Landlord Didn't Preserve Legal Regulated Rent

Tenant complained of rent overcharge and improper deregulation of a rent-stabilized apartment while the building received J-51 tax benefits. Landlord argued there was no overcharge because tenant paid a preferential rent less than the legal regulated rent. The DHCR ruled for tenant and denied landlord's PAR. Landlord then filed an Article 78 court appeal, claiming that the DHCR's decision was arbitrary and unreasonable.

The court ruled against landlord, finding that the DHCR reasonably interpreted the law. The DHCR found that,  both in tenant's leases and in rent registrations for 2008 and 2009, landlord listed the apartment's preferential rent but not the higher legal regulated rent. Therefore, landlord failed to preserve the legal regulated rent and the preferential rent charged on the base date became the legal rent at that time. On appeal, landlord argued that the DHCR improperly considered pre-base date leases when there was no finding of fraud. But the DHCR relied on Rent Stabilization Code (RSC) Sections 2526.1(a)(2)(viii), 2521.2(b), and 2521.2(c), which permitted looking back more than four years to review preferential rents and which required landlord to maintain rent history records preceding a preferential rent in order to prove that rent. These RSC provisions weren't limited to instances where fraud was claimed. It also didn't matter that RSC Section 2521 was amended in 2014, after landlord issued the leases and rent registrations in question, since RSC Section 2527.7 states that, absent undue hardship or prejudice, amended code provisions would be applied to a pending case before the DHCR. 

West 147 & 150 LLC v. DHCR: 2019 NY Slip Op 33396(U), Index No. 101612/17 (Sup. Ct. NY; 11/12/19; Hagler, J)