DHCR Misinterpreted Special Guideline 26

Facts: Tenant moved into an apartment in December 1994 as the apartment's first rent-stabilized tenant. His monthly rent was $1,050. The apartment had previously been rent controlled. In 1995, tenant filed a fair market rent appeal challenging the first stabilized rent. Landlord claimed that the last MBR was $302, that it made improvements to the apartment before tenant moved in, and that the fair market rent was close to the rent charged tenant. The DHCR ruled for landlord. The DHCR found that, under Special Guideline 26, the applicable MBR was actually $539. So the fair market rent was more than what landlord charged. The DHCR said that, under Special Guideline 26, tenant's rent would be set at either 35 percent of the MBR ``as it existed or would have existed'' or 40 percent above the MCR paid by prior tenant. So the DHCR updated the MBR to the amount that could have been collected when prior tenant moved out in 1993, even though landlord stopped seeking MBR increases after 1986-87. Tenant appealed. Court: Tenant wins. MBR increases aren't automatic. The DHCR's interpretation of Special Guideline 26 assumes that landlord, who hadn't applied for MBR increases, was still entitled to those increases when the DHCR calculated the fair market rent for an apartment. The DHCR's interpretation would give landlord credit for MBR increases it didn't collect and may not have qualified for.

Schaper and Falck v. DHCR: NYLJ, 6/5/01, p. 18, col. 2 (Sup. Ct. NY; DeGrasse, J)