Developer Overcharged Brooklyn Tenants While Getting 421-a Tax Break, Lawsuit Claims

“We think we’ve identified over 1,500 421-a buildings that are out of compliance with the rent stabilization laws,” said Aaron Carr, executive director at watchdog group Housing Rights Initiative. “Whether you’re a tenant or a taxpayer you should be up in arms about this.”

Years after sparking protests over its looming height and multi-million dollar tax break, a residential tower on Flatbush Avenue just east of Prospect Park is back in the hot seat.

Four tenants filed a proposed class action lawsuit in state court Thursday against an affiliate of Hudson Companies, which owns the Parkline building – a 254-unit, 24-story high rise at 626 Flatbush Ave. that boasts sweeping park views, a yoga studio and about 50 apartments set aside for low-income renters.

The tenants accuse the developer of overcharging them while benefiting from a tax break called 421-a, in the latest of a series of suits based on investigations by the watchdog group Housing Rights Initiative.

“We think we’ve identified over 1,500 421-a buildings that are out of compliance with the rent stabilization laws,” Aaron Carr, the group’s executive director, told City Limits. “Whether you’re a tenant or a taxpayer you should be up in arms about this.” 

According to the complaint, owner Hudson CBD Flatbush LLC has exploited the 1971 421-a abatement program, which grants tax breaks in exchange for classifying apartments as rent-stabilized, limiting annual rent increases.

The controversial program, which closed to new applicants last year, also requires that a subset of apartments be set-aside for low-income tenants. The majority of new units built in New York City in the decade ending in 2020 received 421-a abatements, according to a Furman Center analysis, yet critics say the affordability requirements are too shallow.

Hudson saved about $1.8 million in 2022 thanks to 421-a, according to a quarterly tax statement. New York City Comptroller Brad Lander, a longtime critic of the program, has estimated that it diverts more than $1.7 billion per year from city coffers.

The Parkline’s landlord allegedly attracted tenants by listing lower rents on StreetEasy than what they registered with the Department of Homes and Community Renewal, the state agency that enforces rent stabilization, according to Thursday’s complaint. The lower rent was allegedly achieved through concessions, pitched to tenants as one or more months free.

For example, a rent of $3,000 per month with one month free resulted in an actual “net effective” rent of $2,750 over the course of a year. Yet the landlord allegedly registered the higher rent with the state – rather than the monthly rent “charged and paid” as required by statute – establishing a higher floor for subsequent annual increases.

“By manipulating the way it assessed a unit’s rent, [Hudson] was able to register a unit with an initial rent higher than what was actually charged, and all subsequent increases… were based off of that higher, impermissible figure,” the complaint says.

A representative of Hudson Companies did not immediately reply to a request for comment.

Three tenants named in the lawsuit – Michael Boggia, Jill Swanson and Erin Moore – moved into the building after initial tenants, who allegedly received concessions on their rent. Another plaintiff, Christopher Turner, was the first to rent his unit and says that he received a two-month concession.

All four live in Parkline apartments that are not designated as affordable, according to their attorneys at Newman Ferrara LLP.

Hudson also managed to skirt regulations approved in New York’s 2019 Housing Stability and Tenant Protection Act, the tenants claim.

Since its passage, landlords who charge preferential rents — or rents below the legal limit — cannot revoke the preferential rent suddenly. Instead, they must adhere to incremental increases set annually by the city’s Rent Guidelines Board.

But the tenants allegedly saw their rents increase sharply upon lease renewal, when their rent concessions were revoked. “When it comes time for renewal, they pull the concession,” said attorney Roger Sachar of Newman Ferrara.

A rent concession is “simply a preferential rent by another name,” the lawsuit states. 

The Parkline tenants’ lawyers said that recent decisions from a state appeals court have helped inform their legal strategy across numerous 421-a overcharge lawsuits. 

In two instances, panels found that 421-a overcharge lawsuits could proceed. One suit is against the owner of 1209 Dekalb Ave. in Bushwick. The second, which the First Department ruled on last month, is against the owner of The Mill, a residential building at 16-26 Madison St. in Ridgewood. 

But in a third decision from 2021, the appeals court found that tenant Jason Flynn received a free month of rent at 670 Pacific St. in Prospect Heights because the building didn’t have a certificate of occupancy when he moved in. The concession was deemed legitimate as a way to compensate for construction noise and debris. 

“If construction is ongoing and a concession was given, the court is going to give the owner more latitude than if not,” said attorney Lucas Ferrara. “So we’re not pursuing cases where there’s construction.” 

Newman Ferrara hopes to certify a class of hundreds of Parkline tenants who have lived in the building at any time since April 2019. They could be owed $8 million or more in rent overcharges, according to their lawyers’ estimate.

While the lawsuit begins to wind through the courts, Carr of Housing Rights Initiative is urging state regulators to root out fraud by recipients of the 421-a tax break. 

“We’re not the government, and at the end of the day the government needs to step in and proactively and systematically enforce the law,” Carr told City Limits. 

Homes and Community Renewal did not comment on the lawsuit but stated, in part, that it is “committed to protecting the rights of rent regulated tenants by enforcing and administering the law.” 

In the immediate future, tenants have their eyes on Gov. Kathy Hochul and state legislative leaders, who have missed their April 1 budget deadline. Hochul has called for a new tax abatement as part of her broader plan to boost housing construction. 

Delsenia Glover, a founding member of the tenant coalition Housing Justice for All and former state Assembly candidate, remembers protesting outside of the Parkline building eight years ago, in April 2015, at an action demanding an end to 421-a. 

After hearing about the lawsuit the building is facing, she said the criticism still stands. 

“It’s still a gentrification tool that sucks taxes out of the system – taxes that can be used for other programs like rental vouchers and eviction prevention,” Glover said. “My first thought was, how greedy do you have to be to get this humongous tax abatement and then on top of that you want to cheat some more?”