DHCR Default Formula Used Based on Illusory Tenancy

Tenant complained of rent overcharge. The DRA ruled for tenant and ordered landlord to refund $14,800, including triple damages and interest. The DRA set tenant's legal rent at $1,535 using the DHCR's default method calculation. Landlord appealed and won, in part.

Landlord claimed that the apartment was owner-occupied on the base rent date and therefore temporarily exempt from rent stabilization. Landlord further claimed that the $1,800 monthly rent charged to the next tenant in 2008 became the new legal rent. The complaining tenant later was charged $2,200 per month, and the apartment was properly deregulated due to high-rent vacancy.

Landlord's employee had rented the apartment to tenant at $2,200 per month under an illusory tenancy. Con Ed bills in the owner's name and DHCR rent registrations didn't prove that the apartment was owner-occupied on the base rent date. Landlord rented the apartment to its employee starting Jan. 1, 2008, under a non-stabilized lease at $1,800, and the employee was never registered as a rent-stabilized tenant. The fact that the employee rented the apartment to tenant three months later raised serious questions about whether the employee's tenancy was legitimate. Landlord also submitted no documentary proof that either landlord or its employee ever lived in the apartment.

And even if landlord could have shown there was an owner occupancy on the base date, the DHCR could set the rent lower than $1,800. The Rent Stabilization Code was amended on Jan. 8, 2014, so that landlords could no longer set the legal regulated rent at the first rent charged after owner occupancy. While the DHCR wouldn't normally apply this amendment to an overcharge proceeding commenced before the Code amendment, it was reasonable to do so in this case given the illusory tenancy. Landlord did correctly point out that no triple damages applied to overcharges collected more than two years before tenant filed her complaint. So the total overcharge finding was reduced to $7,200.

Feng/343 E. 33rd Street, Inc.: DHCR Adm. Rev. Docket Nos. ZK410039RT, ZK410005RO (7/10/14) [6-pg. doc.]