Stuyvesant Town — The state’s highest court has spoiled Tishman Speyer’s not-so-carefully laid plan to charge luxury rents at Stuyvesant Town and Peter Cooper Village, a once – and maybe future – bastion of the working and middle class.

Thousands of apartments that now rent for as much as $5,916 a month should never have left New York City’s rent stabilization programs, according to a Court of Appeals ruling last week. Now these apartments must return to rent stabilization — and potentially have their rents adjusted steeply downwards.

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“This is a tremendous victory for tenants and taxpayers,” said City Councilman Dan Garodnick, who lives in the complex and has been pushing the tenants' case.

The ruling will have huge implications across the city. Some buildings affected by the ruling that now wobble on the brink of foreclosure may be pushed over the edge. But tenants in these buildings will now have the protection of rent stabilization law if their buildings go through the foreclosure process, starting with eviction protections. And many tenants who now pay high, unregulated rents for thousands of apartments affected by the ruling could potentially receive a massive windfall, once officials and lawyers finally work out the ruling’s full implications.

The lawsuit

The lawsuit pitted nine residents at Stuyvesant Town and Peter Cooper Village against the current and former owners of the properties. The tenants contended the owners were not entitled to remove more than 4,400 apartments at the properties from rent stabilization, because the owners were receiving tax breaks under the city’s J-51 program.

That program offers abatements and exemptions of city property taxes to property owners who finish major capital improvements or building-wide renovations. “Rental units in buildings receiving these exemptions… are generally subject to rent stabilization for at least as long as the J-51 benefits are in force,” according to the majority opinion of the Appeals Court, issued Oct. 22.

But for the past 15 years, the state’s housing agency, the Division of Housing and Community Renewal (DHCR), allowed many J-51 landlords to take apartments out of rent stabilization under the rules of luxury decontrol, which apply to empty apartments that rent for more than $2,000 a month, or occupied apartments that both rent for more than $2,000 a month and are occupied by residents whose household income is more than $175,000 a year. Luxury decontrol was passed by the legislature in 1993 and expanded in 1997.

Here’s the catch. Luxury decontrol doesn’t apply to properties that are rent stabilized “by virtue of” the J-51 tax break, according to the language of the law. DHCR issued program rules in Dec. 2000 (in part 2520, Section 13, subdivision s) that interpreted the law to allow luxury decontrol at rent-stabilized J-51 properties that were rent stabilized for multiple reasons, not just because of J-51.

The court’s ruling blows that interpretation out of the water. The majority opinion of the court calls DHCR’s interpretation of the law “contrary to the plain text of the statute. ‘By virtue of’ and ‘solely by virtue of’ simply do not mean the same thing.” Now after 15 years of luxury decontrol, any building that gets the J-51 tax break is ineligible for luxury decontrol.