Buildings That Got J-51 Benefits by Mistake Not Subject to Stabilization

The U.S. government sued landlord of two housing projects. The government claimed that housing assistance was overcharged to HUD, and sought reformation of Section 8 assistance payment contracts and a declaration that the projects' receipt of J-51 tax benefits after withdrawal from the Mitchell-Lama program subjected the buildings to rent stabilization. Landlord claimed that the buildings shouldn't be rent stabilized. The court agreed and dismissed the claim. Withdrawal from Mitchell-Lama and simultaneous ending of rent regulation under the Private Housing Finance Law ended the J-51 tax benefits. The benefits had remained in effect by mistake. Neither landlord, HPD, nor the City Department of Finance had decided to continue them. The J-51 benefits terminated by force of law on June 28, 2004. This barred any later application of the rent-stabilization law to the buildings.

United States v. WB/Stellar IP Owner LLC: Index No. 06 CV 7115, NYLJ No. 1202494436846 (SDNY; 5/10/11; Scheindlin, J)