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Could your apartment BECOME rent-stabilized? A high-stakes court case could make 100,000 apartments regulated again

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It's common, nay, reasonable to daydream about one day discovering that your market-rate apartment is actually rent stabilized and the rent should be dramatically lower than what you're paying. That dream may be a lot closer to becoming reality than many people realize thanks to a case wending its way through the court system right now.

The short version: The state's highest court is getting ready to consider a West Village landlord-tenant case that has the potential to re-rent-stabilize as many as 150,000 apartments and prompt scores of additional legal battles lasting for years to come.

The case, Altman v. 285 West Fourth LLC, known in real estate circles as “the Altman case,” gets its potentially huge impact from a lower appeals court's decision in 2015 that cut against how the state and landlords had been treating rent-stabilized apartments for the last two decades.

Rent stabilization has been around since the 1970s, and changed dramatically in the mid-'90s, when legislators introduced new ways for building owners to deregulate apartments. The city has lost 284,000 rent-stabilized apartments since then, and of those, 152,000 were deregulated through the new means: under the new version of the law, owners could increase the rent 20 percent when an apartment became vacant, increase it further based on a percentage of claimed renovation costs, and deregulate the unit when those methods combined to take the rent above a certain amount. Or so everyone thought.

'This would be huge' for renters

When the 2015 Altman decision came around, landlord lawyers, tenant advocates, and state regulators all agreed that when an apartment was empty and a landlord spent enough money sprucing it up, it could be turned market-rate. What the judges in the Altman case said, and what state legislators seemed to codify in an updated rent law later in 2015, is that actually an apartment's rent has to go over the cap while a tenant is living there in order for it to be deregulated. This means that if, for example, a tenant paying $1,800 for a two-bedroom moves out and the landlord does work enough to raise the rent to $2,800, above the current cap, the apartment is still stabilized until the next tenant moves out.

If that framework were retroactively applied to apartments deregulated the old way, which a New York Court of Appeals decision in Altman could do, “In practical terms this would be huge,” says Emily Goldstein, an organizer with the Association for Neighborhood and Housing Development, an affordable housing advocacy group. “First of all, just to re-regulate a number of apartments would be significant. It would also change the calculus of the decisions that landlords make when they try to deregulate apartments.”

She explains, “Part of why it’s so common for landlords to reach the threshold during a vacancy is that when it’s vacant there’s no one there to keep track of whether they’re doing work or not, and when a new tenant comes in, often not knowing what it is to be regulated, there is often a lot of work that has to be done to figure out even that maybe there should be regulation.”

As things are currently set up, it's on the tenant to request his or her her apartment's rent history from the state, then consult with a lawyer to see if she might have been overcharged or improperly denied rent stabilization status, and then file a formal complaint to even get the landlord to produce receipts for the renovations he's claiming. Also, with some exceptions for out and out fraud, tenants only have four years to challenge suspected illegal rent increases, after which they become legal.

“To change that process so that [renovation] would be done in a way where a tenant pays attention to what’s going on, because the work is done with someone in the apartment, it would be a lot harder to go against the law or the intent of the law and exploit the lack of oversight that exists,” Goldstein says.

So far, no one seems to know what the 2015 Altman decision means. Landlords' approach to registering rent increases on vacated apartments with the state has varied wildly, and some judges have bucked the ruling, including some in lower courts who are supposed to abide by it, treating rent increases the same as they did before.

The landlord community is watching the case's progress through the courts closely, with the Real Estate Board of New York, and the Rent Stabilization Association and others filing friend of the court briefs in support of the appeal, and owner-side attorneys devoting hours at industry conferences to discussing the case.

Mitchell Posilkin, general counsel for the Rent Stabilization Association, said that he believes the appeals court will see the error of the lower court judges' ways.

“The Altman decision was wrong because the court’s incorrectly read the statute and incorrectly interpreted the statute to mean that deregulation is determined based upon the rent paid by the tenant immediately prior to vacancy, as opposed to the legal rent which would be charged after vacancy,” he says, adding that the nearly two decades of enforcement that preceded the decision should count for something.

“We believe that the way DHCR and the courts have been interpreting this decision since 1997 has been correct and that should carry weight,” he says.

Uncertainty ahead

If the decision is upheld and retroactively applied to deregulated apartments, there is a great deal of room for uncertainty and further fights over what that means. For example, what should rents in re-regulated units be set at? Should it be turned back to the last stabilized rent? Should annual rent increases since the last regulated rent be incorporated into the new rate? Should tenants be entitled to damages for the difference between the market rent and the stabilized rent? Should those damages be just the difference between the rent amounts over the years, or should they be the triple damages renters get when an overcharge is “willful”?

What about apartments that have been vacated and improved more than once?

“It's going to be a blank-storm in terms of figuring out what Altman means,” Sherwin Belkin, founding partner of the law firm Belkin Burden Wenig & Goldman, told the audience at a large-building landlord conference workshop earlier this month, saying that the main source of the pain will be determining what the overcharge rules are. Belkin's firm prepared industry-side court filings in support of the landlord in Altman.

An inadvertent activist

The man behind the lawsuit never expected any of this.

“I’m just a guy who wants to have my apartment,” Richard Altman tells Brick Underground. “I certainly didn’t want this to become what it’s become. I didn’t want to be a poster boy. I’ve done tenant work. I feel strongly about this. But I never sought this out.”

Altman is an intellectual property and media attorney who has also done some real estate lawyering. His saga began in 2004, when he subletted a rent-stabilized two bedroom in the West Village. The leaseholder had moved to California, and Altman says that after 11 months, the landlord, Equity Properties, sued him to collect a 10-percent increase for the sublet, which is allowed under rent stabilization. The rent was $1,829 at the time. The two sides settled the suit in 2005 with Altman agreeing to start paying $2,482, above what was then the $2,000 stabilization cap, and signing a non-stabilized lease.

The building sold not too long after, and the new landlord had Altman sign an agreement acknowledging that the unit was not rent stabilized. And so it sat for the better part of a decade, until 2014, when Altman's rent was $4,100, which he says was getting hard to swing. He grew curious about whether there might be a way to reverse the increases, and got to looking at recent cases about rent regulation.

Then, armed with a novel legal theory, he sued with the help of lawyer Lawrence Rader.

The mid-2000s increases that Altman agreed to were, he says, “obviously very improper, because the status of an apartment can never be effected by an agreement between a landlord and a tenant. It’s apartments which are rent-stabilized or not, not tenants. If it fits within the definition, it’s rent-stabilized, whether you like it or not.”

He lost the case in state Supreme Court, but won on appeal, in a big way.

“The court said that’s clearly an illegal agreement. So they sent it back [to the lower court] to calculate the damages,” he recalls. “We did spreadsheets and so forth. The lower court judge gave me a $165,000 judgment against the landlord.”

The amount was based on the difference between what Altman paid and what the court said he should have been paying, times three. The landlord appealed again, and appeals judges affirmed the money award. Previous attempts to kick the case up to the Court of Appeals, the state's highest court, were denied, but the court finally agreed to hear it this April. The court has yet to put hearings for the case on its calendar, but they could happen as soon as this winter.

In the meantime, the money the landlord owes Altman is accruing 9 percent interest, and Altman is paying no rent, pending the outcome.

Belkin, the landlord lawyer, tells Brick that apart from the vacancy issue, the award of triple damages to Altman is “utterly shocking,” because it punishes the landlord “for what I think anyone would recognize is not only following the prevailing wisdom, but the rules that had been enunciated by the agencies and by the courts for years.”

Watching and waiting

Until the case comes up to be argued, Altman, somewhat like the city's landlords eyeing their balance sheets, is hanging on tight.

“I have a tremendous amount of anxiety about it,” he says. “I would like it to be over.”

"I was in court the other day on a housing case and I mentioned the case to the judge," he continues. "She said, 'A lot of people are waiting on this case.' I said, 'Yeah, a lot of people care about their money, but this is my life.'"

There is some consolation to be found elsewhere among members of the bar, according to Altman.

He says, “A number of lawyers, including landlord lawyers, have told me, 'We think you're going to win.'”

 

 

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