The rent control statute, for example, does not apply to housing accommodations created on or after February 1, 1947; the RSL excludes from coverage housing accommodations 3

See pp. 11-14, 16-17, infra.

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completed or substantially rehabilitated as family units on or after January 1, 1974.4 Thus, when owners of such newly created housing accommodations accept RSL coverage in exchange for receiving J-51 benefits, these housing accommodations truly “become subject to [rent stabilization] by virtue of receiving tax benefits” under the J-51 statute. See RSL §§ 26-504.1 and 26.504.2. As respondents-appellants Tishman Speyer Properties, L.P. and PCV ST Owner LP established at Point III of their Main Brief, the initial stabilized rent for apartments that first became subject to stabilization solely by virtue of receiving J-51 benefits is a market rent. Thus, RSC § 2520.1(h), states in relevant part: “The initial legal regulated rent for housing accommodations subject to this Code solely as a condition of receiving or continuing to receive benefits pursuant to section 11-243 (formerly J512.5) or 11-244 (formerly J51-5.0) of the Administrative Code, as amended, shall be the rent charged the initial stabilized tenant . . . .” It is thus not uncommon that the initial stabilized rents of newly created units under the J-51 program are close to, or even exceed, $2,000 per month. 2.

Improvements and Repairs

J-51 benefits are also granted for capital improvements and repairs made to existing, inhabited apartment houses.

See, N.Y. City Admin. Code §§

11-243(b)(4)-(6); RCNY §§ 5-03(b) and (c). Typical projects of this type involve the replacement or repair of an individual building system, such as a new 4

See pp. 15-16, infra.

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boiler/burner. See e.g., 275 Webster Tenants, Inc. v. Wright, 238 A.D.2d 143, 655 N.Y.S.2d 506 (1st Dep’t 1997). J-51 benefits for improvements and repairs to existing units are less lucrative than those for the creation of new family units, because installing a new boiler, for example, will usually not increase a building’s AV. As such, while the J-51 statute grants an abatement of existing taxes (limited to 81/3% per year, maximum) based on the cost of improvements or repairs, there will usually be no tax exemption relating to an increased assessment. J-51 projects of this type -- such as the improvement/repair work performed at Peter Cooper Village and Stuyvesant Town herein (A. 223) -- usually had no effect on the rent regulatory status of the affected housing accommodations. These inhabited, existing family units were subject to rent regulation already, and the receipt of J-51 benefits did not change that status. For existing rent regulated apartments that were subsequently upgraded under the J-51 program, there will be no change in the rent as a result of the receipt of J-51 benefits because these apartments have long been regulated; in contrast, newly created apartments under the J-51 program enter the rent stabilization system at market rates, which includes the value of the J-51 benefits. As such, the rents for these apartments -- which may have been stabilized since 1974 or even earlier -- are usually well below market levels. - 10 RE\67070\0012\402649v1

B.

The City Rent Laws, Since Their Inception in 1962, have Distinguished Between J-51 Regulated Apartments and Otherwise Regulated Apartments 1.

The J-51 Statute and Rent Regulation a.

1955: The State J-51 Enabling Statute

What is commonly known as the J-51 program finds its origins in L. 1955, ch. 410, which added § 5-h to the Tax Law. This legislation, inter alia, authorized New York City to adopt local laws to grant real estate tax benefits to owners who had altered or improved substandard buildings, provided that construction was completed by December 31, 1959. The State enabling act made no mention of rent control statutes. The New York City Council, under the State’s enabling authority, thereafter enacted the so-called J-51 statute (§ J41-2.4 of the Administrative Code of the City of New York) pursuant to Loc. Law No. 118 of 1955.5 b.

1958: A Partial Restriction on J-51 Benefits

In 1958, the Legislature amended the J-51 enabling statute to prohibit the granting of J-51 benefits to buildings that are “not subject to the emergency housing rent control law.”6 L. 1958, ch. 901, § 1.

5

6

Section J41-2.4 was thereafter renumbered as J51-2.4, and is currently numbered as § 11-242 of the Administrative Code of the City of New York. The Emergency Housing Rent Control Law (“EHRCL”) was enacted pursuant to L. 1950, ch. 250.

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In 1959, the New York City Council implemented the State legislation by enacting Loc. Law No. 14 of 1959. That section added subdivision (k) to J51-2.4, which stated in relevant part: “The benefits of this section shall not apply to any multiple dwelling which is not subject to the provisions of the Emergency Housing Rent Control Law. . . .” c.

1958: The Real Property Tax Law

The Legislature created the Real Property Tax Law (“RPTL”) pursuant to L. 1958, ch. 959. RPTL § 1062(3) repealed Tax Law § 5-h (the original J-51 enabling provision), but left the City’s existing J-51 program intact. d.

1960: RPTL § 489 and J41-2.5

The Legislature enacted RPTL § 489 pursuant to L. 1959, ch. 968. RPTL § 489(7)(b) authorized New York City, after June 1, 1961, to continue its J-51 program. 7 The New York City Council, as enabled by the Legislature, thereafter enacted a new J-51 provision, originally numbered J41-2.5.8

7

In its opinion herein, the Appellate Division erroneously wrote that RPTL § 489 was enacted in 1955 (A. 236).

8

J41-2.5 was thereafter renumbered as J51-2.5, and is currently section 11-243 of the Administrative Code of the City of New York.

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2.

1962: The New York City Council Affirmatively Distinguishes Between J-51 Controlled Apartments and Otherwise Controlled Apartments

In 1962, the Legislature enabled New York City to enact a local law to govern the regulation of rents and evictions. See, L. 1962, ch. 21, known as the Local Emergency Housing Rent Control Act (“LEHRCA”). In accordance with that enabling authority, the City Council enacted the City Rent and Rehabilitation Law (“CRL,” also known as “rent control”).9 Loc. Law No. 20 of 1962. Rent control generally excluded housing accommodations constructed on or after February 1, 1947.

See CRL § Y51-3.0(e)(2)(h);10 see generally LaGuardia v.

Cavanaugh, 53 N.Y.2d 67, 440 N.Y.S.2d 586 (1981). Because rent control did not apply to post-February 1, 1947 housing accommodations, apartments created after that date under the J-51 program needed a special provision to subject those units to control.

Accordingly, CRL

§ Y51-3.0(e)(1)(d)11 provided for temporary rent control jurisdiction for otherwise exempt housing accommodations receiving benefits “under section J51-2.5 of the Code,” where such benefits “begin after April thirtieth nineteen hundred sixtytwo.” CRL § Y51-3.0(e)(1)(d) stated in relevant part:

9

The CRL was codified as section Y41-1.0 et seq. of the Administrative Code of the City of New York and was thereafter renumbered as Y51-1.0 et seq. and is currently numbered § 26-401 et seq.

10

Originally CRL § Y41-3.0(e)(2)(h); since renumbered as CRL § 26-403(e)(2)(h).

11

Originally enacted as Y41-3.0(e)(1)(d).

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“. . . provided that if, on the date on which such exemption or tax abatement terminated, whichever date is later, any such housing accommodation to which this subparagraph (d) is applicable would not be subject to rent control, or would be eligible for decontrol on the landlord’s application, under the provisions of this title and the regulations thereunder, if this subparagraph (d) were not applicable thereto, then such housing accommodation, after such date, shall not be subject to rent control, or shall be eligible for decontrol, as the case may be, in the same manner as if this subparagraph (d) had not been applicable to such housing accommodation.” Thus, CRL § Y51-3.0(e)(1)(d) not only codified the distinction between J-51 controlled apartments and otherwise controlled apartments, but made clear that the distinction principally related to how apartments in each class would exit from rent regulation. C.

RSL § 26-504(c) Maintains the Distinction Between J-51 Regulated Apartments and Otherwise Regulated Apartments, and Applies only to the Former 1.

The Rent Stabilization Law a.

1969: The RSL

Pursuant to the State’s 1962 enabling act (LEHRCA), the New York City Council enacted the RSL in 1969.12 Loc. Law No. 16 of 1969. As originally enacted, the RSL pertained to “class A multiple dwellings not owned as a cooperative or as a condominium, containing six or more dwelling units” which 12

Originally, § YY51-1.0 et seq. of the Administrative Code of the City of New York; since renumbered as § 26-504.1 et seq.

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were “completed after February first, nineteen hundred forty-seven, except dwelling units . . . located in a building for which a certificate of occupancy is obtained after March tenth, nineteen hundred sixty-nine.” RSL § YY51-3.0(a). b.

1971: The Vacancy Decontrol Law

In 1971, the Legislature enacted the Vacancy Decontrol Law (“VDL”) (L. 1971, ch. 371). The VDL amended the 1962 enabling act to exempt from local rent regulation any housing accommodation that became vacant on or after June 30, 1971. See generally, KSLM Columbus Apts., Inc. v. New York State Div. of Hous. & Comm. Renewal, 5 N.Y.3d 303, 801 N.Y.S.2d 783 (2005). Notably, the VDL deregulated even those apartments receiving J-51 benefits. See, 143-145 West 81st Corp. v. Troncelliti, N.Y.L.J., May 23, 1985, at 6, col. 5 (App. T. 1st Dep’t); Green Properties, LLC v. Warr, N.Y.L.J., Apr. 22, 1998, at 26, col. 3 (N.Y.C. Civ. Ct.); In re Dubois, N.Y.L.J., Sept. 18, 1976, at 12, col. 1 (Sup. Ct. N.Y. Co.). c.

1974: The Emergency Tenant Protection Act

In 1974, the Legislature enacted the Emergency Tenant Protection Act (“ETPA”) (L. 1974, ch. 576, § 4), which, inter alia, enabled New York City to regulate apartments in buildings of six or more units which (1) had been deregulated under the VDL, or (2) were located in buildings constructed between March 10, 1969 and December 31, 1973. Housing accommodations in buildings

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completed or rehabilitated as family units on or after January 1, 1974 were exempt from stabilization coverage. See, ETPA § 5(a)(5). In conjunction with the ETPA, the Legislature, pursuant to L. 1974, ch. 576, § 7, added a new subdivision (b) to RSL § YY51-3.0 (now § 26-504[b]). Subdivision (b) subjected to stabilization “housing accommodations made subject to this law pursuant to the emergency tenant protection act of nineteen hundred seventy-four.” 2.

1975: The City Council Enacts RSL § 26-504(c) and Distinguishes Between J51 Stabilized Apartments and Otherwise Stabilized Apartments

With the advent of the VDL and the ETPA, vacated rent controlled apartments in buildings of six or more units generally became subject to rent stabilization, a “less onerous form” of rent regulation than rent control. 8200 Realty Corp. v. Lindsay, 27 N.Y.2d 124, 137, 313 N.Y.S.2d 733 (1970). Because rent stabilized buildings did not qualify under the J-51 statute -- only rent controlled buildings qualified -- the J-51 program was no longer attractive to property owners. The City Council responded by enacting Loc. Law No. 60 of 1975 (“Loc. Law 60”). Section 6 of Loc. Law 60 amended J51-2.5(i) to provide that with respect to J-51 applications filed after January 1, 1976 (the effective date of the local law), rent stabilized status would now satisfy the J-51 statute. - 16 RE\67070\0012\402649v1

Section 12 of Loc. Law 60 added new § YY51-3.0(c) to the RSL (since renumbered as RSL § 26-504[c]), which subjected to rent stabilization coverage: “Buildings or structures not owned as a cooperative or as a condominium, or housing accommodation [sic] in such buildings or structures eligible to receive the benefits of section J51-2.5 of the administrative code of the city of New York and not subject to the provisions of title Y of this code [rent control] where the owner thereof subjects such buildings and structures to regulation under this title YY [rent stabilization]” (material in brackets and emphasis supplied). The underscored words are critical to the City Council’s intent. The City Council did not intend that RSL § YY51-3.0(c) would be an omnibus provision ensnaring any and all J-51 buildings into stabilization coverage. The section was only intended to include within such coverage unregulated buildings that the owner had voluntarily made subject to the RSL by taking J-51 benefits. 3.

1985: The Legislature Amends RSL § 26-504(c) and Continues the Distinction Between J-51 Stabilized Apartments and Otherwise Stabilized Apartments

As noted, housing accommodations in buildings completed or substantially rehabilitated as family units on or after January 1, 1974 are exempt from rent stabilization, unless the owner took J-51 benefits. See, ETPA § 5(a)(5); RSL § 26-504(c).

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By mid-1985, thousands of J-51 apartments created just after January 1, 1974 under the J-51 program were about to drop out of rent stabilization upon the expiration of J-51 benefits. In response to that perceived crisis, the Legislature enacted L. 1985, ch. 288 and 289 (“the 1985 enactment”) to amend, inter alia, RSL § 26-504(c) (formerly § YY51-3.0[c]). The debates surrounding the 1985 legislation establish that the Assembly was concerned that tenants occupying J-51 regulated apartments would face almost certain eviction when those benefits expired on June 30, 1985, the last day of the City’s 1984-85 tax year. In a debate held that very day, Assemblyman Friedman stated: “These bills even go a little bit farther because . . . this year certain units subject to the J-51 laws also would have lost their stabilization benefits, and we are talking about buildings which were rehabilitated under the J-51 Program of less than six units. In those buildings, tenants would have been this year, as a matter of fact, beginning tomorrow, tenants would have lost all stabilization benefits.” N.Y. Assembly, Debate on L. 1985, ch. 288 and 289, June 30, 1985, at 186-187. Some in the Legislature wanted to end the distinction between J-51 stabilized and otherwise stabilized housing accommodations by permanently stabilizing the former, while others wanted to let rent regulation expire for such same units. Id. A compromise was reached: even after J-51 benefits expired,

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tenants then in occupancy of J-51 regulated apartments would retain their regulatory status until voluntary vacancy. As Senator Roy Goodman of Manhattan colorfully described the compromise bill: “Before I tell you what that purpose is, let me tell you that the mail in my office runs approximately twenty to one in favor of assuring that priority purpose is accomplished. And what is it? Protect the tenants in place, the people who are right now in the apartments who require protection, who are concerned beyond measure of description about being tossed out on their skinny rumpuses the moment that this bill expires” (emphasis supplied). N.Y. Senate, Debate on L. 1985, ch. 288 and 289, June 29, 1985, at 6780-6781. To implement this compromise, the Legislature amended RSL § 26-504(c) to provide, as is relevant to this appeal, that RSL coverage would apply to: “Dwelling units in a building or structure receiving [J-51] benefits . . . not owned as a cooperative or as a condominium, except as provided in section three hundred fifty-two-eeee of the general business law and not subject to [rent control]. Upon expiration or termination for any reason of [J-51] benefits . . . any such dwelling unit shall be subject to [the RSL] until the occurrence of the first vacancy of such unit after such benefits are no longer being received . . . provided, however, that if such dwelling unit would have been subject to this chapter or the emergency tenant protection act of nineteen seventy-four in the absence of this subdivision, such dwelling unit shall, upon the expiration of such benefits, continue to be subject to this chapter or the emergency tenant protection act of nineteen seventy-four to the same extent and

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in the same manner as if this subdivision had never applied thereto” (material in brackets supplied). The legislative history of the 1985 enactment establishes that RSL § 26504(c) was amended to protect tenants then in occupancy of J-51 regulated apartments who were in danger of being evicted. There is nothing in the legislative history to suggest that the Legislature sought to protect or in any way affect tenants in otherwise stabilized apartments that received J-51 benefits thereafter; those tenants were not in danger of eviction, imminent or otherwise. The amendment did not, and did not need to, add an additional, redundant layer of stabilization coverage to apartments that had already become subject to the RSL by virtue of RSL §§ 26-504(a) and (b). The 1985 amendment was a limited response to a limited problem. The primary consideration of a court when interpreting a statute is to ascertain and give effect to the intention of the Legislature; indeed, the legislative history is not to be ignored. See Riley v. County of Broome, 95 N.Y.2d 455, 463, 719 N.Y.S.2d 623 (2000). Also pertinent are the history of the times and the circumstances surrounding the statute’s passage, id., and the mischief sought to be remedied. See Matter of Metropolitan Life Ins. Co. v. State Tax Commn., 80 A.D.2d 675, 677, 436 N.Y.S.2d 380 (3d Dep’t 1981), aff’d 55 N.Y.2d 758, 447 N.Y.S.2d 245 (1981). Under these standards, it is apparent that the Legislature

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never intended RSL § 26-504(c) to apply to otherwise stabilized apartments that received J-51 benefits years later. Turning to the language of the 1985 enactment itself, the first sentence of RSL § 26-504(c) confirms, as did the 1975 version of that provision, that rent stabilization coverage satisfied the rent regulatory requirement in the J-51 statute. The first portion of the second (and final) sentence addresses the specter of imminent evictions by, inter alia, allowing J-51 regulated tenants to remain in occupancy at their current status until they voluntarily vacate. The second portion of that sentence makes clear that tenants in apartments that were otherwise subject to the RSL were not within the class of tenants whom the Legislature sought to protect in 1985. Once the proper scope of amended RSL § 26-504(c) is recognized -- that it did not add a redundant level of stabilization coverage to already stabilized apartments -- the Appellate Division’s conclusion that the luxury deregulation limitation applies to any apartment receiving J-51 benefits must fall. 4.

1987: DHCR Implements Amended RSL § 26504(c) as Inapplicable to Otherwise Stabilized Apartments

Pursuant to L. 1985, ch. 888, the Legislature directed the New York State Division of Housing and Community Renewal (“DHCR”) to promulgate a new

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Rent Stabilization Code (“RSC”). DHCR did so in 1987. See 9 NYCRR 2520.1 et seq. DHCR promulgated RSC § 2520.11(o) to implement the Legislature’s 1985 amendment to RSL § 26-504(c).

That regulation exempts from stabilization

coverage, upon a voluntary vacancy: “housing accommodations in buildings completed or substantially rehabilitated as family units on or after January 1, 1974 or located in a building containing less than six housing accommodations, and which were originally made subject to regulation solely as a condition of receiving tax benefits pursuant to section 11-243 (formerly J512.5) or section 11-244 (formerly J51-5.0) of the Administrative Code of the City of New York, as amended . . . and thereafter receipt of tax benefits has concluded pursuant to these sections . . .” (emphasis supplied). The underscored language establishes that DHCR recognized and maintained the statutory distinction between J-51 stabilized apartments and otherwise stabilized apartments that the Legislature made in 1985 when it amended RSL § 26-504(c). DHCR understood that RSL § 26-504(c) as amended only applied to J-51 regulated apartments, i.e., apartments “originally made subject to regulation solely as a condition of receiving [J-51] tax benefits . . .” (material in brackets and emphasis supplied).

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D.

1993: RSL §§ 26-504.1 and 26-504.2 Maintain the Distinction Between J-51 Stabilized Apartments and Otherwise Stabilized Apartments, and Bar Luxury Deregulation only with Respect to the Former Pursuant to L. 1993, ch. 253, §§ 6 and 7, the Legislature enacted high rent,

high income luxury deregulation and vacancy luxury deregulation.

See RSL

§§ 26-504.1 and 26-504.2, respectively. The Legislature did so to undo the rent subsidies that wealthy tenants had enjoyed under the RSL: “A sound housing policy should be equitable to both tenants and owners. The current system is neither. The [Act] is a first attempt to restore some rationality to the system. The current rent regulation system provides the bulk of its benefits to high income tenants. There is no reason why public and private resources should be expended to subsidize rents for these households” (emphasis and material in brackets supplied). New York State Senate Introducer’s Memorandum in Support of Senate Bill No. S.6198 (submitted by Senator Kemp Hannon), 1993 N.Y. Legis. Ann. at 175. See also Noto v. Bedford Apts. Co., 21 A.D.3d 762, 801 N.Y.S.2d 21 (1st Dep’t 2005). Notwithstanding the Legislature’s antipathy to continuing stabilization coverage for high income tenants and luxury apartments, the Legislature carved out a small class of apartments that were not eligible for luxury deregulation, describing that class as follows: “. . . housing accommodations which became or become subject to this law . . . by virtue of - 23 RE\67070\0012\402649v1

receiving [J-51] tax benefits . . .” (material in brackets supplied). The quoted language clearly refers to J-51 stabilized apartments; only such apartments “become” subject to stabilization by virtue of receiving benefits under the J-51 program. Otherwise stabilized apartments “become” stabilized by virtue of the original RSL (RSL § 26-504[a]) or by being picked up by the ETPA (RSL § 26-504[b]). In 1985, the Legislature created new deregulation mechanisms, but decreed that they applied only to J-51 stabilized apartments. In 1993, the Legislature created luxury deregulation, but decreed that it applied only to otherwise stabilized units. The Legislature’s policy decisions should be respected. The disparate treatment as to eligibility for deregulation was, in each instance, a function of legislative intent.

In 1985, the Legislature wanted to

provide for the orderly deregulation of tenants who occupied J-51 stabilized apartments and were facing imminent eviction. In 1993, the Legislature sought to deregulate high rent, high income apartments en masse, but limited such deregulation to apartments that first became stabilized for reasons other than receiving J-51 benefits. The Legislature’s “became or become” formulation was just the latest description of the class of J-51 regulated apartments, so as to distinguish them from otherwise regulated apartments. There had been four prior formulations - 24 RE\67070\0012\402649v1

between 1962 and 1993, whereby J-51 regulated apartments had been defined as follows: •

1962 (CRL § Y51-3.0[e][1][d]): apartments which, but for receiving J-51 benefits, “would not be subject to rent control.”

•

1975 (RSL § YY51-3.0[c]): apartments located in buildings or structures “where the owner thereof subjects such buildings or structures to regulation under this title YY” by receiving J-51 benefits.

•

1987 (RSC § 2520.11[o]): apartments “which were originally made subject to regulation solely as a condition of receiving tax benefits pursuant to [J-51].”

•

1993 (RSL §§ 26-504.1 and 26-504.2): “housing accommodations which became or become subject to this law . . . by virtue of receiving [J-51] tax benefits.”

In 2000, DHCR promulgated regulations to implement RSL §§ 26-504.1 and 26-504.2, marking the fifth time a legislative body or administrative agency had occasion to define J-51 regulated apartments. RSC §§ 2520.11(r)(5)(i) and (s)(2)(i) provide that luxury deregulation shall not apply to: “. . . housing accommodations which became or become subject to the RSL and this Code: (i) solely by virtue of the receipt of tax benefits pursuant to section 11-243 (formerly J51-2.5) or section 11-244 (formerly J51-5) of the Administrative Code of the City of New York, as amended.” The terminology has changed over the years, but the concept remains the same: J-51 regulated apartments are inherently different from apartments that are otherwise regulated but happen to receive J-51 benefits. Contrary to the Appellate - 25 RE\67070\0012\402649v1

Division’s finding, the rent laws have always distinguished between these two mutually exclusive groups, and the Legislature unmistakably did so in RSL §§ 26504.1 and 26-504.2. The prohibition against luxury deregulation applies only to owners who voluntarily subject otherwise exempt apartments to stabilization coverage to obtain tax benefits. Owners of apartments that were already ensnared by the RSL and incidentally took J-51 benefits many years thereafter -- like the apartments at Stuyvesant Town and Peter Cooper Village -- are free to use the luxury deregulation mechanisms that the Legislature described in 1993 as an “attempt to restore some rationality” to a broken system.

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POINT II RSL §§ 26-504.1 AND 26-504.2 ALLOW APARTMENTS LIKE THOSE AT PETER COOPER VILLAGE AND STUYVESANT TOWN TO BE LUXURY DEREGULATED, IRRESPECTIVE OF HOW BROADLY RSL § 26-504(c) IS INTERPRETED The jurisdictional provisions of the RSL are found within RSL § 26-504, captioned “application.” RSL § 26-504(a) generally subjects to RSL coverage housing accommodations in buildings with six or more units constructed between February 1, 1947 and March 10, 1969. RSL § 26-504(b) pertains to housing accommodations “made subject to this law pursuant to the emergency tenant protection act of nineteen seventy-four.” As noted, the Appellate Division ruled that RSL § 26-504(c) adds a redundant layer of stabilization coverage to apartments already stabilized by subdivisions (a) and (b) which thereafter receive J-51 benefits.

Even if the

Appellate Division were correct -- and it is not -- RSL §§ 26-504.1 and 26-504.2 are exceptions to RSL § 26-504(c) and allow such apartments to become luxury deregulated. Whereas RSL § 26-504 governs initial jurisdiction, RSL §§ 26-504.1 and 26504.2, enacted in 1993, govern which apartments included within RSL § 26-504 will become exempt from jurisdiction when the conditions for luxury deregulation are met. The Appellate Division ruled that the class of apartments included within RSL § 26-504(c) -- any apartment receiving J-51 benefits -- was necessarily co- 27 RE\67070\0012\402649v1

extensive with the class of apartments for which RSL §§ 26-504.1 and 26-504.2 barred luxury deregulation, and that any contrary interpretation would do violence to subdivision (c) (A. 249-50). The Appellate Division was wrong. There is no reason why otherwise stabilized apartments -- a subset of the apartments purportedly “stabilized” by subdivision (c) (according to the Appellate Division) -- could not be allowed to exit rent stabilization by virtue of luxury deregulation.

Indeed, any deregulation

provision necessarily applies to a subset of apartments already regulated. The language of RSL §§ 26-504.1 and 26-504.2 proves this point. According to the Appellate Division, RSL § 26-504(c) applies to housing accommodations that simply “receive” J-51 benefits (A. 239-40).

If the

Legislature intended that the class of apartments for which luxury deregulation was unavailable would be co-extensive with the class of apartments purportedly covered by RSL § 26-504(c), it could have incorporated existing language from subdivision (c) into the luxury deregulation limitation. Thus, the Legislature could have written the limitation in RSL §§ 26-504.1 and 26-504.2 as follows: “Provided, however, that this exclusion shall not apply to housing accommodations which are receiving the benefits of section 11-243 or section 11-244 of the code . . .” (italicized material taken from RSL § 26-504[c]). Or, the Legislature could have simply referred to subdivision (c):

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“Provided, however, that this exclusion shall not apply to housing accommodations which are subject to RSL § 26-504(c).” Indeed, if the mere receipt of J-51 benefits were sufficient to bar luxury deregulation, the last language the Legislature would have used was the language ultimately enacted, whereby “receiving” was qualified by almost a dozen words: “Provided, however, that this exclusion shall not apply to housing accommodations which became or become subject to this law… by virtue of receiving [J-51] tax benefits . . .” (material in brackets and emphasis supplied). This language clearly does not refer to apartments like those at Peter Cooper Village and Stuyvesant Town, which “became” subject to stabilization by virtue of reasons having nothing to do with receiving J-51 benefits. The Appellate Division impermissibly treated those 11 qualifying words as superfluous, leading to its erroneous conclusion. See, Tall Trees Const. Corp. v. Zoning Bd. of Appeals of Town of Huntington, 97 N.Y.2d 86, 91, 735 N.Y.S.2d 873 (2001). As a policy matter, the Legislature’s decision to prohibit J-51 stabilized apartments from exiting the system through luxury deregulation makes eminent sense. As noted, J-51 stabilized apartments initially become rent stabilized at market rents (see RSC § 2521.1[h]), frequently approaching or even above $2,000 per month. Allowing such units to become vacancy deregulated would create a

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revolving door whereby units become stabilized and almost immediately thereafter leave the system. The Appellate Division also misapprehended the relationship between the various RSL provisions at issue.

As a matter of statutory construction, the

purported scope of RSL § 26-504(c) does not control the scope of the luxury deregulation limitation in RSL §§ 26-504.1 and 26-504.2. When RSL § 26-504(c) was last amended in 1985, luxury deregulation did not exist. Accordingly, RSL § 26-504(c) is necessarily silent as to the sole issue in this case: whether apartments otherwise subject to the RSL which thereafter receive J-51 benefits are eligible for luxury deregulation. At best, RSL § 26-504(c) is a statute of general application dealing with J-51 benefits as they relate to RSL jurisdiction, including such exemptions to jurisdiction as the Legislature may see fit to enact. The 1993 luxury deregulation provisions, in contrast, squarely and specifically deal with J-51 benefits as they relate to luxury deregulation. As noted, these provisions do not mention RSL § 26-504(c). It is well settled that a prior general statute must yield to a later specific statute. See Dutchess County Dep’t of Social Services v. Day, 96 N.Y.2d 149, 153, 726 N.Y.S.2d 54 (2001); People v. Avilas, Inc., 29 A.D.3d 764, 765, 816 N.Y.S.2d 136 (2d Dep’t 2006); Estate of Lupoli, 275 A.D.2d 44, 50, 714 N.Y.S.2d 497 (2d Dep’t 2000), lv. to appeal denied 99 N.Y.2d 503, 753 N.Y.S.2d 806 (2002); - 30 RE\67070\0012\402649v1

Prospect v. Cohalan, 109 A.D.2d 210, 216, 490 N.Y.S.2d 795 (2d Dep’t 1985), aff’d 65 N.Y.2d 867, 493 N.Y.S.2d 293 (1985). “The terms of a provision having specific application to a question will be accorded preference over the terms of a provision with only general application.” New York State Crime Victims Board v. T.J.M. Productions, 265 A.D.2d 38, 46, 705 N.Y.S.2d 320 (1st Dep’t 2000). A general provision of a statute applies only where a particular provision does not. See, People v. Mobil Oil Corp., 48 N.Y.2d 192, 200, 422 N.Y.S.2d 33 (1979). “What is special or particular in the later of two statutes supersedes as an exception whatever in the earlier statute is unlimited or general” (emphasis supplied). Francois v. Dolan, 95 N.Y.2d 33, 39, 709 N.Y.S.2d 898 (2000). In Dutchess County, supra, the question arose as to whether parental support obligations for a child placed in foster care were to be calculated under the Child Support Standards Act (“CSSA”) (L. 1989, ch. 567, codified as Family Court Act § 413), or under Family Court Act § 415. Citing the rule that general, earlier enacted provisions must yield to specific, later enacted ones, this Court held that the CSSA standards under § 413 applied: “Applying these principles here, we conclude that a harmonious reading of the related statutes requires all child support obligations to be determined in accordance with the CSSA formula. Both statutes at issue declare that the support obligation to be paid must be a ‘fair and reasonable sum’ (Family Ct. Act §§ 413, 415). Section 415 is a general statute that places the duty on both - 31 RE\67070\0012\402649v1

spouses and parents to support individuals receiving public assistance benefits. However, section 413 (CSSA) - the later-enacted statute specifically defines what constitutes ‘fair and reasonable’ support in the child support obligation context, providing a precise mathematical formula ‘while at the same time maintaining the degree of judicial discretion necessary to address unique circumstances.’ Section 413 mandates that a court ‘shall’ make its child support awards in accordance with its provisions (Family Ct. Act § 413[1][a])” (internal citation omitted, emphasis supplied). 96 N.Y.2d at 154. Similarly, in Erie Co. Water Auth. v. Kramer, 4 A.D.2d 545, 167 N.Y.S.2d 557 (4th Dep’t 1957), aff’d 5 N.Y.2d 954, 184 N.Y.S.2d 833 (1959), the Court considered whether a general, earlier statute that appeared to exempt the Erie Water Authority from the Labor Relations Act took precedence over a later, specific statute that affirmatively deemed the Authority to be an “employer” under the Act. The Appellate Division, as thereafter affirmed by the Court of Appeals, ruled that the later, specific statute governed: “It may be pointed out that the general policy, set forth in Section 715 as it was enacted in 1937, must yield to the specific policy as to this Authority set forth in Section 1059 enacted in 1949 and Section 1072 enacted in 1951. Even if it is assumed that the Authority is included within the general scope of Section 715 of the Labor Law, there is no reason to say that the Legislature could not choose to take the Authority out of the general rule, and, in fact, there is a good basis for such a choice . . .” (emphasis supplied). - 32 RE\67070\0012\402649v1

4 A.D.2d at 550. Here, the Legislature amended RSL § 26-504(c) in 1985, before luxury deregulation existed. Eight years later, the Legislature created luxury deregulation, and provided that luxury deregulation would be unavailable only where the apartment “became” subject to the RSL by virtue of the J-51 statute. Assuming RSL § 26-504(c) applies to all apartments in J-51 buildings, the Legislature had every right to create an exception for otherwise stabilized buildings like those herein. Even if the Appellate Division were correct in asserting that RSL § 26-504(c) in unlimited or general fashion mandates RSL coverage for otherwise stabilized apartments which thereafter receive J-51 benefits, the luxury deregulation provisions must be read as exceptions within the RSL to that rule.

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POINT III THE APPELLATE DIVISION, WHEN CONSTRUING RSL §§ 26-504.1 AND 26-504.2, FAILED TO TAKE INTO ACCOUNT THE RENT REGULATORY COMMUNITY’S LONG-TERM PRACTICAL CONSTRUCTION OF THOSE PROVISIONS Until the Appellate Division ruled herein, the real estate industry had understood since 1993 (as had tenants and their attorneys) that receiving J-51 benefits in buildings otherwise subject to stabilization did not render an apartment ineligible for luxury deregulation. Indeed, DHCR itself had been on record since 1996 as endorsing this view. In a January 16, 1996 letter ruling from DHCR, the agency reviewed RSL §§ 26-504.1 and 26-504.2 and concluded as follows: “The relevant provisions of the RRRA . . . provide that Luxury Decontrol is not applicable to housing accommodations which became or become subject to the specific rent regulation law “by virtue of” receiving tax benefits under Real Property Tax Law (RPTL) Section 489 (which covers the “J-51” Program, in New York City, Sections 11-243 and 11-244 of the Administrative Code). In reviewing our interpretation of that language, we have determined that the Introducer’s Memorandum In Support of the RRRA is silent on the issue. As that document fails to give us guidance as to the extent to which the Legislature intended to exclude buildings receiving “J-51” benefits from the applicability of Luxury Decontrol, we will construe “by virtue of” literally, in accordance with the ordinary meaning thereof. Therefore, applying a lexicographical definition to those words, as for example is enunciated in Webster’s College Dictionary, it our opinion that - 34 RE\67070\0012\402649v1

their apparent meaning is synonymous to “by reason of” or “because of,” and that an owner is precluded from seeking Luxury Decontrol of a housing accommodation receiving “J-51” tax abatement benefits only where the receipt of such benefits is the sole reason for the accommodation being subject to rent regulation” (underscoring in original, italics supplied) (A. 58-59). DHCR is the administrative agency designated by law to administer the regulation of residential rents under the rent control and rent stabilization statutes. See Rent Stabilization Ass’n of New York City, Inc. v. Higgins, 83 N.Y.2d 156, 165, 608 N.Y.S.2d 930 (1993). Accordingly, New York City owners, including the Owner, had every reason to rely on DHCR’s interpretation of the governing statutes. RSA does not argue that this Court should blindly defer to DHCR; instead, DHCR’s interpretation should be given controlling weight because it has endured for well over a decade.

Indeed, the New York City Department of Housing

Preservation and Development (“HPD”), which administers the J-51 program, has adopted DHCR’s interpretation as well, and takes into account the number of luxury deregulated units in a building when calculating J-51 benefits (A. 222). It is well settled that the practical construction of the statute by a department of State government is entitled to great weight, if not controlling influence, where -- as here -- such practical construction has continued in operation over a long period of time. See Dep’t of Finance of the City of New York v. New York Tel. Co., 262 A.D.2d - 35 RE\67070\0012\402649v1

96, 98, 692 N.Y.S.2d 34 (1st Dep’t 1999), citing Kolb v. Holling, 25 N.Y. 104, 32 N.E.2d 811 (1941); see also, Matter of Lockport Union-Sun & Journal, Inc. v. Preisch, 8 N.Y.2d 54, 201 N.Y.S.2d 505 (1960); Household Finance Corp. v. Goldring, 263 A.D. 524, 33 N.Y.S.2d 514 (1st Dep’t 1942), aff’d 289 N.Y. 574, 43 N.E.2d 715 (1942). It is beyond dispute that those operating under the statute -- owners and tenants, their attorneys, and lenders, all understood for over a decade that luxury deregulation applied to otherwise stabilized apartments which thereafter received J-51 benefits, such as the apartments at issue herein. Thus, in the years since DHCR first interpreted the luxury deregulation provisions in question: •

DHCR, on application from owners in otherwise stabilized buildings, deregulated thousands of apartments based on high income luxury deregulation (see, Point IV, infra).

•

Thousands of apartments in otherwise stabilized buildings became vacant, and were vacancy deregulated based on the law as it was generally understood.

•

Owners entered into thousands of deregulated leases with tenants at free market rents.

•

Tenants paid, and owners collected, those rents.

•

Some owners refinanced their buildings, with lenders advancing funds based on (1) the building’s current rent roll, which included deregulated rents, and (2) the expectation that absent legislative amendment, luxury deregulation would continue to be available in otherwise stabilized buildings.

•

In some instances, loans on such buildings were sold to third parties. - 36 -

RE\67070\0012\402649v1

•

Some otherwise stabilized buildings were sold, with purchase prices reflecting deregulated rents.

•

In some instances, the sellers of otherwise stabilized buildings certified the legality of their rent rolls to the purchasers.

The Appellate Division erred in ignoring the long-term understanding of the rent regulated community with respect to luxury deregulation in otherwise stabilized buildings.

If the meaning of the statute is in doubt, the practical

construction by those for whom the law was enacted, acquiesced in by all for a long period of time, is entitled to great, if not controlling, influence. See City of New York v. New York City Ry. Co., 193 N.Y. 543, 549, 86 N.E. 565 (1908); see also Niagara Falls Urban Renewal Agency v. O’Hara, 47 A.D.2d 471, 394 N.Y.S.2d 951 (4th Dep’t 1977) (“[i]t is an accepted rule that the interpretation given a statute by those who must operate under its mandates is deserving of great weight in judicial construction”). Accordingly, if RSL §§ 26-504.1 and 26-404.2 are in any respect ambiguous, that ambiguity must be resolved by dismissing the complaint and declaring that apartments at Peter Cooper Village and Stuyvesant Town were and are eligible for luxury deregulation.

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POINT IV ADOPTING THE TENANTS’ POSITION WOULD GRANT A WINDFALL TO UNDESERVING TENANTS, AND WOULD ADVERSELY AFFECT OWNERS, LENDERS AND THE CITY’S HOUSING STOCK A.

Adopting the Tenants’ Position Would Result in Approximately One Billion Dollars in “Refunds” and Would Constitute an Extraordinary Windfall to Undeserving Tenants The Tenants allege in their Consolidated Complaint that the Owner

unlawfully deregulated approximately 3,000 rent stabilized apartments through luxury deregulation at Peter Cooper Village and Stuyvesant Town (A. 48). The Tenants further allege that damages arising from such conduct amount to $215,000,000 (A. 51, 55-56). Certainly, the Owner is not the only landlord in New York City to have deregulated otherwise stabilized apartments. Because the apartments in question are only a fraction of the apartments that will be affected by this Court’s ruling, it is clear that if this Court adopts the Tenants’ position, the “damages” would be over one billion dollars. It would be difficult to imagine less deserving recipients of this billion dollar windfall.

Assuming that this Court applies the Appellate Division’s ruling

retroactively -- which it should not for the reasons articulated in the Owner’s briefs -- the tenants who would financially profit from an affirmance are as follows: - 38 RE\67070\0012\402649v1

•

Wealthy tenants who moved into putatively unregulated apartments at market rents they could obviously afford;

•

Former tenants whose apartments were luxury deregulated under RSL § 26-504.1, i.e., tenants earning over $175,000 per year occupying apartments with lawful stabilized monthly rents of $2,000 or more; and

•

Current tenants whose apartments will soon be subject to luxury deregulation under RSL § 26-504.1.

As an example of tenants in the first category, plaintiffs-respondents David Hunter and Annmarie Dodd Hunter signed a vacancy lease for apartment 9F at 520 East 20th Street at market rate of $2,595 per month (A. 134-53). That lease contained a provision stating: “5. Rent Stabilization The Tenant acknowledges and agrees that this lease and tenancy created hereby are not subject to ‘Rent Stabilization’, Rent Control or similar rule or regulation and the Tenant has no right to extend, renew or otherwise remain in occupancy beyond the term set forth here” (A. 135). An affirmance would mean that the Hunters, and thousands of similarly situated tenants, will (1) have their rents reduced by hundreds of dollars per month; (2) receive thousands of dollars in “refunds,” (3) obtain a rent stabilized status they never expected to have, and (4) have their future rent increases limited to stabilization guidelines. These tenants do not need deserve such generosity.

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B.

Affirming the Appellate Division’s Ruling, Especially on a Retroactive Basis, Would Financially Devastate the Owner and All Similarly Situated Owners Thousands of apartments have been luxury deregulated since 1993. The

website of the New York State Tenants & Neighbors Coalition Inc. asserts, pursuant to a 2003 study, that “since 1993, a total of 99,000 rent-controlled and rent-stabilized

apartments

were

deregulated

through

high-rent

vacancy

decontrol. . . .”13 The same website states that “[i]n the past decade we have lost nearly 200,000 apartments to high-rent and high-income decontrol” (emphasis supplied). According to the New York City Rent Guidelines Board’s June 3, 2008 report entitled “Changes to the Rent Stabilized Housing Stock in New York City in 2007,” between 1994 and 2007, 4,223 stabilized units were high income luxury deregulated, and 71,027 were vacancy luxury deregulated.14 The latter figure, which was based on the number of units registered with DHCR as vacancy decontrolled, is an undercount, at least to the extent that registrations for apartments exiting the system were not required until after 1997. Given that since 1994, anywhere between 55,000 and 145,000 units were receiving J-51 benefits at any given time,15 it is safe to assume that thousands of 13

See www.tandn.org/rent_reg_overview.html.

14

See www.housingnyc.com/downloads/research/pdf_reports/changes2008.pdf.

15

See www.housingnyc.com/downloads/research/pdf_reports/08HSR.pdf.

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apartments were receiving J-51 benefits at the time they were luxury deregulated, and thus, like the apartments herein, will be affected by this Court’s ruling. Should this Court affirm, the financial injury to the Owner would be staggering; indeed, the Tenants estimate that the “damages” at Peter Cooper Village and Stuyvesant Town alone would be $215,000,000 (A. 51, 55-56). As the New York Observer reported: “. . . Tishman Speyer would owe in the ballpark of $200 million. Should the landlord indeed have to re-regulate its apartments, their financial troubles at the property would grow markedly, casting further doubt on their ability to afford their debt payments.” After Big Stuy Town Ruling, All Eyes on Appeal, New York Observer, March 6, 2009 at www.observer.com/2009/real-estate/after-big-stuy-town-ruling-all-eyesappeal. Similarly, in a March, 2009 report, the non-profit Citizens Housing & Planning Council reported: “In any event some owners will find that their rental revenues will go down, in some cases, drastically, while their legal fees go up. Moreover they may be liable for substantial refunds to tenants. For owners, such as those at STPCV, who are counting on ever increasing revenues to pay off their mortgages, this will make a difficult financial position worse. For other owners, who were not over mortgaged, they may find sudden, unexpected, declines in income accompanied by requirements to make refunds.” - 41 RE\67070\0012\402649v1

RSA respectfully submits that an affirmance would lead to unjust consequences, i.e., billions of dollars flowing from an already distressed real estate industry to wealthy tenants who never, in their wildest dreams, expected a refund or stabilization status. C.

An Affirmance Would Injure the Financial Community Lenders will also be injured, at a time when the financial sector is already

reeling. Lenders determine the value of an apartment building in much the same fashion as the City does: the lender looks at the building’s rent roll and applies the appropriate capitalization rate. Loans are then advanced based on that valuation. If this Court were to adopt the Tenants’ position, the rent rolls of buildings at Peter Cooper Village and Stuyvesant Town, and the rent rolls of buildings similarly situated, would decline precipitously. In the event of a foreclosure (a reasonable possibility at certain buildings given reduced income), and given the current economic climate, the value of a building may be less than its mortgage. D.

An Adverse Ruling Would Impact the City’s Housing Stock

Negatively

In addition to the obvious harm to owners, an adverse decision would likely impact the housing stock of the City of New York. This case concerns the extent to which receiving J-51 benefits impacts an owner’s right to avail itself of luxury deregulation. The City’s J-51 program is intended to encourage owners to improve New York City’s housing stock by - 42 RE\67070\0012\402649v1

granting owners real property tax exemptions and abatements to offset increases in real property taxes resulting from improvements. See, Kraebel v. New York City Dep’t of Housing Preservation & Development, 959 F.2d 395, 398 (2d Cir. 1992); see also, 31171 Owners Corp. v. New York City Dep’t of Housing Preservation & Development, 190 A.D.2d 441, 442-43, 599 N.Y.S.2d 19 (1st Dep’t 1993). If this Court adopts the Tenants’ position, owners of otherwise stabilized buildings will forego J-51 benefits in the future in favor of far more lucrative luxury deregulation. Correspondingly, such owners will forego the types of routine repairs and improvements that J-51 benefits helps underwrite: new boilers, roofs, windows, plumbing and painting work. Owners would make do with mere repairs, and would patch, rather than replace, aging systems. In short, an adverse decision would discourage the maintenance and improvement of New York City’s housing stock and undermine the J-51 program. Conversely, luxury deregulation encourages owners to maintain their property at the highest possible standards. Tenants who pay market rents have many rental housing options, and owners must compete for them. Owners do this by improving and maintaining their buildings; the better the building, the higher the rents that can be charged. Needless to say, rent regulated tenants also benefit from such upkeep.

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E.

An Adverse Ruling, Especially if Made Retroactive, Would Negatively Impact the City’s Real Estate Tax Collections If the Tenants prevail, rents at Peter Cooper Village and Stuyvesant Town

(and in buildings similarly situated) will decrease sharply. Apartments that were previously luxury deregulated will become stabilized again, and owners will be limited in the future to modest stabilization increases. Such a result, however, would also impact on the City’s real estate tax base. Real estate tax assessments for income producing property, such as apartment buildings, are largely a function of a building’s rent roll. As such, a reduction in a building’s gross rents will result in a correspondingly lower assessment, and thus lower tax collections for the City.

The City, already

struggling with budget gaps and service cuts, cannot afford to lose tens of millions of dollars in tax revenues. Starting in 1994, assessments and tax bills for the class of buildings at issue began to increase based upon additional income generated by luxury deregulated apartments renting at market rates. The City has collected those taxes -- no doubt in the tens of millions of dollars -- for the past 15 years. An adverse decision would likely result in untold millions in tax refunds by the City relating to wrongly assessed properties.

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CONCLUSION FOR THE REASONS SET FORTH HEREIN, THE ORDER OF APPELLATE DIVISION SHOULD BE REVERSED

Dated: New York, New York August 31, 2009

Respectfully submitted, ROSENBERG & ESTIS, P.C. Counsel for Amicus Curiae Rent Stabilization Association of NYC, Inc. By: Jeffrey Turkel 733 Third New York, New (212) 867-6000

JEFFREY TURKEL NICHOLAS KAMILLATOS Of Counsel

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York

Avenue 10017