Real Estate Suffers Setback in 421a Class Action Lawsuit

1209 Dekalb Avenue in Brooklyn. (iStock, Kutnicki Bernstein Architects)

Tenants in a Bushwick building won a court win against their landlord this week in what could be a harbinger of a headache for the real estate industry.

A New York State Supreme Court judge ruled that tenants’ lawsuit alleging landlord Spruce Capital Partners of rent overruns at 1209 Dekalb Avenue continues. The landlord and three influential trading groups had applied to the court to dismiss the case.

It is one of seven isolated cases where tenants have sought class action lawsuit status against landlords who received 421a tax breaks and then allegedly illegally increased rents on their properties. The complaints were filed within the past seven months following an investigation by the Housing Rights Initiative monitoring group.

Although the decision of the judge in the case of Spruce Capital does not bind the judges in the other cases, the proponents of the tenants see this as a positive development.

“This decision is a colossal setback, not only for the landlord in this case, but also for the property lobby, which has tried and failed to fire them,” said Aaron Carr, founder of HRI, in an e- Mail. “The real estate lobby is concerned that if this class action lawsuit is successful, our organization will investigate every single landlord who cheats on their 421a tax breaks. And they are correct. “

At the center of the lawsuits is the question of whether it is legal to offer concessions for the initial rental of a unit under the 421a program. If tenants prevail, the outcome of these cases would have far-reaching implications for developers using 421a and offering concessions to tenants.

In a joint statement, the New York Real Estate Board, Community Housing Improvement Program, and Rent Stabilization Association, which filed for multiple landlord assistance and advocated dismissing tenant complaints, said the decision in Spruce Capital’s case was based on the “favorable presumptions granted by law to plaintiffs” and does not answer or address the legal arguments put forward by the landlord’s attorney or the industry.

“As the case progresses, we expect the court to find that rental concessions are important government-approved tools to compensate tenants during times of inconvenience,” the groups said in the statement.

Nativ Winiarsky, partner at Kucker Marino Winiarsky & Bittens, represents a landlord in one of the other six cases. He said it was worrying that the court had not waived the “long-standing” precedent of the Department of Housing and Community Renewal to allow limited rental concessions.

“Given the huge impact of these decisions, it will undoubtedly only ultimately be resolved at the appeal level and possibly the appeals court,” Winiarsky said in an email.

A representative from Spruce Capital did not immediately respond to the request for comment.

Contact Erin Hudson

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