Facts: Rent-stabilized tenant complained of a rent overcharge. She moved into the apartment in 2005 at a monthly rent of $1,450. This was the same rent charged to prior tenants when they moved into the apartment in 2000. But tenant learned that until 1999, the apartment's rent was $588. And landlord had failed to register the apartment between 2001 and 2005. Tenant claimed fraud. She said that prior tenants were initially told that the rent would be $2,000 per month, but landlord reduced it to $1,450 on condition that tenants make repairs and paint. She also claimed that there was a relationship between prior and current landlords.
The DHCR ruled against tenant. Applying the four-year rule, the agency found no overcharge. Tenant then filed a court petition, claiming that the DHCR's decision was arbitrary and unreasonable. The court ruled for tenant and said that the DHCR should investigate tenant's fraud claim. The DHCR and landlord then appealed and lost. The appeals court found that where tenant claims fraud, the DHCR can investigate beyond the four-year period before tenant's complaint was filed, and the four-year rule is void. In addition, if there was fraud in setting the rent, tenant's rent should be set at the lowest amount charged for a rent-stabilized apartment with the same number of rooms. The DHCR and landlord then appealed to New York's highest court.
Court: The DHCR and landlord lose. If a rent overcharge complaint alleges fraud by the landlord, the DHCR has an obligation to determine whether the base date rent is lawful. The DHCR failed to meet that burden in this case, as there were substantial indications of fraud. The DHCR can examine the prior rental history for the limited purpose of determining whether a fraudulent scheme to destabilize the apartment tainted the reliability of the rent on the base date.
Grimm v. DHCR: NYLJ, 10/20/10, p. 26, col. 4 (Ct. App.; Ciparick, J, Lippman, CJ, Pigott, Jones, JJ; Smith, Graffeo, Read, JJ [dissenting])
