Landlord Must Refund $285,000 for Improperly Deregulated Apartment

Tenants complained of rent overcharge and improper deregulation of their apartment in 2003. The DRA ruled for tenants and ordered landlord to refund $285,000, including interest. Landlord and tenants both appealed and lost.

Tenants’ PAR objected to the formula used by the DRA to set the rent and argued that landlord’s late apartment registrations shouldn’t permit collection of retroactive rent increases. Tenants also sought attorney’s fees and claimed that the overcharge was willful.

Landlord’s PAR argued that while the base rent date was Nov. 2, 2005, the overcharge calculation was based incorrectly on a pre-base date rent in effect in May 2003. Landlord also sought to present proof of individual apartment improvements (IAIs), claiming that it didn’t have the opportunity to do so before the DRA.

The DHCR found that the default formulas used in cases of landlord fraud didn’t apply here. The overcharge was the result of landlord’s mistaken assumption before the ruling in the Roberts case that the apartment was deregulated while receiving J-51 benefits. There was no fraudulent scheme to deregulate the apartment. The Lucas case, which held that the base date rent may not be relied on when there is an improper deregulation of the apartment, was properly applied here. The DRA properly increased the last legal regulated rent prior to the erroneous deregulation of the apartment in 2003 by vacancy rent increases, longevity rent increases, and MCI rent increases to arrive at the base date rent in this case. The DHCR wouldn’t consider landlord’s proof of IAIs on appeal because the DRA did ask landlord to submit proof of IAIs and landlord didn’t respond. The overcharge wasn’t willful given the confusion surrounding whether apartments in J-51 buildings were subject to high-rent deregulation. The DHCR also denied attorney’s fees to tenants since they started the case without an attorney and the result would have been the same even if they didn’t later retain counsel.

Carr/Levy/Regina Metropolitan Co. LLC: DHCR Adm. Rev. Docket Nos. CO410027RT, CO410038RO (5/13/15) [18-pg. doc.]