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New York’s real estate lobby is facing a “colossal setback” after a New York State Supreme Court judge allowed a class action lawsuit filed by a group of Brooklyn tenants to progress.
The tenants, who live in Brooklyn’s Bushwick neighborhood, filed the class action lawsuit against their landlord, Spruce Capital Partners, for overcharging rent and abusing 421a tax abatements.
The decades-old 421a tax exemption program encourages the development of underutilized or unused land by drastically reducing property taxes for a set amount of time.
The case against Spruce Capital Partners is one of seven class action lawsuits that New York City landlords are facing over allegedly inflating rents on properties subject to 421a abatements, The Real Deal reports.
These rent inflation class actions were filed after an investigation by housing advocacy group Housing Rights Initiative. In the investigation, the group discovered the alleged abuses, whereby landlords offer concessions on initial leases to tenants giving a preferential rent while recording a higher monthly rental amount with the Division of Housing and Community Renewal —which allows for greater annual rent increases.
Concessions are generally either a temporary reduction in costs, like giving tenants one month free rent, or a material item, such as free services.
Spruce Capital Partners and three influential trade groups petitioned to have the case against the Brooklyn tenants thrown out, but a New York State Supreme Court judge has ruled that the tenants’ class action lawsuits can move forward.
Housing Rights Initiative founder Aaron Carr told The Real Deal that the decision was a “colossal setback, not just for the landlord in this case, but for the real estate lobby who tried and failed to get it dismissed.”
“The real estate lobby is concerned that if this class action is successful, our organization will investigate every single landlord that is cheating on their 421a tax benefits. And they are correct.”
The Real Estate Board of New York, Community Housing Improvement Program, and Rent Stabilization Association —which all argued for the case to be dismissed — said in a joint statement to The Real Deal that the decision did not answer or address the legal arguments put forward by the landlords’ attorney or the industry, and was based on “favorable presumptions” afforded to the tenants by law.
The groups expected the court to find that concessions were an important tool to reimburse tenants at times of inconvenience, the statement said.
In October 2020, Matan Kurman of Spruce Capital Partners told The Real Deal that the allegations brought by the tenants in the class action lawsuit were unfounded and said that the company intended to vigorously defend itself.
If the law rules in favor of the tenants in the several class action lawsuits, there could be widespread implications for landlords and the use of concessions on 421a properties.
In January, Georgia tenants scored a major victory when apartment management company ECI Group agreed to payout $2.4 million to tenants after allegedly not refunding full security deposits due to damage.
Have you ever been offered a concession on a rental? Let us know in the comments section!
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