DHCR Substantially Reduces Overcharge Award After Regina Court Sets Calculation Method

Landlord gave new tenants a deregulated lease in 2005 after removing the apartment from rent stabilization in 2003 under the Rent Stabilization Law's vacancy decontrol provisions. At the time, and until 2013, the building received J-51 tax benefits. In October 2009, New York's highest court ruled in Roberts v. Tishman Speyer Properties that luxury deregulation couldn't be applied while a building was under J-51. Tenants complained of rent overcharge and improper deregulation in November 2009. The DRA ruled for tenants in 2014, found that the overcharge was neither willful nor fraudulent, looked back more than four years to determine a reliable legal rent, reduced the base date rent from $5,195 to $3,325, and ordered landlord to refund $285,390, including interest. The DHCR denied PARs filed by both landlord and tenants.

Landlord then filed an Article 78 court appeal in 2015. The court ruled against landlord, finding that the DHCR used a rational method to calculate a reliable base date rent even though it looked beyond the standard four-year review period. Landlord appealed, and the First Dept. ruled that, absent fraud, the RSL barred the DHCR from looking back more than four years to review rental history. The appeals court sent the case back to the DHCR to recalculate the base date rent based on a four-year lookback. After the First Dept. ruling, the HSTPA was enacted on June 14, 2019, and extended the rent review lookback period to include all relevant rent history in rent overcharge cases. The DHCR then filed an appeal of the First Dept. ruling, arguing that HSTPA should apply to this case.

In April 2020, New York's highest court ruled in Regina Metro. Co. LLC v. DHCR that HSTPA overcharge calculation amendments can't be applied retroactively to overcharges that occurred prior to June 14, 2019, and that parties could look back more than four years only where there's evidence of fraudulent conduct by landlord. The Court of Appeals then sent the case back to the DHCR to reconsider the overcharge claim. The DHCR then asked landlord to submit all leases signed between November 2005 and October 2020. The DHCR ruled in February 2021 that landlord should refund an overcharge of $20,487 to tenants, including interest. The DHCR also awarded tenants $2,670 in attorneys' fees. Tenants and landlord both filed Article 78 court appeals of DHCR's decision. The case was sent back to the DHCR for further consideration. 

The DHCR now ruled that the four-year base date rent was the $5,195 rent charged. Calculation of any overcharge was based on subsequent lawful rent increases added to the base rent. The total overcharge was $18,742, with interest. Since tenants already had received a refund of $171,965, they owed landlord $153,243 and could pay back these arrears over a 48-month period. Landlord had been required to accept a lower rent from tenants since 2014 in compliance with the DRA's initial order. But this didn't constitute a waiver by landlord against now collecting the back rent owed under the DHCR's final order.

The DHCR dismissed tenants' claim that they paid a preferential rent on or after June 14, 2019, and that they should retain the preferential rent under HSTPA. But the lowered rent that complied with the DHCR's prior order didn't create a preferential rent.

However, the DHCR denied landlord's request to add interest to the back rent owed. Neither the RSL nor RSC imposed interest on rent arrears. Tenants also argued that the rules the Regina court applied to set the base date rent were "problematic" and said that the DHCR should use its powers to proactively review its rules. But this issue was beyond the scope of the DHCR's review at this point, since tenants didn't pursue it before. And the DHCR already rejected tenant's claims that the overcharge was willful or fraudulent in 2014, and the First Dept. upheld that finding.

Finally, the DHCR rejected tenants' claim for attorneys' fees totaling $271,854. HSTPA didn't give the DHCR unlimited authority to award reasonable costs and attorney's fees or to assess attorney fees for time spent on court proceedings outside of the underlying overcharge case before the agency. And, even if the DHCR could consider tenants' attorneys' fee claim, they didn't win on their claims raised in their PAR, Article 78 proceedings, or court appeals.

Carr-Levy/Regina Metropolitan Co. LLC: DHCR Adm. Rev. Docket No. JQ410003RP (11/8/21)[21-pg. document]