DHCR to Set Rent After Illusory Prime Tenancy

Facts: In 1992, landlord and tenant signed a vacancy lease for a rent-stabilized apartment. The prior rent for the apartment was $500 per month. Tenant's rent was $2,400 per month. The lease stated that the apartment wouldn't be tenant's primary residence. Although there was no dispute between landlord and tenant, landlord sued tenant in 1993, seeking a declaration that tenant's apartment was exempt from rent stabilization as tenant's nonprimary residence. Tenant didn't answer landlord's court papers, but simply signed a settlement agreement. In the meantime, tenant sublet the apartment to subtenant at a rent of $3,200 per month. Subtenant's lease stated that he wouldn't use the apartment as his primary residence, but subtenant did in fact primarily reside in the apartment. In 1996, subtenant sued tenant, claiming rent overcharge. In 2000, subtenant amended the court papers to sue landlord, demanding a rent-stabilized lease at $500 per month. Landlord argued that the base date for determining subtenant's rent should be the 1996 registered rent of $2,500. The court and appeals court ruled for subtenant in part, finding an illusory tenancy based on a scheme between landlord and tenant. But the court ruled that the DHCR would have to set the base rent because there were no reliable rent records. Landlord appealed again. Court: Landlord loses. Tenant's lease was void because it violated public policy. Tenant isn't bound by a lease clause saying that she won't use an apartment as a primary residence when signing a lease for a rent-stabilized apartment. Since the rent under the lease was illegal, landlord's 1996 rent registration statement listing the illegal rent also was void. So the DHCR must use its default formula to set the rent for subtenant, because there were no reliable rent records available for setting the base date rent.

Thornton v. Baron: NYLJ, 7/1/05, p. 18, col. 1 (Ct. App.; Kaye, P.J., G. Smith, Ciparick, Rosenblatt, Graffeo, JJ; dissent by R. Smith, Read, JJ)