Court Vacates Rent Reduction Order Issued Against Co-op Instead of Shareholder

Rent-stabilized tenants in a co-op building complained to the DHCR that laundry room washer and dryer services had become inoperable. Tenants named the co-op corporation as the landlord in their complaint. Although they paid rent to Covington Realty, LLC, the owner of their co-op shares (the "shareholder"), they didn't name the shareholder in the complaint. The DRA ruled for tenants, reduced their rents, and directed the co-op to restore services. The co-op appealed, claiming it was the wrong entity to receive the rent reduction order because the shareholder collected rent from the tenants. The DHCR ruled against the co-op, which then filed an Article 78 court appeal of the DHCR's decision.

The DHCR argued that all owners, including managing agents, had overlapping concurrent responsibility to provide required services. But the court found the DHCR's ruling arbitrary and unreasonable. The DHCR order reduced rents owed to the shareholder, an entity that never had a chance to appear and have a stay in the proceedings before the DHCR. The DHCR issued an order directly affecting the shareholder while knowing that it was never named, served, or appeared in the case. While the co-op may be responsible for restoring the building-wide services, no order can be made regarding the rent owed to the shareholder without naming and servicing copies on the shareholder. The DHCR order was vacated and all monetary findings and rent reductions vacated. The court also ruled that the co-op could recover costs and disbursements related to this proceeding from the DHCR.

251 W. 74 Owners Corp. v. DHCR: Index No. 159165/2023, 2024 NY Slip Op 30488(U)(Sup. Ct. NY; 2/14/24; Bluth, J)