Did Buyer at Judicial Sale Know of Overcharge Order?

Facts: Tenant complained of a rent overcharge. The DRA ruled for tenant and ordered landlord to refund $101,000 to tenant. Landlord appealed. While landlord's PAR was pending, new landlord bought the building in 1992 at a judicial sale. Just before the closing, new landlord learned of the rent overcharge order and PAR. The DHCR ruled for landlord in part, reducing the overcharge award to $62,000 and holding new landlord responsible along with prior landlord for the refund of the overcharge. New landlord appealed and the case was sent back to the DHCR for further consideration. The DHCR then ruled that new landlord wasn't responsible for the overcharge refund, because when new landlord bought the building, the DHCR hadn't made a final ruling. Since the DHCR's ruling wasn't final, the DRA's order couldn't be considered a rent history that the judicial sale purchaser was aware of before the sale. And under the rent stabilization code, a judicial sale purchaser wasn't responsible for overcharges it didn't collect. Tenant appealed, claiming that the DHCR's decision was arbitrary and unreasonable. Court: Tenant wins. New landlord knew about the DRA's order before buying the building. This order was based on leases produced by prior landlord. It was reasonable to conclude that the DRA's order, which new landlord knew about before buying the building, gave new landlord sufficient information about rent history to make him responsible for the rent overcharge. The court sent the case back to the DHCR to examine the facts and determine what new landlord actually knew about the rent overcharge before he bought the building.

Cooke v. DHCR: NYLJ, p. 26, col. 3 (2/3/99) (Sup. Ct. NY; Lehner, J)