A.G. Schneiderman Announces $1.75 Million Settlement With NYC Developer Over Improper Condo Conversion Tactics

Developer Disregarded Rights of Renters During Upper East Side Building Conversion; Settlements Ensures Market-Rate Tenants Get Renewal Leases And Legal Protections, Including Additional Protections For Senior And Disabled Tenants Developer To Pay $1.5 Million To New York City Affordable Housing Fund; Brings Total Funds From AG Settlements To More Than $7 Million 

Schneiderman: Real Estate Developers Must Respect Tenants’ Rights When Converting Occupied Rental Buildings To Condominiums

NEW YORK - Attorney General Eric T. Schneiderman today announced that he has reached a settlement with 165 E Residences, LLC – the developer of a condominium conversion at 165 East 66th Street on Manhattan’s Upper East Side – for improperly terminating leases for market-rate tenants.  An investigation by the Attorney General’s Real Estate Finance Bureau found that the developer terminated 82 leases during the conversion and only allowed tenants to stay for an additional six months if they waived standard legal protections.  The settlement, which offers new leases to the 82 residents and legal protections for the tenants, brings to a close the investigation.

“Developers who convert buildings from rental to condominium ownership must respect tenants’ basic legal rights,” Attorney General Schneiderman said. “My office will stand on the side of tenants and landlords who follow the law and abide by legal commitments. We will seek justice for those who are harmed by unscrupulous developer tactics.”

The Martin Act, New York’s blue sky law, protects both apartment purchasers and tenants in buildings that are converted to cooperatives or condominiums. In addition to anti-harassment protections, tenants get an exclusive right to buy their units and, in most cases, cannot be evicted purely because the building is being converted.  To ensure that tenants have full information about their decision to continue to rent or to purchase, the law requires that developers disclose the proposed conversion plan in a document known as a “Red Herring,” which must be given to all tenants in a building before the final offering plan is accepted for filing by the Attorney General’s Office.

The 150-unit East 66th Street building has been home to residential renters, including rent-stabilized tenants, for more than 50 years.  The developer, 165 E 66 Residences, LLC, bought the almost fully-occupied building in late 2013.  Soon thereafter and continuing over the next year, the developer began inserting early termination clauses into market-rate lease renewals, which some residents alleged were inserted under false pretenses, including oral promises that the developer would not exercise the termination clause.

Then, beginning in November 2014, the developer sent notices terminating leases by declaring that a tenant’s apartment would be undergoing substantial renovations, and also attempted to identify tenants for buy-outs. Soon thereafter, the Attorney General launched an investigation into the developer’s tactics, which has resulted in today’s announced settlement.

Under the settlement obtained by Attorney General Schneiderman, 165 E 66 Residences, LLC has agreed to pay $1.5 million to New York City’s Affordable Housing - AG Settlement Fund, which was established in June 2014 to help finance affordable housing for low-income New Yorkers. This brings the total funds from AG settlements to more than $7 million.   An additional $225,000 will be paid to the Attorney General’s Office to cover the costs and expenses of the investigation.

Under the agreement, the developer will offer all remaining tenants new leases, which will extend to at least June 30, 2016, and ensure that tenants receive an exclusive right to purchase their unit. Additionally, the developer will ensure that the offering plan allows market-rate senior and disabled tenants to elect to become non-purchasing tenants, thereby guaranteeing them the right to annual lease renewals and ensuring there will be no unconscionable rent increases if they choose to remain renters.

State Senator Liz Krueger said, "Thank you to Attorney General Schneiderman for working proactively to protect tenants and ensure that proper procedures are followed during condominium conversions."

"I'm disappointed at the illegal conversion tactics in this development," said Assemblymember Dan Quart. "As New York City suffers from a housing shortage and housing costs are increasingly unaffordable, it's more important than ever for developers to play by the rules. I applaud the Attorney General and his staff for protecting my constituents and reaching a settlement that is fair for all involved."

A copy of the settlement agreement can be viewed here.

The investigation was handled by Assistant Attorney General Richard J. Shore and Bureau Chief Erica F. Buckley, both of the Real Estate Finance Bureau, and Executive Deputy Attorney General for Economic Justice Karla G. Sanchez.

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