J-51, Roberts v. Tishman Speyer, and Reporting Implications
Do you own a residential building which receives(ed) J-51 tax abatement benefits? Are any of the apartments de-regulated? Were any of the apartments de-regulated while the J-51 benefit was being received? If so, the Roberts v. Tishman Speyer case might apply and have financial reporting implications for you.
(1) What is the Roberts v. Tishman Speyer Case all about?
In this 2009 case, the Appellate Division of the NY Supreme Court ruled (and this ruling was further upheld by the Court of Appeals) that notwithstanding an advisory opinion given by the DHCR to the contrary, a building receiving a J-51 tax abatement could not legally deregulate any rent-stabilized apartments. The decision turned on the literal meaning of the statutory phase “by virtue of” which DHCR took to be synonymous with “solely” and with which interpretation ultimately the court disagreed. The practical effect of this decision (which directly applied to Stuyvesant Town and Peter Cooper Village in Manhattan) is that for some period of time (which is not yet determined) any such building, while receiving J-51 benefits and which deregulated apartments, may very well have to make restitution to current and former tenants, and/or roll back rents. Given the current lack of clarity in applying the statute of limitations, the impact of this decision in financial terms is similarly unclear.
(2) Why does this matter?
Preparers of financial statements for entities owning buildings which may be subject to this case need to assess the adequacy of their financial statement footnote disclosure if it is at least possible that a liability could ultimately be determined to be material, as well as a disclosure that the entity is unable to presently estimate the exposure to liability.
Postscript: This just in! On 2/15/11, the NYS Appellate Division, reversing a prior Supreme Court ruling, held that the tenants of a Manhattan building (444 E. 82nd St.) could directly sue their landlord in court in a case alleging illegal deregulation of apartments at a time the building was receiving the above-mentioned J-51 benefits. The lower court had held that the case had to be heard before the DHCR first. So, while it may indeed take a while before the court sorts out the questions of who is entitled to what relief and for how far back, at least there now seems a clear path toward eventual resolution of the matter. Stay tuned....