Building Bought at Judicial Sale

Facts: Tenant complained of a rent overcharge. The DHCR ruled for tenant, finding a $20,000 overcharge. Tenant chose to deduct 20 percent of the total overcharge from each month's rent until fully credited. After the DHCR's order, landlord filed for bankruptcy. While a bankruptcy proceeding was pending, the bankruptcy court permitted landlord to sell the building. New landlord initially accepted reduced rent payments from tenant but then sued tenant for nonpayment of rent. New landlord claimed that under the rent stabilization code, it wasn't responsible for refunding rent overcharge to tenant because it bought the building at a judicial sale. Court: Landlord loses. Records of the DHCR order were available to new landlord before and at the time of the judicial sale. New landlord never claimed it was unaware of the DHCR's order when it bought the building. More importantly, this wasn't an actual foreclosure sale. The bankruptcy court permitted the building to be transferred directly to a reorganization plan for prior landlord. Since new landlord had knowledge sufficient to establish tenant's legal regulated rent, the rent stabilization code provision governing judicial sales didn't apply.

36 Plaza Corp. v. Marshall: NYLJ, p. 33, col. 5 (6/12/96) (Civ. Ct. Kings; Birnbaum, J)