December 6, 2016
Non-compliant properties have combined total of 37,141 apartments; letters are latest phase of a multi-stage, multi-agency enforcement effort
NEW YORK—Mayor Bill de Blasio, Department of Housing Preservation and Development Commissioner Vicki Been and Department of Finance Commissioner Jacques Jiha today announced that DOF sent letters notifying owners of 3,103 multi-family rental buildings, with 37,141 apartments, that their 421-a tax benefits will be suspended if they don’t comply with the requirements of the 421-a program. This is the latest action coming out of a multi-year, multi-stage and multi-agency enforcement effort to ensure that property owners receiving valuable 421-a benefits are in full compliance with the law. If these buildings were not getting 421-a benefits, their owners would pay $304 million in property taxes to New York City this year alone.
“It’s outrageous that property owners accept tax breaks and then simply choose to ignore their legal responsibility. Enough is enough. Building owners who fail to comply will lose the benefit,” said Mayor Bill de Blasio.
“The City is committed to ensuring that owners who accept valuable tax benefits are complying with their obligations,” said HPD Commissioner Vicki Been. “Most building owners do the right thing, but we will not allow anyone to flout the law. We will continue to cooperate across levels of government to use all of our enforcement powers to crack down on those who would abuse the system.”
“It is very important for landlords who have been receiving the 421-a tax benefit to file the necessary paperwork with our agency and to pass on those benefits to the tenants,” said DOF Commissioner Jacques Jiha.
The enforcement action targets rental projects that have received 421-a benefits for at least five years but have not yet filed a required Final Certificate of Eligibility (FCE) with DOF. The letters give owners notice that the tax exemption will be suspended unless they submit their FCE. Buildings that do not comply within the 13-month deadline will have their benefits revoked by HPD, where appropriate. Approximately 173,000 units received 421-a tax benefits, worth $1.2165 billion in forgiven taxes, in fiscal year 2016.
For many years, benefits were administered through a two-stage application process because the 421-a statute allowed a developer to apply to HPD for a Preliminary Certificate of Eligibility (PCE) once construction started, and again for an FCE when construction was complete. Even so, many owners, especially in smaller buildings with less than 100 units, failed to complete the FCE process.
During the FCE application review, HPD confirms that rental units are properly registered as rent stabilized with the New York State Housing and Community Renewal (HCR), and that the initial rent charged for each 421-a affordable unit does not exceed 30 percent of the income limits imposed upon the affordable units. While HPD already has contacted the vast majority of these owners to bring them into compliance, they are now on notice from DOF that they must complete the process and file their FCE or their benefits will be suspended.
To address the problem going forward, the de Blasio Administration, in 2015, proposed and the State Legislature passed 421-a reforms requiring a single application for retroactive construction period benefits along with post-completion benefits, which would ensure that compliance with all requirements of 421-a would be established before any benefits are allowed.
In early 2014, the City joined forces with Governor Cuomo’s Tenant Protection Unit and Attorney General Eric Schneiderman’s Real Estate Finance Bureau to begin investigating compliance of all building owners receiving 421-a benefits. The data-heavy investigation found that for rental properties excluding three family homes, 77 percent of units receiving 421-a benefits were in full compliance and that 3 percent failed to ever registered their rents with the State. Of the remainder, 13 percent of units have missed the rent registration requirements for one year only, and the other 7 percent have some years of compliance and some years of non-compliance. Buildings receiving 421-a benefits that are not in full compliance are now the focus of a multi-stage enforcement action.
The 3,103 buildings targeted in today’s announcement include all multi-family rental buildings receiving 421-a benefits who have failed to file their FCE application with HPD. This enforcement action comes after revocation letters were sent to owners of 178 condos and cooperatives receiving 421-a benefits last month. In September, HPD instructed DOF to revoke benefits to 35 buildings. Those buildings have a total of 244 apartments, and would receive a total value of $4.5 million in tax benefits under 421-a.
New York State enacted Section 421-a of the Real Property Tax Law, known as 421-a, in 1971 to incentivize the construction of housing in New York City. The law provides a partial exemption from New York City property taxes for the owners of newly-constructed, residential multi-family buildings for at least ten years.
“We must hold landlords accountable,” said Council Member Stephen Levin. “It's unconscionable that property owners are receiving millions in tax breaks to provide community benefits and are instead charging rents that push New Yorkers out of their homes. I applaud Mayor de Blasio’s bold step to protect our city’s tenants and put an end to this injustice.”
“The 421-a tax abatement has the potential to be a win-win for developers and hard-hit New Yorkers in need for affordable housing. This has not been the reality. To make sure this tax incentive is not to the sole benefit of builders, we must ensure there are safeguards in place and investigations conducted to guarantee they hold up their side of the deal. I commend the Administration for taking action on this issue and making sure recipients of this massive tax break are in compliance and supporting the recent bills the City Council put forth on this topic,” said Council Member Jumaane Williams.