In a ruling that could potentially return thousands of downtown apartments to rent stabilization, a New York City housing judge has ruled that a Wall Street building was illegally deregulated while its owner received special tax abatements.

The abatements, known as 421-g tax breaks, were established by the city in 1995 to encourage commercial landlords in the Financial District to convert their buildings into residential ones. Owners could receive up to $40 million in savings via reduced property taxes.

The ruling—handed down by Judge Bruce Scheckowitz of New York City Housing Court—comes two months after the state Court of Appeals ruled Tishman Speyer had illegally deregulated apartments while receiving J-51 tax abatements for building renovations.

"As the Court of Appeals concluded in Tishman Speyer, [the owner] cannot take advantage of the luxury deregulation exclusion of the Rent Stabilization Law while simultaneously receiving benefits under the program," Mr. Scheckowitz wrote in his decision.

The owner of the building at 37 Wall St., W Associates, had tried to make a case that the apartment building could be taken out of stabilization because the rent had exceeded $2,000, but Mr. Scheckowitz disagreed.

"Based on the plain language of the statute, respondent's apartment is afforded rent stabilization protection," the judge wrote.

Attorney Serge Joseph, who argued the case on behalf of tenant Maverick Scott, believes some 3,000 apartments could be affected by the ruling. A Department of Finance spokesman said 80 buildings are receiving 421-g tax breaks.

Mr. Joseph's colleague, William Gribben, said the ruling could be particularly important as Wall Street rebounds and landlords look to make up for rent lost during the recession.

"Rents can go up drastically in the next few years," he said. "If we can get these people rent stabilized status, at least they can be protected against it going way up."

Author: Daniel Massey