No Fraud Found in Connection with Rent Overcharge

Tenant complained of rent overcharge and improper deregulation of her apartment. The DHCR ruled for tenant in 2017 because the apartment had been vacancy-deregulated incorrectly while the building received J-51 tax benefits, and set forth a calculation method for rent overcharges. Tenant then filed an Article 78 court appeal, claiming that there was a fraudulent scheme to deregulate the apartment that required further rent history review. The court found no fraud but granted the DHCR's request to send the case back for recalculation of rent overcharges.

Tenant appealed and lost. The DHCR's ruling wasn't arbitrary or unreasonable. And there was no fraudulent scheme in this case that tainted the reliability of the rent on the base date. Tenant's apartment would've been deregulated by operation of law, but for prior landlord's failure to provide notice in all renewal leases that its J-51 benefits were set to expire. The lower court properly sent the case back to the DHCR for recalculation of rent. The reconstruction method the DHCR had applied violated pre-HSTPA law by requiring review of rent history outside the four-year lookback period in the absence of fraud. Instead, for overcharge calculation purposes, the base date rent is the rent actually charged on the base date four years prior to the filing of the overcharge claim, and overcharges must be calculated by adding the rent increases legally available to landlord under the Rent Stabilization Law in effect at the time. 

Kreloff v. DHCR: Index No. 160327/17, App. No. 2019-4746, 2021 NY Slip Op 00999 (App. Div. 1 Dept.; 2/16/21; Manzanet-Daniels, JP, Webber, Oing, Kennedy, JJ)