DHCR Properly Made Landlord and Tenant Responsible for Overcharge

Landlord rented a rent-stabilized apartment to tenant in 1995, and periodically renewed the lease through 2007. Tenant was a business entity. In 2003, tenant''s rent was $1,524 per month, but tenant sublet the apartment to subtenant at $2,800 per month. Subtenant then filed a rent overcharge complaint with the DHCR against tenant, claiming illusory prime tenancy.

The DRA ruled for subtenant, who appealed, claiming that landlord should be jointly and severally liable with tenant for the overcharge because it was complicit in the sublet. The DHCR granted subtenant's PAR and sent the case back for reconsideration by the DRA. But while the case was pending, the DHCR ruled that it was deleting a sentence from its own remand decision that stated that landlord hadn't profited from the subletting arrangement. The DRA then found landlord jointly and severally responsible for the overcharge. Landlord appealed, and the DHCR denied its PAR.

Landlord then filed an Article 78 appeal, claiming that the DHCR decision was arbitrary and unreasonable. Landlord claimed that the DHCR didn't have the authority on its own to vacate its nonfinal order when it amended its remand decision. Landlord also claimed that the DHCR's finding that landlord was responsible for refunding an overcharge collected from a subtenant by the tenant because the tenant created an illusory tenancy was unreasonable.

The court ruled against landlord, who appealed and lost. The DHCR's decision, on its own, to reopen and amend its initial PAR ruling was proper. Rent Stabilization Code Section 2529.9 provides that the DHCR, on application of either party or on its own initiative and upon notice to all parties may, prior to the date that a proceeding for judicial review has been commenced, issue a superseding order modifying or revoking any order issued by the Commissioner where the DHCR finds that the order was the result of illegality, irregularity in a vital matter, or fraud. The DHCR also properly held landlord responsible for the overcharge. Tenant entered into the lease in order to earn a profit, in violation of the Rent Stabilization Law. Landlord leased 22 other apartments to the same tenant, which clearly wasn't going to occupy them. Landlord's building staff knew about the sublets. Landlord also sought luxury decontrol of several of these units. The court did find that the DHCR erred in using the Thornton case decision to use a default method to set the legal rent. The DHCR should have used the base date rent-stabilized rent to determine the rent overcharge. 

333 East 49th Partnership v. DHCR: Index No. 101608/15, 2018 NY Slip Op 05735 (App. Div. 1 Dept.; Acosta, PJ, Tom, Mazzarelli, Kern, Singh, JJ)