Appeals Court Finds Rent Overcharge Must Be Recalculated

Tenants sued landlord in 2020 for rent overcharge and improper deregulation. In 2014, prior landlord had registered the apartment with the DHCR as exempt due to high-rent vacancy and based on improvements although the building was receiving J-51 tax benefits. In 2015, prior landlord gave tenants a rent-stabilized renewal lease that contained a J-51 benefits rider stating that the J-51 benefits would expire on June 20, 2018. The court denied landlord's request to dismiss the case without trial and granted tenant's request for a declaration that the apartment was subject to rent stabilization. The court set the legal base rent at $2,500 and directed landlord to refund rent overcharges with triple damages and attorneys' fees.

Landlord appealed and won, in part. The lower court erred in granting tenant's motion for summary judgment as it related to the setting of the legal base rent and the awarding an overcharge award because the amount of any overcharge couldn't be determined on the record. The record also was insufficient to resolve the issue of attorneys' fees. Landlord and tenants agreed that the court set the legal regulated rent at $2,500 in error. To the extent tenants seek to recover overcharges that accrued before the enactment of the HSTPA effective June 14, 2019, amendments to CPLR 213-a and RSL Section 26-516 made under HSTPA are not applicable. Because the prior landlord gave tenants a market-rate lease claiming that the apartment was deregulated in 2013, well after the 2009 Roberts decision, landlord can't claim reliance on DHCR guidelines when it deregulated the apartment.

However, the 2020 Regina Metropolitan decision applies to this case since the Court of Appeals ruled in that case that "Part F of the HSTPA governing rent overcharges cannot be applied retroactively to overcharges that accrued before the enactment of the HSTPA." Tenants argued that, regardless of whether HSTPA applied to any portion of the overcharge claim, the illegal conduct of prior landlord called for a finding of fraud as a matter of law and permitting review of the entire rent history. But it was too soon to determine whether irregularities in the rent history were based on fraud in light of the parties' competing contentions as to the reasons for discrepancies in the rent history.

Applying pre-HSTPA law to the pre-HSTPA overcharges, under the four-year lookback rule, there was no lease in effect and no rent history on the base date of July 21, 2016. Under Rent Stabilization Code Section 2523.5(c)(1), if a landlord fails to offer a timely renewal lease, "the guidelines rate applicable shall be no greater than the rate in effect on the commencement date of the lease for which a timely offer should have been made." The amount of overcharge, if any, during the agreed-upon four-year lookback period beginning July 21, 2016, and through the present, cannot be determined on the present record. The case was sent back for further fact-finding. Questions about triple damages and attorney's fees should be resolved with the resolution of the overcharge claim. 

Austin v. 25 Grove St. LLC: Index No. 155570/20, App. N. 15228-15228A, Case No. 2021=03201, 2022 NY Slip Op 00716 (App. Div. 1 Dept.; 2/3/22; Manzanet-Daniels, JP, Webber, Oing, Mendez, Higgitt, JJ)