No Fraud Found Although Apartment Improperly Deregulated

Rent-stabilized tenant complained of rent overcharge. The DRA ruled against tenant, finding no overcharge. Landlord and tenant both appealed and lost. Landlord claimed that the base date rent relied upon by the DRA was a preferential rent, not the higher legal regulated rent. But the lease in effect on the base rent date didn’t refer to any higher legal rent. So landlord failed to preserve the higher rent and the DRA correctly cited the collected rent as the base date rent. Landlord argued that it incorrectly believed that the apartment had been deregulated and therefore mistakenly failed to preserve the higher legal regulated rent in tenant’s base date lease. But that mistake was based on landlord’s course of action and couldn’t be fixed retroactively. Tenant claimed that the DRA should go back more than four years to examine the rent history because landlord committed fraud. But there was no apparent fraudulent scheme since there was a single instance of overcharging. Although the DHCR has ruled that the first rent-stabilized rent after rent control can’t be a preferential rent, a landlord in 2002 could reasonably have believed that since the Rent Stabilization Code permits landlords to charge the first rent-stabilized tenant a freely negotiated rent, that negotiated rent can be a dual rent. This error didn’t constitute fraud, make the base date rent unreliable, or require use of a default formula to set the rent.

Sunnyside 47-21 LLC/Mason: DHCR Adm. Rev. Docket Nos. DV110028RO, DV110044RT (4/20/16) [4-pg. doc.]