Improper Deregulation and Rent Overcharge Not Based on Fraud

Tenant complained to the DHCR of rent overcharge. Landlord claimed that tenant was no longer rent stabilized because the building's J-51 tax benefits had expired in 1996. The DHCR ruled for tenant, after looking back more than four years and finding that not all of tenant's renewal leases contained a J-51 rider notifying tenant that the apartment would be deregulated when J-51 benefits expired. So the apartment remained rent stabilized, and the DHCR found an overcharge. Landlord filed an Article 78 court appeal of DHCR's decision.

The court ruled against landlord. Tenant also filed an Article 78 appeal, claiming that the DHCR used an improper base date to determine the rent overcharge due to fraud by the landlord, and failed to impose triple damages. The court ruled for tenant and sent the case back to DHCR for recalculation.

Landlord appealed the court decision and won, in part. The DHCR rationally found that landlord's failure to prove that J-51 riders were included in all of tenant's renewal leases showed that the apartment wasn't properly deregulated. But the DHCR also rationally found that this didn't prove a fraudulent scheme by landlord to deregulate the apartment. The fact that landlord filed an erroneous exit registration on the ground of high-rent vacancy didn't compel a finding of fraud. There could have been no reasonable reliance by tenant on the erroneous registration since there was no apartment vacancy. The DHCR also properly declined to impose triple damages. The overcharge calculations were otherwise rational.

Kostic v. DHCR: 2020 NY Slip Op 06856, App. No. 12429, Index No. 2019-00366 (App. Div. 1 Dept.; 11/19/20; Gische, JP, Mazzarelli, Moulton, Mendez, JJ)