Landlord Can Amend Answer to Overcharge Claim

Tenant sued landlord in 2018, claiming that he was rent stabilized, that landlord falsely represented to him that his apartment was deregulated, that he had been overcharged, and that landlord engaged in an unlawful scheme to hide the apartment's rent-stabilized status. In 2024, landlord asked the court for permission to amend its answer, to add a defense that tenant's claim for damages should be barred or offset and reduced to the extent that tenant profited by subletting the apartment. The court ruled against landlord, finding that nothing in the lease governed the amount of sub-rent tenant may be charged or landlord's entitlement to any part of the sub-rent.

Landlord appealed that portion of the order that denied its request to file an amended answer, and the appeals court ruled for landlord. Motions for leave to amend a pleading should be freely granted, absent prejudice or surprise to the other side or if the proposed amendment is clearly insufficient or devoid of merit. Landlord's request to amend should have been granted as it sought an offset of damages for any rent overcharges on a rent-stabilized apartment obtained by tenant during a sublet of the apartment. The lower court incorrectly stated that a tenant may sublet a rent-stabilized unit at whatever price the market will bear. Instead, a rent-stabilized tenant may sublet a unit for no more than the legal regulated rent, plus a 10 percent surcharge for fully furnished units. And a violation of the RSC, to the extent it can be interpreted as a breach of an implied covenant under the lease, could justify an offset of tenant's claimed damages.

Badesch v. Fort 710 Assoc., LP: Index No. 160639/18, App. No. 3363, Case No. 2024-02174 (App. Div. 1 Dept.; 12/31/24; Renwick, PJ, GOnzalez, Rodriguez, Higgitt, Rosado, JJ)