An apartment that is rent stabilized before receiving J-51 tax benefits reverts to its previous stabilized status after those benefits expire and is subject to luxury deregulation, a unanimous panel of the Appellate Division, First Department, has ruled. The Dec. 11 opinion follows an earlier First Department ruling, 73 Warren Street v. DHCR, 96 A.D.3d 524, handed down in June. That decision held that an apartment that was stabilized because of J-51 benefits remains stabilized when the benefits end if the tenant was not notified that the stabilized status would expire when the lease was signed. The court also ruled that such apartments remain exempt from luxury deregulation, which allows rent stabilization to end when the rent and tenant’s income exceed certain thresholds, just as they were when the J-51 benefits were in effect.

The difference between the June case and the one decided this week, Schiffren v. Lawlor, 102166/10, is that in Schiffren the disputed unit was already rent stabilized before the building began receiving J-51 benefits. Such apartments simply return to their previous legal status, and are therefore subject to luxury deregulation, the panel said. “The plain language of Administrative Code §§11-243 and 26-504(c) supports the conclusion that the Legislature intended to provide that a building that is already regulated when it receives J-51 benefits will continue to be regulated under the original rent-regulation scheme when the tax benefits expire,” the panel wrote. “We conclude that the reversion to pre-J-51-benefit rent-regulation status includes the right of an owner to seek luxury deregulation in appropriate cases.”

Justices Luis Gonazalez, David Saxe, James Catterson, Rolando Acosta and Judith Gische sat on the panel.