Appeals Court Reverses Finding of Fraudulent Scheme to Deregulate

Tenant sued landlord in 2011 for improper apartment deregulation and rent overcharge. Landlord had deregulated the apartment even though the building was subject to J-51 tax benefits. Tenant's monthly rent was $9,150 when he moved into the unit in 2007. The trial court ruled for tenant, and found that landlord engaged in a fraudulent scheme to deregulate tenant's rent-stabilized apartment. The court then calculated rent overcharges by reconstructing rent from the last reliable registered rent, instead of using the default formula. The court also awarded tenant triple damages, predecision interest on the amount of rent overcharges before the period for which triple damages were allowable, post-decision interest, and attorneys' fees and costs.

Landlord appealed and won, in part. The appeals court found that there was no fraudulent scheme to deregulate the apartment and therefore a four-year lookback period applied. As a result there was no overcharge since the rent hadn't increased over tenant's actual base-date rent. The base date rent was the tenant's initial rent, which was never increased through the date of his complaint. 

Addressing the issue of fraud, the appeals court noted that landlord's failure to provide tenant's predecessor with notice of the last legal regulated rent was not fraudulent, although a violation of law. The deregulation of the apartment in 1997 wasn't fraudulent since landlord had relied on the DHCR's 1996 advisory opinion to support its belief that receipt of J-51 tax benefits wouldn't affect apartment regulation. The fact that landlord didn't file retroactive rent registrations until 2011 and, even then, only back to 2007, also didn't demonstrate fraud since the retroactivity of the 2009 Roberts decision wasn't settled until 2012. Landlord's decision not to file additional registrations retroactively also didn't show fraud given its reliance on the four-year statutory lookback period. The 2004 apartment renovation also didn't demonstrate fraud since landlord sufficiently documented apartment improvements made in the unit with an estimate, invoices, cancelled checks, and testimony from its agents and general contractor. The credible testimony of tenant's expert as to what the contractor should have charged didn't prove that the work wasn't done.  Because there was no proof of a fraudulent scheme to deregulate, there was no reason to look back beyond the four-year base date in this case. 

The appeals court did find that tenant was entitled to attorney's fees since he prevailed on his claim for a declaratory judgment that he was rent stabilized. The case was sent back to the trial court for a hearing on the amount of fees to be awarded. 

Sandlow v. 305 Riverside Corp.: Index No. 106025/11, App. No. 14767-14767A, Case No. 2020-04523, 2021-00654, 2022 NY Slip Op 00023 (App. Div. 1 Dept.; 1/4/22; Renwick, JP, Mazzarelli, Singh, Mendez, Higgitt, JJ)