A.G. Schneiderman Announces $540k Settlement With Manhattan Developer For Concealing Prohibited Rent-Controlled Tenant Buyouts

Agreement Requires Developer To Pay Restitution Into City-AG Affordable Housing Fund, Bringing Total In Fund From A.G. Investigations To More Than 10 Million

Schneiderman: My Office Continues To Work To Make Sure Real Estate Developers Respect Tenant Rights And New York Laws When Converting Occupied Rental Buildings To Condominiums

NEW YORK – Attorney General Eric T. Schneiderman today announced a settlement with 165 West 91st Street Holdings, LLC, a Manhattan developer, for the loss of two rent-controlled apartments in an Upper West Side building while it was being converted into a condominium, as a result of prohibited agreements to buy-out tenancy rights. The settlement requires the developer to pay a $540,000 penalty, $490,000 of which will go to the New York City Affordable Housing Fund created by the Attorney General’s office in order to compensate for lost affordable housing.

“With many struggling to find affordable housing, my office will not tolerate real estate developers who circumvent laws designed to protect rent-stabilized units,” Attorney General Schneiderman said. “I am pleased that this agreement will directly benefit hardworking New Yorkers by allowing for the creation of additional affordable housing units which will boost our communities.”  

Assembly Member Daniel O'Donnell said, “I commend Attorney General Schneiderman’s settlement on behalf of two formerly rent controlled tenants. The loss of rent regulated housing in my district is striking -- any and all attempts to bring units back into regulation are appreciated. Barring that, settlements like these are important to at least assist the tenants who have lost these units. The incentive to break the law for huge profits must be eliminated. The AG’s actions will hopefully send a strong message to owners that breaking the law does not pay.”

“A number of tenants from this building came to our office for help with tenant harassment,” said Council Member Helen Rosenthal. “Thank you Attorney General Schneiderman and your elite team for demonstrating that there will be a price to pay for property owners who blatantly disregard our housing laws. So many New Yorkers are in great need of affordable housing, and it’s appalling that some landlords will stop at no end to take back rent-regulated apartments. I hope this sends a clear message.”

The Martin Act, New York’s blue sky law, protects apartment purchasers and tenants in buildings that are converted to coops or condominiums. Tenants get an exclusive right to buy their units and, in most cases, cannot be evicted purely because the building is being converted.

The Attorney General’s Office’s investigation into the building located at 165 West 91st Street revealed that the developer entered into two prohibited buy-out agreements after being approached by tenants. The buy-outs were completed before these two tenants had a chance to exercise their exclusive right to purchase their units.  As such, because the buy-outs were completed before the offering plan was accepted, they were prohibited by law. Because the two tenants who accepted the prohibited buy-outs live in rent-controlled units, the buy-outs prematurely removed these two apartments from rent regulation. 

The developer attempted to conceal the buy-outs of the two rent-controlled tenants by bringing non-payment proceedings against the two rent controlled tenants, seeking only the outstanding rent amount for the current month of $1,678 and $1,708 respectively, and then purporting to settle such proceedings for $200,000 and $155,000 respectively even though no other rent was due.  These purported “settlements” were not settlements to bona fide non-payment proceedings.  Rather, the non-payment proceedings were brought solely with the purpose of concealing the improper red-herring tenant buy-outs.

Under the settlement, the developer will compensate the City for the loss of the two rent-controlled units by depositing $490,000 into New York City’s Affordable Housing - AG Settlement Fund.  The fund, which was established in June 2014 to help finance affordable housing for low-income New Yorkers as a result of Attorney General Schneiderman’s investigations into violations of state rent stabilization, contains over $10 million as a result of investigations commenced by the New York Attorney General.

The developer will also pay New York State $50,000 in costs. A full copy of the agreement can be read here

The investigation of this matter was led by Assistant Attorney General Richard J. Shore, as well as former Executive Deputy Attorney General for Economic Justice Karla G. Sanchez and Executive Deputy Attorney General for Economic Justice Manisha M. Sheth, contributed to the resolution of this investigation.