DHCR Can't Retroactively Apply Amended RSC Provision on Setting Rent After Temporary Exemption

Rent-stabilized tenant complained of rent overcharge. The DRA ruled for tenant and ordered landlord to refund $22,365, including interest. Landlord appealed, and the DHCR denied landlord's PAR. Landlord then filed an Article 78 court appeal, claiming that the DHCR's decision was arbitrary and unreasonable.

The court ruled for landlord. Tenant moved into the apartment in April 2013 at a monthly rent of $2,175. Previously, the apartment had been temporarily exempt from rent stabilization because the building super lived there. The DHCR calculated the legal rent by averaging all comparable rents listed in the building's 2013 annual rent registrations. But it was undisputed that, at the time landlord signed an initial lease with tenant in April 2013, Rent Stabilization Code Section 2526.1(a)(3)(iii) permitted landlord to charge tenant a negotiated rent because the apartment had been temporarily exempt for some period before that. The RSC provision in question was amended effective Jan. 8, 2014, to require bridging the gap between the last prior regulated rent and a new tenant's rent by applying two-year rent guideline increases to a period of extended vacancy or temporary exemption.

The court noted that there is a clear "judicial preference for prospective application of statutory amendments absent a clear legislative expression of retroactive intent." The court found the DHCR's application of the amended RSC provision inappropriate and sent the case back to the DHCR for a new ruling consistent with RSC Section 2526.1(a)(3)(iii) in effect before the 2014 amendment. Otherwise, landlord would be required to refund over $20,000 to tenant even though it complied with the law in effect when tenant moved into the apartment. 

AEJ 534 E. 88th LLC v. DHCR: Index No. 100476/2017 (Sup. Ct. NY; 1/8/18; Bluth, J) [11-pg. doc.]