New York Attorney General Eric Schneiderman speaking at New York Law School, March 18, 2014. Image credit: New York Law School
Attorney General Schneiderman found the developer was operating a building as an illegal hotel while receiving a 421-a property tax exemption. On February 26, 2015 New York State Attorney-General Eric Schneiderman announced reaching a settlement with 47 East 34th Street LP over illegally evading New York property taxes. The LP owns an apartment building at 47 East 34th Street in Manhattan which is exempt from property tax under the 421-a program, however the Attorney General’s investigation found the building was operated as an extended-stay hotel, which is not permitted under 421-a rules. Under the terms of the settlement, the LP must pay New York City $4,446,153 in unpaid property taxes, pay New York State $275,000 to cover the costs of the investigation, and the LP must convert the building’s 110 units into rent-stabilized housing.
Section 421-a of the New York Real Property Tax Law permits a newly-constructed multi-family building to forego property taxes for a period of ten to twenty-five years in exchange for subjecting itself to local rent stabilization laws, and even reserving units as affordable housing. Buildings that are owned as either a condominium or a cooperative are exempt from the rent regulation requirement. Buildings that are operated as hotels are not eligible for benefits under the 421-a program, but the Attorney General’s investigation found after the economic crash of 2008, owners of new condominium buildings were illegally converting their buildings from condominium to rentals or extended-stay hotels while still receiving the benefits of 421-a exemption.
In a statement released with the announcement, Attorney General Schneiderman pledged to prevent “the rich and powerful” from abusing 421-a for their own personal benefit. “The 421-a program provides massive tax benefits to developers in exchange for permanent housing development, and I will continue to make sure that the prerequisites for receiving those benefits are enforced. I am pleased that this company has agreed to do the right thing by paying the City back taxes and offering more than 100 rent-stabilized leases to New Yorkers. My office will continue to crack down on illegal development that exacerbates the City’s severe affordable housing shortage.”
By: Michael Twomey (Michael is the CityLaw Fellow and a New York Law School graduate, Class of 2014).