Volume 76, Number 2 | May 31 - June 6 2006

Real Estate Board challenges new tenant buyout law

By Bernard Connaughton

A law that gives tenants in federally subsidized apartments the opportunity to purchase their buildings is being challenged by the Real Estate Board of New York in a case awaiting a decision by Judge Marilyn Shafer in State Supreme Court in Manhattan.

Local Law 79, enacted by the City Council last August, requires landlords who do not renew federal housing contracts to sell their buildings and to give tenants the “right of first refusal” — or the first opportunity to purchase the apartment building.

Andrea Foley-Murphy of Tenants and Neighbors, a statewide tenant advocacy group, said the law gives tenants, particularly low-income tenants, needed protection.

“It’s the strongest law nationally,” Foley-Murphy said.

However, the Real Estate Board of New York, an association of property owners, developers and financiers, says the law infringes on private property rights and violates the Fifth Amendment. In a brief filed last October, the Real Estate Board claims, “Local Law 79 infringes upon the rights of owners of assisted rental housing projects, in that it deprives them of the unfettered right to privatize their projects while at the same time granting tenants valuable contractual rights for no consideration whatsoever.”

Federally assisted housing programs were initiated in the Great Society program during the Johnson era to provide greater access to housing for poor Americans. Project-based Section 8 contracts providing federally subsidized low-interest mortgages were created in the 1970s as an incentive for developers and landlords to provide housing for low-income tenants. Rent subsidies were later added to attract more property owners who signed contracts for up to 20 years’ duration. A moratorium on subsidized housing development was implemented during the Nixon administration, and new contracts ended altogether during the Reagan era. Today many contracts are expiring and, in an increasingly lucrative real estate market, many landlords are choosing not to renew them.

In February 2003, the landlord at 210 Stanton St. on the Lower East Side notified 170 tenants that the contract which provided rental assistance to many of them was not being renewed. Fearing displacement and eviction, the residents contacted politicians on the local, state and national level. In June 2003 City Councilmember Alan Gerson, in whose district lived some 5,000 tenants in similarly jeopardized housing, set up a citywide task force of tenant and housing associations to address the looming contract crisis. In June 2005, the Tenant Empowerment Act, of which Gerson was the main sponsor, was passed by an overwhelming majority in the City Council and took effect as Local Law 79 last November.

Peter Pastor, Gerson’s legislative director, said Local Law 79 is a cost effective answer to the affordable housing crisis in New York City because it focuses on housing preservation rather than new building projects.

“Preserving existing housing is more affordable to the city,” Pastor said.

However, Scott Mollen, attorney for REBNY, said that Local Law 79 will discourage real estate developers from taking government housing contracts if contractual agreements are ignored. At a March 22 hearing to dismiss REBNY’s lawsuit in State Supreme Court in Manhattan, Mollen argued that Local Law 79 was unfair to building owners because the property appraisal process in the law is restrictive and unfairly limits the selling price.

“Only someone who doesn’t understand real estate could have drafted this law,” Mollen said.

Local Law 79 requires an advisory board of three property appraisers, one chosen by tenants, one chosen by the owner and a third chosen by mutual agreement, to negotiate a selling price. In cases where tenants and owners disagree in the selection process, the Department of Housing Preservation and Development makes the choice. This is unfair to landlords, according to Mollen, because it may limit the selling price.

“Price is the issue,” he said.

But Ed Josephson, attorney at South Brooklyn Legal Services, says Local Law 79 requires that tenants match any outside offer and that the law justly compensates owners.

“The Constitution requires fair compensation but not any price the owner dreams up,” Josephson said.

Marie Christopher, a tenant leader at 210 Stanton St., agrees that the selling price is not the issue, and that the appraisal process is a fair one that allows landlords to receive market-rate compensation.

In August 2004, tenants at 210 Stanton St. convinced their landlord to extend the Section 8 contract for an additional 15 years. Christopher believes that activism and media attention were critically important.

“The whole building rallied,” she said.

Ten thousand project-based Section 8 apartments once available to low-income New Yorkers have been lost in the last 10 years. Nearly 50,000 of these apartments remain.

Local Law 79 applies to subsidized Mitchell-Lama and older programs as well, meaning tenants in a total of about 110,000 apartments in assorted complexes in New York City facing buyouts in the next few years currently have the right of first refusal.

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