OPINION OF THE COURT
MARCY S. FRIEDMAN, J.
In these declaratory judgment actions, plaintiffs seek a determination that they are rent-stabilized tenants of Independence Plaza North (IPN), a former Mitchell-Lama complex in Lower Manhattan. In the Independence Plaza North Tenants' Association action (IPN action), plaintiffs are tenants who were in possession of
By decision dated September 26, 2007, this court denied defendants' motion for summary judgment, without prejudice to renewal after completion of discovery regarding the circumstances under which IPN received J-51 benefits after the exit date and such benefits were terminated. The Denza plaintiffs subsequently moved to remand the matter to the New York State Division of Housing and Community Renewal (DHCR) for a determination of their rent-stabilized status. Defendants moved for summary judgment dismissing the complaint, and plaintiffs cross-moved for a declaration, in the event of denial of their remand motion, that their apartments are rent stabilized. These motions were decided by decision dated April 3, 2009 (remand decision). This decision stayed the parties' summary judgment motions pending remand to the DHCR. By stipulation dated April 23, 2009, the parties agreed to remand the IPN action to the DHCR for determination of the rent stabilization issue "under [the] same terms as [the] remand order" in the Denza action. By determination dated March 5, 2010, the DHCR held that IPN "is not subject to the Rent Stabilization Law and Code." (DHCR determination at 7, available at http://ipnta.org/ pdfs/DHCR%20Determination_Mar_9_2010.pdf, cached at http://www.nycourts.gov/reporter/webdocs/DHCR_Determination_Mar_9_2010.pdf.)
In the Denza action, defendants now move to lift the stay of the action that was imposed pending the DHCR remand and for summary judgment dismissing plaintiffs' complaint, based on the DHCR determination. Plaintiffs cross-move for summary judgment declaring that their apartments are rent stabilized. In the IPN action, plaintiffs move for partial summary judgment declaring that their apartments are rent stabilized, and defendants
As discussed at greater length in the remand decision, the following material facts are undisputed: IPN, a complex containing 1,331 residential units, was constructed after January 1, 1974 and was rent regulated under the Mitchell-Lama program, pursuant to article II of the New York State Private Housing Finance Law.
As a threshold matter, the court holds that it is not bound by, and declines to follow, the DHCR's remand determination. It
In remanding the issue of plaintiffs' rent stabilization status to the DHCR, this court reasoned that the Rent Stabilization Law does not explicitly address whether apartments in a building which, like IPN, qualified for J-51 benefits because it was regulated as a Mitchell-Lama project under the Private Housing Finance Law, become rent stabilized if the building continues to receive the same J-51 benefits after the building exits the Mitchell-Lama program. (Denza v Independence Plaza Assoc., LLC, 2009 NY Slip Op 30759[U], *8 .) The court also reasoned that a central issue in this case is whether 28 RCNY 5-07 (f) (3), the regulation that implements the J-51 program, should be interpreted as mandating termination of J-51 benefits upon termination of the Private Housing Finance Law regulation. The court found that HPD did not cite section 5-07 (f) (3) as the basis for the termination, and did not otherwise take the position that the J-51 benefits terminated by operation of law, or that the regulatory framework mandated termination of the J-51 benefits upon IPN's exit from the Mitchell-Lama program. The court found, rather, that the evidence on the remand summary judgment motions "unequivocally confirm[ed] that HPD treated the termination of the benefits as a discretionary act, not as a mere ministerial act to correct the inadvertent continuation" of J-51 benefits after IPN's exit date. (Id. at *5.) The
On remand, however, the DHCR did not draw upon its expertise to reach the merits of plaintiffs' claim of rent stabilization status. Rather, the DHCR held that HPD, as the agency that administers the J-51 program, had terminated the J-51 benefits for the complex effective as of the exit date. It further found that HPD's determination must be afforded a "presumption of regularity" and was "controlling" upon the DHCR. (DHCR determination at 6.) The DHCR reasoned:
The court finds, moreover, that the DHCR's analysis misapprehended the issues that must be decided in order to determine plaintiffs' rent stabilization status. The issue is not whether HPD terminated the J-51 benefits, but whether the dwelling units at IPN became subject to the Rent Stabilization Law as a result of the receipt of the benefits, and whether the termination was the result of a waiver of the benefits by defendants. Determination of this issue presents difficult and novel issues of interpretation of a complex regulatory framework,
J-51 benefits are authorized and governed by the Real Property Tax Law, the Administrative Code of the City of New York, and the Rules of the City of New York. RPTL 489 (1) (a) authorizes municipalities to exempt from taxation increases in the assessed valuation of real property resulting from qualifying alterations or improvements. Administrative Code of the City of New York § 11-243 (formerly Administrative Code § J51-2.5) is the local legislation that provides for tax exemptions for qualifying improvements pursuant to the RPTL. The Rules of the City of New York (28 RCNY 5-01 et seq. [J-51 rules]) implement the local legislation. Administrative Code § 11-243 (i) (1) provides that J-51 benefits
28 RCNY 5-03 (f) requires a building receiving J-51 benefits to be subject to rent regulation during the period of receipt of such benefits. Under this section, dwelling units in the building may be subject to any of the enumerated alternative forms of rent regulation—namely, the Rent Control Law, the Rent Stabilization Law, the Private Housing Finance Law, any federal law providing for rent supervision or regulation by any federal agency, and the Emergency Tenant Protection Act of 1974.
28 RCNY 5-03 (f) (3) (ii) provides: "Rent regulation shall not be terminated by the waiver or revocation of tax benefits."
In its denial of defendants' pre-discovery summary judgment motion, the court stated that 28 RCNY 5-07 (f) (3) appeared to contemplate that J-51 benefits would be terminated by the City of New York where the building ceased to be subject to the form of rent regulation that qualified it for receipt of J-51 benefits—
The court now holds that 28 RCNY 5-07 (f) (3) does not provide for mandatory termination of J-51 benefits when a Mitchell-Lama project exits the program, and that IPN became subject to the Rent Stabilization Law upon exiting the program as a result of its receipt of J-51 benefits. By its terms, 28 RCNY 5-07 (f) (3) requires the Commissioner of HPD to withdraw J-51 tax exemption benefits granted to a building only where "[t]he building ceases to be subject to the rent regulatory provisions of law set forth in § 5-03(f)(1)." Defendants do not cite any legal authority in support of their reading of 28 RCNY 5-07 (f) (3) as requiring termination of J-51 benefits by operation of law when a building exits the Mitchell-Lama program and the Private Housing Finance Law (i.e., Mitchell-Lama) regulation that qualified the building for the receipt of J-51 benefits therefore ceases. As the discovery in this action revealed, HPD itself did not advance such a reading of the regulation. (See infra at 878-880.) Nothing in the language of section 5-07 (f) (3) or of section 5-03 (f) (1) provides for mandatory termination of the J-51 benefits when the initial form of rent regulation that qualified a building for J-51 benefits ends.
These J-51 regulations must also be read in light of Rent Stabilization Law (Administrative Code) § 26-504. The first sentence of section 26-504 (c) provides that the Rent Stabilization Law shall apply to "[d]welling units in a building or structure receiving the benefits of section 11-243 or section 11-244 [formerly sections J51-2.5 and J51-5.0] of the code ... not owned as a cooperative or as a condominium, [with exceptions not here relevant] and not subject to chapter three of this title [Rent Control]." (Local Law No. 60  of City of NY § 12 [adding this provision to former Administrative Code § YY51-3.0, the substantially identical predecessor of section 26-504 (c)].) This provision is subject to section 26-504 (a) (1) (b), which exempts from rent stabilization coverage dwelling units in a building subject to regulation under the Private Housing Finance Law. Section 26-504 (a) (1) (b) and (c) must be given their "natural reading." (See generally Roberts, 13 NY3d at 286.) Read together, these sections extend rent stabilization coverage to units in buildings based on receipt of J-51 benefits if, but only if, the building is no longer rent regulated under the Private Housing Finance Law. Put another way, upon the termination of a statutory exemption from rent stabilization coverage, the units revert, or become subject, to coverage,
In the instant case, it is undisputed that IPN continued to receive J-51 benefits for two years after it exited the Mitchell-Lama program. On the above analysis of the statutory and regulatory framework, as a result of the receipt of such benefits, all dwelling units at IPN became subject to regulation under the Rent Stabilization Law after IPN exited the Mitchell-Lama program.
The court notes that its interpretation of the statute is supported by the DHCR's own analysis. In its remand determination, the DHCR thus stated:
The court's analysis of the statutory and regulatory framework is also fully consistent with HPD's determination terminating the benefits. As held in the remand decision and reaffirmed here, HPD's determination to terminate IPN's J-51 benefits was discretionary not mandatory. The basis for HPD's determination is evidenced solely by the following three records: First, a Department of Finance Web site showed March 29, 2006 as a "change date," with the sole "comment" that J-51 benefits were "terminated 6/28/04." Second, a letter from HPD to the Department of Finance, dated March 23, 2006 (exhibit Q to plaintiffs' remand cross motion), stated in pertinent part:
Third, a letter from HPD's then Commissioner Shaun Donovan to Borough President Scott Stringer, dated June 7, 2006 (exhibit J to plaintiffs' remand cross motion), explained: "HPD, after reviewing the facts as well as equitable and public policy considerations, determined that the J-51 Abatement should have been terminated on the Dissolution Date." (Emphasis supplied.) This letter further stated that when IPN left the Mitchell-Lama program, the owner and tenant association negotiated an "exceptional agreement" that provided "lifetime rent protection," and that to undermine the settlement "would not only potentially harm the tenants of IPN," but could have "a chilling effect on negotiations" between landlords and tenants in other Mitchell-Lama projects.
Clearly, none of the three records which evidences HPD's determination to terminate IPN's J-51 benefits made any mention of 28 RCNY 5-07 (f) or of any statutory or regulatory requirement that J-51 benefits be terminated upon the termination of the form of rent regulation (here, Private Housing Finance Law or Mitchell-Lama) that qualified the premises for the receipt of J-51 benefits. Nor did any of these records indicate that upon IPN's exit from the Mitchell-Lama program, the J-51 benefits terminated by operation of law, or that HPD's retroactive termination was a ministerial act to correct an inadvertent continuation of J-51 benefits after IPN exited the program. On the contrary, the Commissioner's letter makes clear that HPD exercised its discretion in terminating the J-51 benefits, taking into account "equitable and public policy considerations."
The discretionary nature of HPD's determination is highlighted by the fact that, in the case of Starrett City, a massive post-1974 project which was receiving J-51 benefits as of the date the project exited the Mitchell-Lama program, HPD took an apparently contrary position on the effect of receipt of J-51 benefits as of the exit date. Thus, in testimony before Congress
In holding that plaintiffs' units are covered by the Rent Stabilization Law, the court categorically rejects defendants' contention that IPN never received J-51 benefits after it exited the Mitchell-Lama program, and therefore could not have become subject to the Rent Stabilization Law as the result of receipt of such benefits. As this court held in denying defendants' pre-discovery summary judgment motion, defendants' claim that they never received J-51 benefits after the exit date is a mere legal fiction based on HPD's retroactive termination of the benefits in 2006 and defendants' repayment of benefits actually received between the June 28, 2004 exit date and HPD's termination. (Denza v Independence Plaza Assoc., LLC, 17 Misc.3d 1122[A], 2007 NY Slip Op 52106[U], *2-3 .)
The court also rejects defendants' contention that plaintiffs' claims are barred by HPD's termination of the benefits because their sole remedy for challenging HPD's determination was to bring a CPLR article 78 proceeding which is now time-barred. The cases cited by defendants do not support this contention, as they all involved determinations by government agencies that were conducted publicly and on notice to the aggrieved parties who were then held subject to the statute of limitations for challenge to the agencies' determinations. (Branch v Riverside Park Community LLC, 74 A.D.3d 634 [1st Dept 2010], affg 24 Misc.3d 1226[A], 2009 NY Slip Op 51626[U] [Sup Ct, NY County 2009] [statute of limitations barred petitioner tenants' article 78 proceeding challenging Educational Construction Fund resolution to amend ground lease to delete requirement that building was to be used only for residential purposes for low- and moderate-income persons, where resolution was made after public hearing]; 90-92 Wadsworth Ave. Tenants Assn. v City of N.Y. Dept. of Hous. Preserv. & Dev., 227 A.D.2d 331 [1st Dept 1996] [statute of limitations barred petitioner tenants' article 78 proceeding challenging HPD approval of loan, where loan was made after HPD had complied with all notice requirements to tenants]; Holman v Goldome Bank, 127 Misc.2d 615 [Sup Ct, NY County 1985] [statute of limitations barred plaintiff tenants' declaratory judgment action, which could have been brought as article 78 proceeding, to challenge HPD approval of
Under the circumstances here, where no public hearing was held, plaintiffs had no obligation to challenge HPD's determination in an article 78 proceeding. Defendants do not claim that there was any statutory or regulatory requirement that plaintiffs be given notice before HPD made its determination terminating the J-51 benefits. Indeed, as discussed more fully below, the record demonstrates that HPD made the determination after holding closed-door meetings with defendant owners' representatives. There is also a serious question as to whether plaintiffs would have had standing to challenge termination of an owner's tax abatement. (See generally Branch v Riverside Park Community LLC, 74 A.D.3d 634 , supra.)
In any event, a challenge to HPD's determination was not necessary, as HPD's retroactive termination of benefits does not preclude the finding that plaintiffs' units are rent stabilized. While according full force and effect to HPD's retroactive termination, the court holds, as stated above, that the issue is not whether the benefits were terminated but whether they were waived. Significantly, in terminating the benefits, HPD did not have jurisdiction to make, and did not make, any finding that plaintiff's units were not subject to the Rent Stabilization Law. Nor did HPD address the critical issue of whether defendants were waiving the J-51 benefits.
The court further holds that the uncontroverted record on the summary judgment motions demonstrates as a matter of law not only, as already held, that HPD's determination to terminate the benefits was discretionary, but also that HPD's determination was made at defendants' instance and was based on an impermissible waiver by defendants of benefits that is ineffective, under 28 RCNY 5-03 (f) (3) (ii), to terminate rent stabilization coverage of plaintiffs' units.
More particularly, HPD terminated the benefits only after plaintiffs made an inquiry to defendants about the effect of continuing receipt of J-51 benefits on plaintiffs' tenancies. By letter dated July 20, 2005 (exhibit F to plaintiffs' remand cross motion), the president of IPN's tenants association wrote to Laurence Gluck, defendants' principal, advising him that the tenants had become aware of IPN's continuing receipt of J-51 benefits, and asking the owner to address the impact on the tenancies. Following this letter, between September 2005 and
According to Mr. Siroka's testimony, as of IPN's exit date, HPD had "no automatic process" for terminating J-51 benefits (see id. at 96-97), and the issue of whether to terminate the J-51 benefits for an exiting post-1974 Mitchell-Lama project was one of "first impression" for HPD. (Id. at 51, 97.) Mr. Siroka repeatedly testified that, at the meetings, defendants presented "our position" that when IPN exited the Mitchell-Lama program, the Commissioner should have terminated the J-51 benefits under the J-51 regulations. (Id. at 45, 62-63, 72.) He also confirmed that defendants submitted a brief to HPD in support of their position, although defendants' position was not otherwise documented in writing. (Id. at 64-66; exhibit G to remand motion, separately bound exhibits [e-mail from Siroka to Shafit, dated Sept. 8, 2005, annexing brief].)
Only after this series of meetings between defendants and HPD did HPD issue the March 2006 letter, cited above, notifying the Commissioner of Finance to terminate IPN's J-51 benefits retroactively. Defendants do not point to any evidence and, in fact, do not even claim, that HPD undertook, sua sponte, to review IPN's receipt of J-51 benefits. Rather, the only supportable inference on this record, including defendants' own counsel's testimony as to the proceedings before HPD, is that defendants requested that HPD retroactively terminate IPN's J-51 benefits, and HPD then exercised its discretion to grant defendants' request. As IPN had become subject to the Rent Stabilization Law based on the receipt of those benefits, however, the waiver was ineffective, under 28 RCNY 5-03 (f) (3) (ii), to terminate rent stabilization coverage. (See also Matter of Fashion Place Assoc. v New York City Dept. of Hous. Preserv. & Dev., 224 A.D.2d 280 [1st Dept 1996], lv dismissed 89 N.Y.2d 917  [waiver of J-51 tax benefits ineffective to terminate rent stabilization status of post-1985 tenants].)
Finally, the court holds that each plaintiff's apartment is subject to rent stabilization coverage until vacancy of that apartment by the tenant, based on defendants' failure to comply with
RPTL 489 (7) (b) (2),
Defendants also contend that because IPN first received J-51 benefits after June 19, 1985, its receipt of the J-51 benefits does not subject it to rent stabilization under this RPTL provision. This contention is barred by Roberts v Tishman Speyer Props., L.P. (13 N.Y.3d 270 , supra) in which the Court of Appeals recently held that J-51 benefits first received in 1992 made an apartment complex subject to rent stabilization and precluded
Defendants' emphasis on RPTL 489 (7) (b) (2) ignores that this statute does not preclude rent stabilization coverage under other provisions that are part of the regulatory framework. Prior to the enactment of section 489 (7) (b) (2), the receipt of J-51 benefits subjected dwelling units in a building to rent regulation only during the period in which the J-51 benefits were received. (See L 1985, ch 288, § 6.) The enactment of this statute provided retroactive vacancy decontrol protection to tenants who were covered by rent stabilization as a result of the owner's receipt of J-51 benefits as of the June 19, 1985 effective date. As this court noted in its September 26, 2007 decision, section 489 (7) (b) (2) is of limited application. While it applies only if J-51 benefits were received before its effective date (Walsh v Wusinich, 32 A.D.3d 743 [1st Dept 2006] [dictum]), it is part of a larger regulatory scheme which extends rent stabilization coverage to buildings that receive benefits after June 1985.
The court is unpersuaded by defendants' argument that they could not have anticipated the applicability of the vacancy destabilization provisions and, hence, could not have included notices in their tenants' leases that rent stabilization would
Finally, the court recognizes that at the time of IPN's exit from the Mitchell-Lama program, defendants entered into a reasonable agreement with the tenants to accept Section 8 vouchers for those who qualified, and to provide long-term rent protection with limited rent increases, which tracked or did not significantly exceed rent stabilization increases, for tenants who did not qualify for vouchers. Defendants understandably are aggrieved by the tenants' repudiation of this agreement. However, this agreement cannot serve to void the coverage of plaintiffs' units under the Rent Stabilization Law, and defendants do not argue otherwise. (See Riverside Syndicate, Inc. v Munroe, 10 N.Y.3d 18 ; Rent Stabilization Code § 2520.13 [an agreement by a tenant to waive the benefit of any provision of the Rent Stabilization Law is void].) This court is accordingly constrained, by defendants' own waiver of the J-51 benefits, to conclude that plaintiffs' units are subject to the Rent Stabilization Law.
Accordingly, in Independence Plaza N. Tenants' Assn. v Independence Plaza Assoc., L.P. (index No. 113831/04), it is ordered that plaintiffs' motion for partial summary judgment is granted to the extent that it is ordered, adjudged and decreed that each plaintiff's apartment is subject to the Rent Stabilization Law and shall remain subject until the vacancy of that apartment by the tenant of that apartment; and it is further ordered that defendants' motion to stay determination of this action is denied as moot; and in Denza v Independence Plaza Assoc., L.P. (index No. 117673/05), it is ordered that defendants' motion is granted
This regulation is not part of the J-51 regulations but, rather, implements the Mitchell-Lama program. The Mitchell-Lama program provides for its own tax exemptions, separate and apart from J-51 tax exemptions, as a means of encouraging the development of low- and middle-income housing. (See Private Housing Finance Law §§ 11, 33; Matter of KSLM-Columbus Apts., Inc. v New York State Div. of Hous. & Community Renewal, 5 N.Y.3d 303 .) There is no mention in the regulation of J-51 benefits, and no authority that supports defendants' supposition that the regulation requires notice of a Mitchell-Lama project's ineligibility, as a result of dissolution, for anything other than the tax benefits provided to Mitchell-Lama projects under the Private Housing Finance Law.
Similarly, defendants submit a letter from IPN to the Department of Finance, dated June 28, 2004, which by its terms gives notice, pursuant to 28 RCNY 3-14 (i) (12), of the dissolution of IPN effective as of June 28, 2004, and advises: "In connection with such dissolution, the Property shall forthwith be restored to a full taxpaying position effective as of the dissolution Date." (Exhibit A to Siroka aff on remand motion.) This letter is silent as to J-51 benefits. There is no authority for defendants' contention that the letter is anything other than a notice of IPN's ineligibility, as a result of dissolution, for the tax benefits provided to Mitchell-Lama projects under the Private Housing Finance Law, as opposed to J-51 tax benefits received under the RPTL.
Rent Stabilization Code § 2520.11 provides, in pertinent part, that the Code shall apply to all housing accommodations made subject to regulation pursuant to the Rent Stabilization Law, except: