Apartment in Building that Had Received J-51 Tax Benefits Was Properly Vacancy-Deregulated

Tenant complained to the DHCR in 2020 of rent overcharge and improper deregulation of her apartment. The DRA ruled against tenant, finding that the apartment had been lawfully vacancy-deregulated in 2014 when the legal regulated rent (LRR) exceeded $2,500 per month. Tenant appealed and lost. Tenant argued that the 2010 apartment rent registration was unreliable. Under HSTPA, the base date for this overcharge complaint is the date of the last reliable registration six or more years prior to the filing of the complaint. And, under RSC Section 2526.7, added by the Nov. 8, 2023, amendments to the RSC, in no event is the base date to be prior to June 14, 2015. So, in this case, the DRA properly set the base rent date as June 14, 2015.

In addition, under the RSC, rental events prior to the base date may be examined, and the base date legal regulated rent can be set using the default formula, only when there has been a fraudulent scheme to deregulate an apartment. The DHCR found no fraudulent scheme to deregulate the apartment in this case. The missing rent registrations here were insufficient to prove that there was a fraudulent scheme. The building received J-51 tax benefits from 1975 to 2010, and there was "industry-wide confusion" and incorrect direction offered by the DHCR regarding deregulation and apartment registration in J-51 buildings "prior to and after" the Roberts decision. In Regina Metropolitan v. DHCR (2020), NY's highest court also ruled that the "fraud exception to the lookback rule is generally inapplicable to Roberts overcharge claims."  The DHCR declined in this case "to find that the increase in the rent in the 21 years from 1989 to 2010 was the result or the product of a fraudulent scheme to deregulate the apartment."

However, the DHCR could examine rental events prior to the base date to determine whether the apartment was subject to rent regulation. Here, the owner properly registered the apartment in 2010 and continued to do so until deregulation in 2014. The apartment was lawfully vacancy-deregulated. The landlord's failure to notify the deregulation to the complaining tenant, who was the first tenant following deregulation, didn't nullify an otherwise lawful deregulation.

Polanco: DHCR Adm. Rev. Docket No. LS410031RT (11/27/23)[4-pg. document]