Can NYC phase out cluster site program without ‘perpetuating homelessness’?

New York City Mayor Bill de Blasio recently announced that his administration will purchase 17 apartment buildings in a controversial, Giuliani-era program that pays private landlords to house homeless families. Details are thin, but at minimum, the city says, more than 460 apartments that for years have been part of the shelter system will revert to their rent-stabilized status. Hundreds of families will get leases for the first time.

The deal is one step toward the mayor’s commitment to phase out the notoriously mismanaged cluster site program, which has about 1,400 units (down from its 2016 peak of 3,650 units), preserving affordable housing while he’s at it.

But not all cluster site residents have been so lucky. In Central Brooklyn, 60 families are currently fighting eviction from their former cluster site apartments, arguing that they, too, deserve to be recognized as rent-stabilized tenants. Unless their lawyers can set a precedent—and without substantial reforms to the rent laws, which incentivize landlords to empty and renovate apartments—Legal Aid Society attorney Sunny Noh warns that “we find ourselves perpetuating homelessness.”

The families in question live across seven apartment buildings owned by Barry Hers, including three pre-war buildings on Clarkson Avenue in Prospect Lefferts Gardens. Under the Emergency Tenant Protection Act, buildings built before 1974 with more than six units are rent-stabilized, meaning tenants have the right to a lease renewal below market rate. The cluster site program proved attractive to landlords like Hers, whose rent-stabilized units reportedly brought in less than $1,000 per month. For comparison, cluster site contracts have stipulated the city pay an average of $2,700 per month, per apartment (homeless families in the program do not pay rent).

The Human Resources Administration announced plans to terminate its contract with Hers at 60 Clarkson in June 2015 as evidence of mismanagement and dangerous living conditions—collapsing ceilings, broken locks—piled up. HRA backed out of the other six Hers buildings in 2016, according to court papers. The city then offered to relocate the impacted families to other shelters, but dozens opted to stay on as paying tenants with full or partial rental vouchers. Those tenants joined the lawsuit with the Legal Aid Society and the firm Paul, Weiss, Rifkind, Wharton & Garrison, which argues they are stabilized tenants and are entitled to leases at the rents that were in place before Hers entered the cluster site program.

The lawsuit claims that Hers carried out an illegal illusory tenancy scheme, creating “multiple layers of superfluous business entities” to avoid rent stabilization. An illusory tenancy exists when a landlord registers a primary tenant (either an individual person or an entity), who’s then directed to sublease at an inflated, illegal rent. Court papers claim Hers rented apartments to two companies, We All Care Inc. and We Care Inc., at “inexplicably” nearly-identical rents (his lawyer, Nativ Winiarsky, says the rents are accurate). Per the lawsuit, those companies in turn sublet to a nonprofit called We Always Care Inc., which then contracted with the city to house homeless families.

Hers reportedly financed the nonprofit, though Winiarsky denies this. Winiarsky also told Curbed that Hers has “no affiliation” with the for-profit companies, though the Legal Aid Society has submitted, as evidence, emails they say suggest otherwise. Regardless, he says, his client did not evade rent stabilization laws because apartments rented for “charitable or educational purposes on a nonprofit basis” qualify for a special exemption in the rent stabilization code.

On October 10, Brooklyn Supreme Court Judge Peter Sweeney issued a ruling favorable to Hers, echoing another argument Winiarsky has made in court: that the former cluster site families cannot have the rights of tenants because they never signed leases or rental agreements. Sweeney, who also signed eviction orders for all of the families in November, did not explicitly address Legal Aid’s illusory tenancy argument.

Bert Knaus, a retired attorney who volunteers at the Urban Justice Center’s Community Development Project, told Curbed that he’s not surprised by the ruling. “There’s been this regressive trend in the last few years to cut back on any sense that these program participants have any sort of tenancy rights,” he explained. A more well-rounded decision from Sweeney, he added, would have included analysis of the legitimacy of the various companies, and the nonprofit, affiliated with Hers properties.

For Tashawn Sutherland, a 46-year-old mother of two and former cluster site resident living at 250 Clarkson Avenue, the prospect of losing her home is overwhelming. She says that her younger daughter, who is eight, has ADHD and autism. Sutherland walks with a cane. “I know it would be difficult for me to find an apartment for myself,” she said. “I would probably have to go back to the [shelter] system and they would have to place me.”

On December 17, Noh will argue for an extended stay pending appeal, so that Sutherland and her neighbors can remain in their apartments while her team works on next steps. “Our mayor will not leave these families stranded and we will pay for lawyers to represent these families in housing court,” Jaclyn Rothenberg, a City Hall spokeswoman, told Curbed.

Meanwhile, it’s up to the state to enforce rent stabilization in apartments phasing out of the cluster site program. The state’s Department of Housing and Community Renewal “has reached out to building owners identified by New York City as having units that have exited the cluster site program to inform them of their obligations,” said spokesman Freeman Klopott.

If the former cluster site families are ultimately evicted, “these units will still be rent-stabilized,” Winiarsky assured Curbed. But Prospect Lefferts Gardens continues to gentrify, drawing a new class of renters. Hers reportedly renovated multiple apartments in 2016, and listed them at near-market rents. It will be up to future Hers tenants to challenge rents they suspect to be illegally inflated. Once a rent-stabilized apartment is vacant, Knaus of the Community Development Project said, “it’s tough to put the toothpaste back in the tube.”

Correction: An earlier version of this piece stated that nearly 80 families are involved in Legal Aid Sociey’s lawsuit; it is 60. Curbed regrets the error.