Fairstead violated contentious affordable housing tax break by overcharging tenants, lawsuit claims

BY EDDIE SMALL

Fairstead Management has been overcharging its tenants at an Astoria building and violating New York's contentious 421-a affordable housing tax break in the process, a new lawsuit against the developer claims.

The suit, filed last Wednesday in Manhattan state Supreme Court, accuses Fairstead of violating 421-a regulations at 11-15 Broadway in Queens by improperly using rent concessions. Under the program, the initial rent registered has to be what the tenant is actually charged and paying, and all increases must stem from that figure. But tenants' rental concessions were not included in their initial registrations at 1115 Broadway, according to the lawsuit.

For instance, one tenant who moved into the building in November 2020 allegedly received a concession worth two months of rent, effectively lowering his rent from $2,625 per month to about $2,200 per month. When it was time to re- new his lease, Fairstead raised the rent to about $2,700, equating to an increase of more than 20%, much higher than what the Rent Guidelines Board allows, according to the lawsuit.

“It’s got all the trimmings of a classic bait-and-switch scheme in our view,” said Lucas Ferrara, an attorney at Newman Ferrara and a New York Law School professor who is representing the tenants with fellow Newman Ferrara attorney Roger Sachar, “the inducement being, ‘Hey, I'm giving you a supposedly reduced rent,’ and the diversion being the wrongful circumvention of rent regulation.”

‘Tax cheats’

The lawsuit stemmed from an investigation by the Housing Rights Initiative, a watchdog group that has helped generate similar suits before.

“Our investigation into Fairstead uncovered a systematic scheme to defraud rent-stabilized tenants and taxpayers by cheating on a multimillion-dollar tax benefit,” the group’s founder, Aaron Carr, said in a statement. “New York City’s unwillingness to revoke tax benefits from tax cheats has predictably resulted in widespread tax fraud.”

Finance

New York’s 421-a program, which provided landlords with a tax break in exchange for making 30% of the units in their buildings affordable, expired in mid-June. The initiative was very controversial, and critics cited a lack of enforcement as one of the main problems with it. Mayor Eric Adams and Gov. Kathy Hochul have both called for restoring some version of an affordable housing tax break as part of their ambitious housing plans. Adams wants to construct 500,000 homes in the city over the next decade, while Hochul wants to build 800,000 homes across the state. However, it remains unclear whether the state Legislature has an appetite for developing and passing a replacement plan this year.

Repercussions

The behavior described in the lawsuit is very common in 421-a, and it would be better for the state to focus on enforcement than on coming up with a new program, ac- cording to Ferrara.

“Why don’t you just enforce the laws that are out there?” he asked. “When there's a violation, there should be repercussions.”

Fairstead did not respond to a request for comment by press time.

Fairstead is a giant in New York’s affordable housing world. The firm teamed up with Invesco in late 2021 to purchase roughly 2,000 affordable housing units across 48 Bronx buildings, a deal valued at more than $350 million. ■