One Of City's Largest Owners Of Rent-stabilized Apartments Agrees To Settle Allegations Of Rent Gouging

State Attorney General Spitzer today announced an agreement with Pinnacle Group, LLC to provide for redress tenants who may have been overcharged excessive rents in rent-stabilized apartments owned or managed by Pinnacle. Pinnacle is one of the largest owners of rent-stabilized apartments in New York City, owning more than 20,000 such apartments. Under the agreement, Pinnacle will retain a forensic accounting firm to review rents charged on all of its properties in New York City.

Overcharges typically occur in rent-stabilized apartments when Individual Apartment Improvements ("IAIs") are made on vacant apartments. Owners are allowed under state law to increase the monthly rent by 1/40 of the cost of the renovations plus a statutory vacancy fee, which could result in a rent increase of 17-20 percent.

Spitzer's office launched an investigation of alleged rent overcharges in rent-stabilized apartments after receiving petitions from tenants in buildings owned by Pinnacle. The OAG joined with the Division of Housing and Community Renewal ("DHCR"), which was conducting its own probe as a result of a series of articles in the Daily News. Initially, DHCR provided the OAG with the documents from 25 rent overcharge proceedings it had conducted based on complaints by tenants at the Olinville Avenue Apartments in the Bronx. In many of the closed cases, Pinnacle had conceded a rent overcharge occurred, credited the tenants with the overpayment, and adjusted the rental amounts. DHCR also initiated overcharge rent proceedings for an additional ten apartments where it believed Pinnacle could not substantiate the increase.

The OAG further requested documents related to 52 apartments at the Olinville Avenue Apartments, which had been vacant at some time during the last four years and could have been the subject of a rent overcharge. Spitzer’s office also obtained an analysis showing the amount of IAIs that would have been required to support the rent charged the post-vacancy tenants of these units.

"Because tenants do not have to approve renovations on their rent-stabilized apartments, they are left vulnerable to charges for work that may not have been necessary or even provided," Spitzer said. "Our agreement with Pinnacle will ensure that any rent increases which are set based on such improvements are correctly and lawfully calculated."

Spitzer thanked DHCR for its assistance in conducting the investigation.

Pinnacle will undertake certain actions to ensure that its accounting for and allocation of the expenses it incurs in improving the apartments and properties it owns are accurate.

Specifically, the agreement requires:

  • Pinnacle to comply with all applicable laws including but not limited to the Rent Stabilization Law for all its properties. In calculating the rents charged for rent-stabilized apartments imposed as a result of individual apartment improvements [("IAIs")] and major capitol improvements, Pinnacle will not impose rents in excess of the permissible limits. Pinnacle further agrees to register with DHCR the rent amount for each rent-stabilized apartment owned or managed by Pinnacle each year; and

  • Pinnacle to obtain a forensic accounting and investigative firm acceptable to the Attorney General and to DHCR. Forensic Investigative Associates will begin an audit of all rents set by Pinnacle for the four year period between December 15, 2002, and December 15, 2006, for each of the rent-stabilized apartments owned or managed by Pinnacle which was vacated within that four year period; and submit a copy of the audit to the Attorney General and DHCR. Should FIA find any rent that cannot be justified based on statutory increases and/or documented improvements and/or other applicable provisions of law, Pinnacle will credit to the tenant or refund to the former tenant the amount of the overcharge plus interest calculated; and

  • Submit compliance reports to the Attorney General’s office and the Division of Housing and Community Renewal. For a period of one year, the investigative agencies will monitor Pinnacle’s ongoing compliance with the approved procedures for tracking the costs of renovating individual apartments and for setting rents on newly vacated apartments.
In addition to the above described reforms, Pinnacle will be required to pay the Attorney General’s office the sum of $100,000 as costs related to this investigation.

The Pinnacle case was handled by Assistant First Deputy Attorney General Francine James, with assistance from Deputy Bureau Chief Mary Fisher Bernet of the Attorney General’s NYC Litigation Bureau, along with Sheldon Melnitsky, Managing Attorney; Gerald Garfinkle, Bureau Chief in the Office of Rent Administration; and Roderick Walters, Deputy Bureau Chief in Charge of Litigation at DHCR.

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