Court Can Apply Default Formula to Determine Legal Rents in Class Action by J-51 Tenants

Building tenants brought a class action against landlord, seeking a declaration that they were subject to rent stabilization, and a declaration that their legal regulated rents should be calculated according to Rent Stabilization Code (RSC) Section 2522.6(b)(2)'s default formula. Tenants lived in a building that received J-51 tax benefits between 1991 through 2014, and landlord had improperly deregulated 78 rent-stabilized apartments while the building received J-51 benefits.

The court agreed with tenants that their legal regulated rents should be calculated according to the RSC's default formula. The court also directed tenants in default to post a bond and, upon failure to do so, landlord could seek their ejectment. But the court denied landlord's request to determine the amounts of use and occupancy. Landlord appealed, arguing that the court should have used landlord's good faith calculations of what the base date rent was in October 2007.

The appeals court ruled against landlord. After tenants brought the court action, landlord, without court approval, unilaterally registered rents from the base date forward that were not the rents actually paid, and instead registered much higher rents without explanation. This constituted fraud but also called for application of the default formula because the rents charged on the base date couldn't be determined or full rent histories from the base date couldn't be provided. The appeals court agreed that landlord's 2012 retroactive registration of improperly deregulated apartments was an attempt to avoid adjudication of the issues and to impose its own rent calculations rather than face a determination of the legal regulated rent within the lookback period. However, the appeals court found that the lower court properly directed tenants in default to post a bond and, upon failure to do so, landlord could seek their ejectment.

Casey v. Whitehouse Estates: Index Nos. 111723/11, 595472/17, App. No. 13969, Case No. 2020-03001, 2021 NY Slip Op 04646 (App. Div. 1 Dept.; 8/5/21; Manzanet-Daniels, JP, Gische [dissenting], Webber, Kennedy, JJ)