Landlord Responsible for Tenant's Overcharge of Subtenant

A subtenant filed a rent overcharge complaint against rent-stabilized tenant for rent overcharge. The DRA ruled for subtenant and ordered the tenant to refund $54,000. The DRA found that landlord wasn't responsible for the overcharge. Subtenant appealed, claiming that landlord also was responsible. The DHCR ruled against subtenant, who then filed an Article 78 court appeal of the DHCR's order.

The court ruled for subtenant and sent the case back to the DHCR for reconsideration. The DRA then ruled that landlord was responsible for an illusory tenancy because it had "constructive knowledge" of the situation. The overcharges were updated and, with triple damages and interest, were $70,045.

Landlord appealed and lost. Landlord claimed that it knew nothing about the illegal sublet and overcharge. But, under Primrose Mgt. Co. v. Donahoe, an appeals court case, there is no requirement that there be proof of collusion on the part of the landlord before an illusory tenancy will be found. And landlord did have constructive knowledge, the tenant moved out in 2006, and the subtenant then openly resided in the unit for about six years before filing her complaint. The Rent Stabilization Code also states that legal regulated rents and other requirements "shall not be evaded, either directly or indirectly, in connection with the renting or leasing or the transfer of a lease for housing accommodations." The DHCR may consider that the landlord was aware or should have known the nature of the tenant's activities in order to find an illusory tenancy. 

Stahl York Avenue Co., LLC: DHCR Adm. Rev. Docket No. KM410009RO (10/12/22)[5-pg. document]