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The Mitchell-Lama roller coaster just took another dip. In late February, the State Supreme Court’s appellate division ruled that even tenants protected by rent stabilization could face massive rent hikes when Mitchell-Lama owners opt out of the program.

“This is an enormously troubling decision,” said City Council speaker Gifford Miller at a March 26 State Assembly hearing on the preservation of Mitchell-Lama housing. “It’s nothing less than a total disaster for our city.”

The case started in 1998, when Westgate Apartments, a 423-unit Upper West Side building complex, expired from the Mitchell-Lama program, which offered developers low-interest loans and tax abatements in exchange for keeping rents affordable for a set period of time. Its owners, KSLM-Columbus Apartments, Inc. appealed to the New York State Division of Housing and Community Renewal (DHCR) to bring the buildings’ rents up to market rate.

Initially, DHCR wouldn’t even consider the case. Because the buildings were built prior to 1974, they were automatically covered by rent stabilization when their contract expired. The base rent was assumed to be the same as the last rent paid under Mitchell-Lama. The owners sued DHCR in State Supreme Court, but lost in June 2002.

Undeterred, they filed an appeal. On February 26, a five-judge panel of the appellate court unanimously overturned the lower court’s ruling. The panel found that the situation constituted a “unique and peculiar circumstance” as defined by the 1974 Emergency Tenant Protection Act, giving the landlords the right to seek an increase.

The tenants in the building were shocked. “We had every reason to think we would be protected,” said Jean Dorsey, head of the Westgate Tenants Association, a co-respondent on the case. Dorsey has lived in the building for 32 years, and pays $600 for a 2-bedroom apartment she shares with her husband. “Nobody’s saying they shouldn’t make a profit; that is not our position,” she said. “We just don’t want rents to be raised so much that we end up living in Central Park.”

The tenants have already filed a motion to be heard on appeal. At the March 26 hearing, facing mounting public pressure, DHCR vowed to join them.

Meanwhile, Assemblymember Vito Lopez, chair of the Assembly’s housing committee, has amended several pending Mitchell-Lama bills to help clarify the base rent issue. One of them, first announced by Mayor Bloomberg in October, would extend rent protections to residents of buildings built after 1974 and offer landlords new incentives to stay in the program.

“My job is to be a statesman and try to protect 40 or 50,000 units of affordable housing,” said Lopez. “In some areas, it’s the only affordable housing left.”