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John R. Denza, et al v. Independence Plaza Associates

April 3, 2012

JOHN R. DENZA, ET AL., PLAINTIFFS-RESPONDENTS,
v.
INDEPENDENCE PLAZA ASSOCIATES, LLC, ET AL., DEFENDANTS-APPELLANTS. INDEPENDENCE PLAZA NORTH TENANTS' ASSOCIATION, ET AL., PLAINTIFFS-RESPONDENTS,
v.
INDEPENDENCE PLAZA ASSOCIATES, L.P., ETC., ET AL., DEFENDANTS-APPELLANTS. INDEPENDENCE PLAZA NORTH TENANTS' ASSOCIATION, ET AL., PLAINTIFFS-APPELLANTS, FELIX ORTIZ, PLAINTIFF,
v.
INDEPENDENCE PLAZA ASSOCIATES., L.P., ETC., ET AL., DEFENDANTS-RESPONDENTS.



The opinion of the court was delivered by: Saxe, J.

Denza v Independence Plaza Assoc., LLC

Saxe, J.

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and subject to revision before publication in the Official Reports.

Decided on April 3, 2012

SUPREME COURT, APPELLATE DIVISIONFirst Judicial Department

Angela M. Mazzarelli, J.P. David B. Saxe Leland G. DeGrasse Nelson S. Roman, JJ.

The Rent Stabilization Association of New York City, Inc. and Community Housing Improvement Program, Inc., Amici Curiae.

Plaintiffs Independence Plaza North Tenants' Association, Pamela Beaulieu, Anna Braudes, James Berend, Eric Berend, Carolyn DiCarlo Anastasia Dilieto, Theresa, Lopez, Adam Macagna, Kathleen McGovern, Koluska Poventud, Catherine Procopio, Edmund Rosner, Elizabeth Saenger, Sally Etta Sheinfeld, Philip Stein, Gertrude Stein, Linda Stein, Adrian Vanderplas, Steve Vorillas and Mildred Zeldis appeal from the order of the Supreme Court, New York County (Marcy S. Friedman, J.), entered December 17, 2010, which, to the extent appealed from as limited by the briefs, denied defendants' motion to remand the first through sixth causes of action to nonparty New York State Division of Housing and Community Renewal. Defendants appeal from the order and judgment (one paper) of the Supreme Court, New York County (Marcy S. Friedman, J.), entered September 2, 2010, which, insofar as appealed from, granted plaintiffs' motions for summary judgment in both of these actions consolidated for appeal and denied defendants' motion for summary judgment dismissing the first action (Denza).

These appeals present the question of whether the continued receipt of J-51 tax benefits by the owner of a housing complex, following the owner's withdrawal of the complex from the Mitchell-Lama program, triggers the applicability of the Rent Stabilization Law even if those benefits were determined to have been unauthorized from the moment of the withdrawal, and were retroactively repaid.

Independence Plaza North (IPN) is a residential housing development constructed in 1974 under the Mitchell-Lama program (Private Housing Finance Law art II), which grants incentives such as low-interest mortgage loans and real estate tax exemptions to landlords who develop low- and middle-income housing, when the landlords agree to regulation of rents and profits. As a development subject to the Private Housing Finance Law, IPN was also entitled to receive tax abatements from the City of New York, commonly called J-51 benefits, for major renovations (see Administrative Code of City of NY § 11-243[d][2][ii], [i][1]; 28 RCNY 5-03[f][1][iii]). In 1998, IPN received a J-51 tax abatement amounting to $7,550 per year for 12 years, for making $90,600 worth of major capital improvements.

Owners of projects constructed after May 1, 1959 are entitled to withdraw from the Mitchell-Lama program after 20 years by paying the remaining balance of a property's mortgage (see Public Housing Finance Law § 35[2]). On or about June 26, 2003, the New York City Department of Housing Preservation and Development (HPD) and IPN's tenants were notified of the owner's intent to exit the Mitchell-Lama program. On March 12, 2004, before its formal withdrawal from Mitchell-Lama, the owner, Independence Plaza Associates, L.P., entered into an agreement with the tenants' association, plaintiff Independence Plaza North Tenants' Association, Inc. Under that agreement, the tenants' association agreed to try to cause every tenant to apply for a so-called "enhanced voucher" under Section 8 of the United States Housing Act of 1937 (42 USC § 1437f[a]), which would provide eligible low-income families with extra housing assistance to subsidize any market-based rent increase following the development's withdrawal from Mitchell-Lama. The owner agreed that those tenants who were granted such assistance would be awarded leases at the rental value determined by HPD, so that the amount they themselves were required to pay would remain the same; those tenants who were denied such assistance would "receive the benefits of the Landlord Assistance Program," meaning that their rents would increase in accordance with New York City Rent Guideline Board (RGB) increases for the first nine years after IPN withdrew from Mitchell-Lama, for the 10th-12th years, their rents would increase by the RGB increases plus 3.33%, and for every year thereafter, their rents would increase by the RGB increase plus 1%. In addition, those tenants' families would be granted succession rights.

In a letter dated and delivered on June 28, 2004, IPN formally notified the New York City Department of Finance (DOF) of its withdrawal as of that date from Mitchell-Lama and that consequently "the Property shall forthwith be restored to a full taxpaying position" effective as of that date. However, no action was taken by DOF to terminate IPN's J-51 benefits, and these benefits continued until March 23, 2006, when, following consideration prompted by IPN's inquiries, HPD informed DOF that IPN's J-51 benefits should have been terminated as of June 28, 2004. On April 3, 2006, IPN repaid all J-51 benefits it received after June 28, 2004, plus interest.

On September 28, 2004, after IPN formally withdrew from Mitchell-Lama, the tenants' association and 20 tenants who had been denied enhanced Section 8 vouchers brought the action captioned Independence Plaza N. Tenants' Assn. v Independence Plaza Assoc., L.P., initially seeking leases in accordance with the March 12, 2004 agreement. In the fall of 2007 they amended their ...


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