Landlord's Fraud Results in $332,000 Overcharge

Tenant complained of rent overcharge. The DHCR found that the base date rent was $2,322 per month and refused to review rent history documents pre-dating the four-year base date. Tenant filed an Article 78 court appeal. The case was sent back to the DHCR, and the agency denied tenant's PAR. Tenant then filed another Article 78 appeal based on the ruling of New York's highest court in Grimm v. DHCR. The court ruled for tenant and sent the case back to the DHCR to determine whether tenant's claim of fraud by the landlord warranted the use of the agency's default formula in calculating any rent overcharge. If so, the DHCR was directed to apply the default formula.

The DHCR ruled for tenant. Factors like those found in the Grimm case were found here. First, tenant's initial vacancy lease violated the Rent Stabilization Law and Code because it forced tenant to illegally and falsely declare that he wasn't using the apartment as his primary residence when he was in fact doing so and landlord knew it. This interfered with tenant's right to challenge the initial vacancy rent.  

Second, landlord charged tenant $1,947 per month under his vacancy lease, and tenant's lease falsely stated that the apartment was exempt from rent stabilization as a nonprimary residence and the rent couldn't be challenged. This showed a fraudulent scheme to remove the apartment from rent stabilization.

Third, landlord continued to register the apartment as rent stabilized, so the registration history was inconsistent with the lease history.

Fourth, landlord can't require tenant to agree not to use an apartment as his primary residence. Such an agreement is void as against public policy. Based on these factors, the DHCR ruled that the default formula must be used to set tenant's legal rent.  But, since landlord bought the building from prior landlord without involvement in prior landlord's scheme, no willful overcharge was found. The total overcharge, with interest, was $332,730. 

Pehrson: DHCR Adm. Rev. Docket No. AT410004RP (5/5/14) [11-pg. doc.]