Tenants Say Many Victims Won’t Benefit from Rent Fraud Settlement

The state attorney general settled a lawsuit against 29 landlords for $4 million and assurances of better practices, but some tenants have their doubts.

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By George Fabe Russell

An elderly man who’d lived for years in a studio apartment at 92 Pinehurst Avenue in Hudson Heights had conflicts with his landlord that forced him to leave, his daughter recalled. When the rent on his rent-stabilized apartment rose in 2017, hiring a lawyer bought the man two years, but after that, part of the agreement was that he had to move out.

“My dad didn’t want to fight,” said the daughter, who remains in a different unit in the building and requested anonymity because she feared retaliation. “I just want to be somewhere I feel safe,” she recalled his saying, “I want to be left alone and I want to be somewhere where they aren’t trying to make me leave.” Now frail and in his 80s, he lives in Inwood. His studio sat empty until it was renovated and put back on the market.

Last month, New York State Attorney General Letitia James announced a settlement with a roster of 29 New York City residential landlords, at least seven of them in uptown Manhattan, including 92 Pinehurst. These landlords, her office said, conspired with management companies to fraudulently strip apartments of their rent stabilization by inflating the cost of apartment renovations.

The owners will pay a $4 million penalty to the city’s Department of Housing Preservation and Development’s Affordable Housing Fund, commit to change their practices and refund some tenants.

“I’m glad that the attorney general and her office have really prioritized investigating and following through on this and other large-scale cases around violations of rent laws,” said Emily Goldstein, director of organizing and advocacy at the Association for Neighborhood and Housing Development.

“It’s not a slap on the wrist,” she said. The settlement’s “high profile is important,” she continued. “It says that the attorney general took this seriously” and that might be “enough to worry others.” A representative from the State Attorney General’s Office declined to speak on the record.

The case imposes penalties for abusing a loophole made illegal by the Housing Stability and Tenant Protection Act of 2019. Yet the settlement isn’t a silver bullet for individual tenants, some local residents complain. It does nothing to compensate tenants who were forced out, even though forcing out tenants was often a crucial step in the landlords’ abuse.

Several tenants in buildings named in the settlement, at 66 St. Nicholas Place and 92 Pinehurst Avenue, said it was extremely rare for management to repair or maintain, much less renovate, occupied units. “The only way you’re getting any renovations is if” the apartment is empty, said a tenant at 66 St. Nicholas Place, who requested anonymity because he fears retaliation.

Half a dozen other building tenants agreed, most saying they felt that a lack of maintenance often constituted harassment to force tenants to leave. Management’s playbook: “Get old people out—tell them they owe money”—then find new tenants, the resident said.

Tenants’ accounts paint a Catch-22 situation. The settlement will compensate tenants who were illegally overcharged because of renovations but applies only to “current tenants.” Many tenants pointed out that the units of those pushed out weren’t renovated until after they left, while the units of people who remained usually weren’t renovated at all. Renovated units will have their rents reset to stabilized rates from now on, but previous tenants will not directly benefit.

The settlement specifies that the $4 million will go to the city’s affordable housing fund for “housing-related initiatives, programs and projects for ‘persons of low income’ and ‘families of low income.’” The Department of Housing Preservation and Development didn’t respond to requests for more information on how the $4 million will be allocated.

A state official who declined to be named said that tenants not entitled to a refund from the settlement can contact New York State Homes and Community Renewal; a representative from that agency also declined to speak on the record.

Before 2019, when state law banned the practice, an apartment could be stripped of its rent stabilization after an owner spent a certain amount on upgrades. Two property management companies which oversaw all the buildings in the settlement—Newcastle Realty Services LLC and Highcastle Management LLC—not only received a 5% commission on rent collected, but bonuses for deregulating units.

The settlement maps out how the companies manipulated the spending records on which rent increases and deregulation were based. Renovation costs were routinely arbitrary, reverse-engineered specifically to meet the deregulation threshold for a given unit.

The settlement cites a case in which “one high rent one-bedroom apartment experienced $14,500 in labor costs for a gut renovation, whereas a low-rent studio apartment that was smaller experienced $95,000 in labor costs for a gut renovation.” In fact, the settlement notes, “the labor costs for both apartments were roughly equivalent.”

Contractors paid the managers thousands in exchange for contracts. When costs fell short of the deregulation threshold, the management companies sometimes fabricated bills using a contractor’s letterhead to push spending over the required amount, according to the settlement.

Many repairs done by management to occupied units didn’t add value and sometimes decreased it. One tenant at 92 Pinehurst Avenue, who requested anonymity because of concerns over retaliation, said that after a kitchen renovation in her building, the tenant couldn’t open the badly-installed oven or dishwasher. In another unit, gas pipes were run through kitchen cabinets and in the middle of the living room.

“You could tell that they were harassing some tenants, kept asking for access to their apartments,” the tenant said. She is involved in legal action against her landlord with the help of a local tenants’ rights organization.

Another 92 Pinehurst tenant agreed that rent-stabilized tenants couldn’t get repairs done. She mentioned a tenant in her building who hasn’t had a front doorknob for two years or working electricity in some rooms. The law firm Davis Polk and Wardwell LLP, attorneys for the building owners, did not respond to requests for comment.

Some tenants of Newcastle- and Highcastle-managed buildings in uptown Manhattan feel that $4 million isn’t enough to repair the harm done or serve as an effective deterrent and doubt the state will enforce the settlement. “You can’t trust the city or state government to look out for the little people,” said one tenant at 66 St. Nicholas, who requested anonymity because he is involved in ongoing, unrelated legal proceedings with the landlord over his rent stabilization. “It’s all face-value,” he said of the settlement.

“People got ripped off and got nothing, the end,” said another tenant of 66 St. Nicholas, on her way to pick up ice for a children’s lemonade stand, who requested anonymity out of fear of retaliation. She lacks faith in the settlement’s promises, characterizing the settlement as: “Too bad, too sad, you paid too much, get out.” Both tenants want more fundamental reforms. “After a certain number of violations, you should have to sell” the building, she said.

“There’s a set of interests in New York that are always looking for ways to make more profit off housing,” said Goldstein, the advocate.

“This is a good reminder to stay vigilant,” she says of the scheme that launched the attorney general’s lawsuit. “A few years later there’s always a little bit of forgetfulness.”

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