Four-Year Rule Didn't Apply Due to Landlord's Fraud

Tenant moved into a rent-stabilized apartment in November 2003 at a rent of $1,800 per month. In December 2003, landlord registered the apartment with the DHCR, stating that a prior tenant paid $1,000 per month. The apartment also was registered for a previous tenant at $475 per month. Landlord sued to evict tenant for nonpayment in 2009. Tenant claimed harassment, breach of the warranty of habitability, and rent overcharge. In that case, the court found that landlord had fraudulently registered prior tenant, who didn't exist, and claimed nonexistent improvements to the apartment to inflate the rent. The court also found that the base rent was affected by the fraud. But because tenant didn't prove the amount of the legal regulated rent, the overcharge claim was dismissed without prejudice.  

Tenant then sued landlord for rent overcharge and sought triple damages and attorney's fees. Tenant also claimed that the corporate landlord abused the corporate form by intermingling assets and asked the court to pierce the corporate veil. The court ruled for tenant without a trial. Landlord appealed and lost. Since a court had already ruled that there was fraud, landlord couldn't now claim that there was none. Because there was fraud, the four-year rule didn't apply to tenant's new overcharge claim. And there was proof that landlord intermingled his corporate funds with personal funds. Landlord also failed to prove that the overcharge wasn't willful, so the court properly awarded triple damages.

Landlord then appealed to New York's highest court, which found that the lower court incorrectly pierced landlord's corporate veil without a trial. There were questions of fact concerning whether landlord's principal abused the corporate form to commit a wrong or fraud causing injury to tenants by falsely registering the apartment under the name of a fictitious prior tenant. The case was sent back for trial on this issue. But the court upheld the lower court's consideration of tenants' rent overcharge claim after four years because tenants alleged substantial evidence of fraud by landlord in setting an illegal rent in connection with a strategy to remove tenants' apartment from rent stabilization. Notably, one judge dissented and argued that CPLR 213-a precludes an action in a residential rent overcharge claim commenced more than four years after the first alleged overcharge.

Conason v. Megan Holding LLC: 2015 NY Slip Op 01553, 2015 WL 750988 (Ct. App.; 2/24/15; Read, , Lippman, Rivera, Abdus-Salaam, Pigott [dissenting], JJ)