See You In Court: How NYC Landlords, Tenants Are Left In Lurch By 421-a Expiration

For more than five decades, New York City’s 421-a tax abatement program provided incentives that encouraged developers to increase the housing supply in the city’s five boroughs while providing rent stabilization for tenants.

The program was updated several times, including in 2017 when it became known as the Affordable New York program. Nearly 117,000 housing units built since 2010 have qualified for tax abatement under 421-a.

The program expired in 2022, however, and the city’s building community has since called for its renewal. Their argument is that 421-a has acted as an important tool for encouraging the construction of new housing in a city that is projected to need more than a half-million new units by 2030 to keep up with population growth.

“Without it, the crisis will worsen as the city fails to produce enough housing to keep pace with population and job growth and working people will pay the price,” a coalition of building trades and developers warned at the time of its expiration.

With the future of 421-a still uncertain, Bisnow spoke with Cory L. Weiss, an attorney with the New York law firm of ​Ingram Yuzek Gainen Carroll & Bertolotti LLP, about how developers and landlords are operating in its absence. Weiss has practiced landlord-tenant litigation since the 1980s.

Weiss said the absence of 421-a creates uncertainty among both developers, who have lost a popular tax incentive, and tenants, many of whom are experiencing difficulties in finding affordable units. 

“The program helped spur development in the city, and it helped tenants by giving them rent-stabilized leases and keeping their rents to a minimum,” Weiss said.

Bisnow: Why was 421-a created and how did it change over the years?

Weiss: Decades ago, taxes were so high that landlords and developers were not building a lot of multifamily buildings in New York City. To give them incentive to build, the original 421-a provided for a 10-year tax break. But every year, during the 10-year break, taxes would start increasing again, so by the 11th year, you were back up to what you would have paid had you not got the tax break. For those 10 years, however, your taxes were reduced. 

In return, landlords agreed to make all the apartments rent-stabilized. Generally speaking, any building built after 1974 is not subject to rent stabilization, but if a landlord took a 421-a tax benefit, it then made all those apartments rent-stabilized. 

That was the give and take: The landlord got a good tax benefit, and it made all these buildings that otherwise wouldn't have been subject to rent stabilization, rent-stabilized. The main benefit for tenants was that the landlords couldn’t increase the rents beyond certain levels and were required to offer renewal leases to tenants.

A small component of the units, maybe 10% or 20%, had to be affordable. And then in 2016, the affordable units portion became more expansive and 30% of the units had to be moderate- to low-income.

Bisnow: What is the impact of 421-a’s expiration? 

Weiss: Non-affordable units become deregulated when the tax benefit period ends, provided there is a vacancy or where the tenant gets a heads-up saying that at the expiration of the last lease during the tax benefit period, the apartment becomes destabilized and the landlord then can charge any rent and doesn't have to offer the tenant a renewal lease. 

Generally speaking, affordable units remain stabilized even after the tax benefit period ends until a vacancy occurs. Regulatory agreements, if any, may also impose additional affordability or rent stabilization requirements.

Bisnow: According to recent reports, several landlords raised rents while continuing to receive 421-a tax benefits. What is happening there?

Weiss: Under the original 421-a, as the tax benefits for the landlord became less and less, they were entitled to increase the rent by 2.2%. But during Covid, some landlords didn't bother collecting the extra 2.2% because of the steep reduction in rents.

However, even if they didn’t collect the 2.2% surcharge for four or five years, they were allowed to collect it prospectively, not retroactively. Thus, all of a sudden, a tenant who never before paid a 2.2% increase gets a renewal lease with several 2.2% surcharges. 

Then the landlord has to explain to the tenant how they calculated the 2.2% surcharge, why they didn't charge it before and why now they can. Many tenants question the landlord's right to impose these surcharges, and this has created back-and-forth with a lot of tenants.

A number of landlords that we represent are asking us to write letters to try to explain to the tenants why all of the sudden they're being asked to pay these additional surcharges. Some tenants are taking legal action, and we go to court to resolve it. But usually, we're able to make the tenant understand why it's being charged, make a deal and the matter is resolved.

Bisnow: What can landlords do now?

Weiss: A new program called 421-a (17) allows landlords of old 421-a buildings with at least 20% affordable units — and a commencement date of June 30, 2008, or earlier — to apply to extend the old 421-a benefits for another 10 or 15 years by extending the affordability and rent stabilization of the existing affordable units and making an additional 5% of apartments affordable. 

Many landlords are considering this program. The problem with 421-a (17), however, is that the legislature didn't provide for the application of high rent deregulation for these affordable units, so those units, the way the law is now, are going to remain stabilized forever.

421-a was so much a part of New York City for so many years, that I think, eventually, the legislature will come to their senses and realize that they need some sort of new tax benefit program.

This article was produced in collaboration between Ingram Yuzek Gainen Carroll & Bertolotti LLP and Studio B. Bisnow news staff was not involved in the production of this content.

Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to studio@bisnow.com.