Landlords' Challenge to 2014 Rent Stabilization Code Amendments Concerning Four-Year Rule Denied

Landlords and real estate organizations sued the DHCR to challenge the DHCR's adoption of 2014 amendments to the Rent Stabilization Code (2014 Amendments) as unconstitutional. Among other things, landlords sought to stop the DHCR from enforcing the 2014 Amendments concerning the "four-year rule," which is both a four-year statute of limitations on rent overcharge claims and a rule that generally bars consideration of an apartment's rent history more than four years prior to the commencement of a rent overcharge proceeding.

The court found that the 2014 Amendments didn't change the four-year statute of limitations. In addition, amended RSC Sections 2526.1(a)(2)(viii), 2521.2(c), and 2526.1(a)(2)(ix), which allow the DHCR to review more than four years of rent records when landlord claims that there was a preferential rent or where an apartment was vacant or temporarily exempt on the base rent date, were authorized by the Rent Act of 2011, which expressly authorized the DHCR to issue regulations under the Rent Stabilization Law. The court also found that the 2014 Amendments were consistent with case law that created exceptions to the four-year rule. The preferential rent exception was issued for the purposes of establishing the existence or terms and conditions of a preferential rent. And the four-year rule didn't apply to determine whether an apartment was rent regulated. Amended RSC Section 2526.1(a)(2)(iv) also codified existing case law triggered if a landlord set rent as part of a fraudulent scheme.

The court also upheld the 2014 Amendments concerning requirements for the rent stabilization lease rider, the effect of hazardous violations on MCI rent increase applications, the elimination of a requirement that tenants provide notice to landlords of service reductions before filing service complaints, and barring collection of MCI or vacancy rent increases where a rent reduction order is in effect. The court also found that codification of the default formula in RSC Sections 2522.6(b)(2) and (3) didn't violate the separation of powers doctrine since the default formula wasn't new and New York's highest court had approved the use of the DHCR's default formula.

Landlords also challenged new RSC Section 2528.3(c), which required landlords to apply to amend apartment rent registrations filed for a prior year, and RSC Section 2528.4(a), which barred certain rent increases when landlords failed to register an apartment. But there was no law entitling landlords to amend prior registrations as of right and it was consistent with the law to prevent landlords from filing annual amended registrations to rewrite rental history. The court also found that the DHCR substantially complied with the State Administrative Procedure Act (SAPA) in issuing the 2014 Amendments. [Download PDF of case here.]

Portofino Realty Corp. v. DHCR: Index No. 501554/14 (Sup. Ct. Kings; 5/31/17; Velasquez, J) [44-pg. doc.]