This opinion is uncorrected and subject to revision before publication in the New York Reports.
In this lawsuit, nine plaintiff-tenants of Peter Cooper Village and Stuyvesant Town, two adjoining Manhattan apartment complexes comprising 110 buildings and occupying roughly 80 acres between 14th and 23rd Streets along the East River ("the properties" or "the apartment complexes") contend that defendants Tishman Speyer Properties, L.P., and PCV ST Owner LP (collectively, "PCV/ST"), and Metropolitan Insurance and Annuity Company and Metropolitan Tower Life Insurance Company (collectively, "MetLife"), the current and former owners of the properties, respectively, were not entitled to take advantage of the luxury decontrol provisions of the Rent Stabilization Law (RSL)*fn1 while simultaneously receiving tax incentive benefits under the City of New York's J-51 program. We agree.
In New York City, multiple dwellings may qualify for tax incentives designed to encourage rehabilitation and improvements (see Administrative Code of City of NY § 11-243 [previously § J51-2.5]). Specifically, the City's J-51 program, authorized by Real Property Tax Law § 489, allows property owners who complete eligible projects to receive tax exemptions and/or abatements that continue for a period of years. Eligible projects include moderate and gut rehabilitations; major capital improvements (for example, asbestos abatement or boiler replacement); and conversions of lofts and other non-residential buildings into multiple dwellings (see Administrative Code §§ 11-243 [b] , , ; 28 RCNY 5-03 [a]). Rental units in buildings receiving these exemptions and/or abatements must be registered with the State Division of Housing and Community Renewal (DHCR), and are generally subject to rent stabilization for at least as long as the J-51 benefits are in force (see 28 RCNY at 5-03 [f]). The Department Of Housing Preservation and Development (HPD) administers the J-51 program in the City of New York.
MetLife apparently first applied for and received J-51 benefits for the properties in 1992. At the time, the apartment complexes, which MetLife built in the 1940s, had already been rent-stabilized since at least 1974.
In 1993, the Legislature enacted the Rent Regulation Reform Act (RRRA) (L 1993, ch 253), which provided for the luxury decontrol or deregulation of certain rent-stabilized apartments. The RRRA identified two circumstances in which deregulation was warranted: (1) in vacant apartments where the legal regulated rent was $2,000 per month or more; and (2) in occupied apartments where the legal regulated rent was $2,000 per month or more and the combined annual income of all occupants exceeded $250,000 per year (RSL §§ 26-504.1, 26-504.2). The RRRA carved out an exception to luxury decontrol, which stated:
"this exclusion [i.e., luxury decontrol] shall not apply to housing accommodations which became or become subject to this law [i.e., the RSL] (a) by virtue of receiving tax benefits pursuant to section . . . four hundred eighty-nine of the real property tax law [J-51 benefits]" (RSL §§ 26-504.1, 26-504.2). The Legislature subsequently expanded the scope of luxury decontrol by lowering the income threshold for defining high-income households to $175,000 and allowing post-vacancy improvements to count toward the $2,000 per month rent threshold (L 1997, ch 116); and permitting deregulated units to remain deregulated even if an owner subsequently charges less than the $2,000 per month threshold (L 2003, ch 82).
On January 16, 1996 -- prior to the 1997 amendments to the RRRA -- DHCR issued an advisory opinion, which stated that participation in the J-51 program only precluded luxury decontrol "where the receipt of such benefits is the sole reason for the accommodation being subject to rent regulation" (emphasis added). On its face, the DHCR advisory opinion relies exclusively on a textual interpretation of the RRRA's relevant provisions. Further, DHCR took the position that
"where Luxury Decontrol is applied before the 'J-51' tax benefit period has expired, the abatement should be reduced proportionately. That the Legislature recognized the inherent inequity of an owner's continuing to enjoy tax benefits after decontrol is apparent from RPTL Section 489 (7) (b) (1), which provides that . . . [']any multiple dwelling building or structure which is decontrolled subsequent to the granting of such benefits, the local legislative body or other governing agency may withdraw such benefits from such dwelling.'"
In April 2000, DHCR proposed changes to the Rent Stabilization Code (RSC) in order to "conform regulations to statutes, particularly in the RRRAs of 1993 and 1997, judicial determinations and . . . agency practice" (22 NY State Reg 17 [Apr 5, 2000]). After public hearing and comment, DHCR adopted these changes, which became effective on December 20, 2000 (see 22 NY State Reg 18, 18-20 [Dec 20, 2000] [Notice of Adoption]).
As relevant to this appeal, DHCR amended section 2520.11 of the RSC, titled "Applicability," to provide that "[luxury decontrol] shall not apply to housing accommodations which became or become subject to the RSL and this Code:
"(i) solely by virtue of the receipt of tax benefits pursuant to . . . section 11-243 (formerly J51-2.5) or section 11-244 (formerly J51-5) of the Administrative Code of the city of New York, as amended" (RSC § 2520.11 [r] , [s]  [emphasis added]). And in February 2004, DHCR issued (and subsequently reissued in January 2007) Fact Sheet #36, entitled "High-Rent Vacancy Decontrol and High-Rent High-Income Decontrol," which similarly specified that "[a]partments that are subject to rent regulation only because of the receipt [of J-51 benefits] do not qualify for high-rent vacancy decontrol" (emphasis added).
At some point after the RRRA was enacted, MetLife, with DHCR's approval (see RSL § 26-504.3 [b]), began charging market-rate rents for those rental units in the properties where the conditions for high rent/high income luxury decontrol were met. In late 2006, MetLife sold the properties to PCV/ST for $5.4 billion.
Three months after the sale, in January 2007, plaintiffs -- nine individuals who reside in seven apartments in the apartment complex -- sued MetLife and PCV/ST on behalf of a putative class of all current and former tenants who allegedly were, or will be, charged rents that exceed rent stabilization levels for any period during which the landlord receives real estate tax benefits under the J-51 program. Specifically, plaintiffs claimed that "in or about 2001 or 2002, and continuing through the present time," defendants have "improperly and unlawfully charged thousands of tenants market rents, even as [defendants] have collected . . . tax benefits under the J-51 program," amounting to "nearly $25 million"; they alleged that about one-quarter of the 11,200 apartments in the apartment complex had been luxury decontrolled. Plaintiffs sought a declaration that units in the properties would remain rent-stabilized "until the last applicable J-51 tax benefits period [. . . in or about 2017 or 2018]," and that defendants would "comply with all appropriate legal requirements to deregulate the units." Plaintiffs also sought relief in the form of rental overcharges totaling $215 million and attorneys' fees.
PCV/ST and MetLife moved to dismiss the complaint for failure to state a cause of action, arguing that the RRRA's exception to deregulation for apartments that "became or become" subject to the RSL "by virtue of" receiving J-51 tax benefits did not apply to the properties because they did not "become subject to" the RSL "by virtue" of the receipt of J-51 tax benefits. Rather, the apartment complex "became subject to rent stabilization in or prior to 1974," nearly two decades before MetLife first received J-51 benefits.
In a decision dated August 16, 2007, Supreme Court dismissed the complaint, reasoning that "the clear and unambiguous language of the RSL states that the luxury decontrol 'exclusion shall not apply to housing accommodations which became or become subject to this law (a) by virtue of receiving [J-51] tax benefits'" (quoting RSL §§ 26-504.1 and 26-504.2 [a]). Because the properties became subject to the RSL "18 years before applying for J-51 tax benefits," the court concluded that "defendants did not become subject to rent stabilization by virtue of receiving" these benefits.
Supreme Court further noted that this interpretation, adopted by DHCR, was consistent with the luxury decontrol laws, which were intended to "restore some rationality to a system which provides the bulk of its benefits to high income tenants" (quoting Noto v Bedford Apts. Co., 21 AD3d 762, 765 [1st Dept 2005] [internal quotation marks and citations omitted]); that DHCR's interpretation of the statute, if not unreasonable or irrational, was entitled to deference; and that the Legislature's failure to amend the RSL in response to DHCR's interpretation when subsequently amending the luxury decontrol provisions showed that it acquiesced in this construction. Plaintiffs appealed.
The Appellate Division unanimously reversed Supreme Court's decision and order, and reinstated the complaint. The court concluded that building owners who receive J-51 benefits forfeit their rights under the luxury decontrol provisions even if their buildings were already subject to the RSL. According to the Appellate Division, the words "by virtue of" did not confine the exclusion from luxury deregulation to buildings that became subject to the RSL only because they received J-51 benefits; DHCR's interpretation of this provision was not entitled to deference because a pure issue of statutory reading and analysis was involved; if the Legislature had intended the provision to mean "solely by virtue of," as DHCR concluded, it would have used the word "solely"; its interpretation was "more consistent with the overall statutory scheme," which made no overt distinction between properties "subject to" the RSL solely as a result of its receipt of J-51 benefits and those "subject to" the RSL before receiving such benefits; and Supreme Court's reading "invite[d] absurd and irrational results" (Roberts v Tishman Speyer Props., L.P., 62 AD3d 71, 83 [1st Dept 2009]).
The Appellate Division subsequently granted defendants' motion for leave to appeal, certifying the following question: "Was the order of this Court, which reversed the order of the Supreme Court, properly ...