Developer Of Landmark Upper West Side Building Filed Inaccurate Offering Plan With Attorney General’s Office; Cleared Out Tenants Using Prohibited Buyouts
Agreement Requires Developer to Pay The Restitution Into City-AG Affordable Housing Fund, Bringing Total In Fund From AG Investigations To More Than $5.8 Million; Deal Further Provides Two Years Free Rent To Remaining Tenants And $350,000 In Costs To State
Schneiderman: My Office Is Working To Make Sure Real Estate Developers Respect Tenant Rights And New York Laws When Converting Occupied Rental Buildings to Condominiums
NEW YORK – June 2, 2015 – (RealEstateRama) — Attorney General Eric T. Schneiderman today announced a settlement with 101 West 78th, LLC, Newcastle Realty Services, LLC, and Margaret Streicker Porres, that requires the developer to pay $1.2 million to New York City to compensate for the loss of five rent-stabilized apartments in an Upper West Side building, some of which were effectively deregulated through prohibited buyout agreements. The deal provides two years of rent payments to tenants who have remained in the building. The settlement, which ends an Attorney General Martin Act public investigation, further ensures that tenants at 101 West 78th Street will not be forced out by a planned condo conversion process, and instead receive benefits afforded them by law.
“This settlement puts condominium developers on notice that the rights of tenants will – and must – be protected,” Attorney General Schneiderman said. “As housing prices rise across New York, more and more properties are being converted from modest residential rentals to luxury condominiums. My office will continue to hold real estate developers accountable if they disregard the law in search of profits.”
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. To make sure that tenants have full information about their decision to continue to rent or to purchase, the law requires that developers disclose to tenants the proposed conversion plan, prior to its being accepted by the Attorney General.
The 44-unit, landmarked building on West 78th Street has been home to residential renters, including rent-stabilized and rent-controlled tenants, for more than a century. Many of the current tenants have lived in the building for 20 years or more. Streicker Porres and Newcastle bought the building in late 2012, through their affiliate, 101 West 78th Street LLC.
In June 2013, the developer submitted an offering plan to the Attorney General’s Real Estate Finance Bureau to convert the building to condominiums. Those filings represented that they would offer 43 units for sale “as is.” An investigation into those filings was launched when the Attorney General’s Office reviewed filings with the New York City Department of Buildings showing that the developer intended to combine units and build 24 luxury apartments. In January, the Attorney General secured a court order barring the developer from proceeding with the conversion or removing more tenants, pending the Martin Act investigation.
The June 2013 offering plan provided no information to the Attorney General’s Office or to tenants about plans to combine apartments and the significant construction that entailed. In order to accomplish the combination of units, the investigation revealed, the developer induced a dozen tenants to vacate the building under prohibited buyout agreements. The buyouts were prohibited because they were completed before the offering plan was accepted. Because two of the tenants who took the prohibited buyouts lived in rent-stabilized units, these two buyouts served to prematurely take these apartments out of rent regulation. In addition, three other rent-stabilized units were taken out of rent stabilization through buyout agreements offered before the offering plan was submitted.
Under the settlement obtained by Attorney General Schneiderman, the developer will compensate the city for the loss of the five rent-stabilized units by depositing $1,235,000 into New York City’s Affordable Housing – AG Settlement Fund. The restitution in this agreement being paid to the city is on top of $4.65 million in 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.
The developer will also provide two years of free rent to the tenants of the 11 occupied units at 101 West 78th Street, as compensation for their living in a construction site while the building is renovated. They will also reimburse certain tenants for legal fees incurred when the developer challenged their rent-stabilized status. The settlement announced today closes the investigation and allows the conversion to proceed.
The settlement also requires the developer to make certain improvements to tenant units, to refrain from seeking to remove any remaining tenant from the building unlawfully, to maintain the rental apartments in compliance with the rent regulation laws, and to provide tenants with regular updates about the status of the renovation of the property. Under the settlement, an amended plan that reflects the actual offering will be submitted to the Attorney General’s Office. The developer will also pay New York State $350,000 in costs.
“Each of the City’s one million rent-regulated apartments matters. In the face of the city’s unprecedented affordable housing crisis—stemming in part from the loss of 250,000 rent-stabilized units over the past two decades—we simply cannot afford to lose a single rent-regulated apartment through illegal practices,” said New York City Deputy Mayor for Housing and Economic Development Alicia Glen. “The de Blasio administration thanks the Attorney General for diligently prosecuting those bad actors who unlawfully convert their rent-stabilized apartments to luxury housing. Collectively, we will use every tool we can to protect our city’s affordable housing stock.”
Manhattan Borough President Gale Brewer said, “The work that Attorney General Schneiderman has done to protect tenants is encapsulated in the settlement announced today with the developer at 101 West 78th Street. Keeping conversions like these honest and following the rule of law is essential to preserving affordable housing stock in Manhattan and citywide.”
State Senator Jose M. Serrano said, “Affordable housing in New York City is constantly under attack. I’m pleased to see that Attorney General Schneiderman and his office are standing up for tenants in my district by ensuring they’re treated fairly and honestly by developers.”
State Assemblymember Linda B. Rosenthal said, “With the number of condo and co-op conversions skyrocketing in my district and across the city, tenants need a watchdog like Attorney General Schneiderman to protect their interests during the long and often very complex procedure. Today’s settlement sends a strong message to developers and landlords that the conversion process will not be used as a means to harass tenants and deprive the city of precious units of affordable housing.”
New York City Council Member Helen Rosenthal said, “The Upper West Side is losing rent-regulated housing at an alarming rate, in large part due to tenant harassment and buyouts. I am grateful to Attorney General Eric Schneiderman for his work on 101 West 78th Street; I hope unscrupulous landlords hear loud and clear that their illegal behavior has serious consequences.”
A full copy of the agreement can be read here.
The investigation of this matter was led by Assistant Attorney General Elissa Rossi, Deputy Chief Andrew H. Meier, and Bureau Chief Erica F. Buckley, all of the Real Estate Finance Bureau, as well as Executive Deputy Attorney General for Economic Justice Karla G. Sanchez. Max Gross, of the Attorney General’s Research Department, contributed to the investigation.
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