Real Estate Suffers Setback in 421a Class Action Lawsuit

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

Tenants in a Bushwick building scored a victory against their landlord in court this week, which could be a harbinger of headaches to come for the real estate industry.

A New York State Supreme Court judge ruled that the tenants’ suit, which accuses landlord Spruce Capital Partners of rent overcharges at 1209 Dekalb Avenue, would continue. The landlord and three influential trade groups had petitioned the court to dismiss the case.

It’s one of seven separate cases where tenants are seeking class action status against landlords who received 421a tax abatements and then allegedly illegally inflated rents at their properties. The complaints were filed in the past seven months after investigations by the watchdog group Housing Rights Initiative.

Though the judge’s decision in Spruce Capital’s case does not bind judges in the other cases, tenant advocates see it as a positive development.

“This decision is 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,” Aaron Carr, the founder of HRI, said in an email. “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.”

At the heart of the lawsuits is the question of whether it’s legal to offer concessions on the initial rent for a unit in the 421a program. If the tenants prevail, the outcome of these cases would have widespread implications for developers using 421a and offering concessions to renters.

In a joint statement, Real Estate Board of New York, the Community Housing Improvement Program and the Rent Stabilization Association — which had filed a motion to appear in support of several of the landlords and argued for the tenants’ complaints to be dismissed — said the decision in Spruce Capital’s case was based on the “favorable presumptions afforded by law to the plaintiffs” and does not answer or address the legal arguments put forward by the landlords’ attorney or the industry.

“As the case advances, we fully expect the Court to find that rent concessions are important government-endorsed tools to help recompense tenants in times of inconvenience,” the groups said in the statement.

Nativ Winiarsky, a partner at Kucker Marino Winiarsky & Bittens, is representing a landlord in one of the other six cases. He said it’s concerning that the court did not defer to the “long-standing” precedent set by the Division of Homes and Community Renewal to permit limited rent concessions.

“Needless to say, given the large-scale impact of these decisions, it will no doubt only ultimately be resolved at the appellate levels and possibly the Court of Appeals,” said Winiarsky in an email.

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

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