Fraudulent Scheme to Deregulate Includes Inflation of Rents Leading to Future Deregulation

Building tenants sued landlord for rent overcharges and engaging in a fraudulent scheme to deregulate various apartments. Among other things, tenants asked the court to rule on several key elements of their claims without trial. The court ruled for tenants in part.  Evidence established that landlord engaged in a fraudulent scheme to deregulate or inflate the rents of three apartments. This caused the rents of these units on the May 17, 2015, base date to be unreliable. To the extent tenants must show that landlord engaged in a fraudulent deregulation scheme, as opposed to other fraudulent conduct, a fraudulent scheme to inflate rents so they rise above the deregulation threshold, or they rise close enough to the threshold to surpass it upon the next vacancy or RGBO increase, is a fraudulent scheme.

However, because New York's highest court has forbidden the "reconstruction method" in connection with pre-HSTPA rent overcharge claims, the court found that it couldn't award reimbursement of overcharges for two of the apartments employing that method. Therefore, it would be pointless to declare the legal regulated rents on which such an award would be based. For another apartment, where landlord did unlawfully deregulate the unit, the court set the apartment's base date legal regulated rent using the "default formula."  Additional issues concerning the various rent overcharge claims required a trial.

Reichenbach v. Jacin Invs. Corp., N.V.: Index No. 155013/2019, 2023 NY Slip Op 33309(U)(Sup. Ct. NY; 9/20/23; Billings, J)