Appellate Division Upholds Limits on “U or P” Increases

Appellate Division Upholds Limits on “U or P” Increases

January 2011
Legal Decisions

Tenants whose landlords took their pre-1974 buildings out of the Mitchell-Lama program are celebrating a big win. On Dec. 28, the Appellate Division, the state’s mid-level court, unanimously upheld the state housing agency’s regulation that says simply leaving Mitchell-Lama is not a “unique or peculiar circumstance” (“U or P”) that justifies a huge rent increase.

The decision protects tenants in some 19,000 apartments in current and former Mitchell-Lamas built before 1974. It keeps things as they are: The owners cannot get big increases based solely on taking the building out of Mitchell-Lama.

Pre-1974 buildings that leave Mitchell-Lama become rent-stabilized under the 1974 Emergency Tenant Protection Act. (The decision does not protect tenants in Mitchell-Lama buildings constructed after 1973, the usual cutoff for going into rent stabilization under that law.) However, a loophole in the law says that in “unique or peculiar circumstances” the state Division of Housing and Community Renewal (DHCR) can adjust the first stabilized rent.

The definition of “unique or peculiar” is the problem. Landlords have claimed that just leaving Mitchell-Lama qualifies as such a circumstance. The courts have disagreed, saying that “unique or peculiar” means what it says: It applies to a few units with unusual circumstances, not to every apartment in every pre-1974 buildings coming out of the program.

Owners such as Laurence Gluck of Stellar Management have used the “U or P” claim to ask for increases of as much as five times the previous rent in some Manhattan buildings they took out of Mitchell-Lama.

Having filed at least three court actions to get these huge “U or P” rent hikes, Gluck is now backing away from the issue. In a recent article in The Real Deal, a Stellar spokesperson was quoted as saying, “Stellar has never employed ‘unique and peculiar circumstances’ in setting their rents…. Unfortunately, despite abandoning these proceedings years ago, Stellar’s name could not be removed form the caption for legal procedure reasons.”

It is true that Stellar never filed an appeal of the lower-court decision—but that decision was issued only 14 months ago, on Nov. 25, 2009, with the company as a full participant for its Manhattan and Bronx buildings. The spokesperson neglected to mention that Stellar never set rents based on that loophole because DHCR never granted the U or P applications it filed for at least 13 buildings:

  • Boulevard Towers I (now Stellar 2020 LLC) - Bronx
  • Bruckner Towers (now Stellar Bruckner LLC) - Bronx
  • Central Park Gardens (now West 97th St. Realty Corp.) - Manhattan
  • Columbus Manor LLC (70 W. 93rd St.) - Manhattan
  • Dancia - 1889 Sedgwick (now Stellar Sedgwick LLC) - Bronx
  • Janel Towers LLC - Bronx
  • Hempstead Plaza (now Hempstead Stellar Plaza LLC) – Hempstead 
  • Highbridge House (now Highridge House Ogden LLC) - Bronx
  • Prospect Towers - Brooklyn
  • River Park (now Stellar Morrison LLC) - Bronx
  • Town House West Apartments (now Town House West , LLC) - Manhattan
  • Undercliff (now Stellar Undercliff LLC) - Bronx
  • Westwood House, LLC - Manhattan

This same branch of the Appellate Division, the First Department (covering Manhattan and the Bronx), had set off the “U or P” furor in 2004 by asserting that without any regulation in place, DHCR policy suggested that landlords could be entitled to such increases. That decision, in a case called KSLM-Columbus Apartments, was appealed to the Court of Appeals, the state’s highest court. Landlords claimed that court’s ruling supported their position. But the Appellate Division read it as upholding DHCR’s duly promulgated regulation, which said that landlords were not entitled to U or P increases simply for leaving the program.

“There is no concrete legislative history or other evidence to establish that the Legislature meant to permit former Mitchell-Lama owners to charge market rents to tenants upon exiting the program,” the court wrote. “[T]he result of our adopting [the landlord’s] position would be anathema to the stated goals of the RSL [Rent Stabilization Law], as it would cause a drastic increase in the rents of existing tenants who had no control over their landlord’s decision to opt out of Mitchell-Lama.”

Since the owners have filed new cases or appealed whenever they’ve lost so far, they will likely try to appeal to the Court of Appeals. But that court gets to choose which cases it takes, so tenants will not know for some months whether this is the final victory or the case has one more lap to run.

The case was argued for the DHCR by Martin B. Schneider. David Hershey-Webb and Serge Joseph of Himmelstein, McConnell, Gribben Donoghue & Joseph, the attorneys for the Columbus House Tenants Association, wrote the brief and argued the case on appeal.

While the decision is good news for those in pre-1974 buildings, it does not protect tenants whose buildings were constructed from 1974 on. Those tenants and their supporters are campaigning for the Stewart-Cousins/Rosenthal bill, which would protect all tenants in buildings coming out of the Mitchell-Lama or Section 8 programs, regardless of the year they were built, by putting them into rent stabilization without “U or P” increases..
Sue Susman is president of the Central Park Gardens Tenants’ Association,