Landlord Applied Temporary Exemption Rule in Effect When Tenant Moved In

Rent-stabilized tenant complained of rent overcharge. The DRA ruled for tenant and ordered landlord to refund $18,697, including interest. Landlord and tenant both appealed. The DHCR ruled against landlord, who claimed there was no overcharge, and against tenant, who sought triple damages. Landlord then filed an Article 78 court appeal, claiming that the DHCR's decision was arbitrary and unreasonable. Landlord, tenant, and the DHCR agreed that the DHCR would take the case back for reconsideration.

The DHCR then ruled for landlord. Tenant filed his rent overcharge complaint on Dec. 5, 2014. On the base rent date of Dec. 5, 2010, the apartment was temporarily exempt from rent stabilization because the building super lived in the apartment from 2008 to 2013 without paying rent. The super died subsequently, and tenant moved in on April 1, 2013. Landlord charged tenant $2,000 per month in accordance with former Rent Stabilization Code (RSC) Section 2526.1(a)(3)(iii), which permitted landlord to set a market rent if the apartment was vacant or temporarily exempt from rent stabilization on the base date. RSC Section 2526.1(a)(3)(iii) was amended on Jan. 8, 2014, to provide that landlords couldn't charge a market rent under these circumstances but must add appropriate rent increases to the last legal regulated rent before temporary exemption to determine the legal rent for a new tenant. Since the overcharge resulted from a change in the law, it wasn't willful and triple damages didn't apply. The amended RSC section was in effect on Feb. 9, 2017, when the DRA decided tenant's overcharge complaint and therefore was applied even though landlord had complied with the rule in effect at the time when it rented the apartment to tenant.

The DHCR now found that retroactive application of the amended RSC provision wasn't appropriate under the facts and circumstances of this case. There was no landlord fraud and no attempt to deregulate the apartment. The rent charged to tenant was below the deregulation threshold. 

Santino/Bai: DHCR Adm. Rev. Docket No. GR210001RP (10/17/18) [4-pg. doc.]