No Fraud by Landlord Who Deregulated J-51 Unit During Post-Roberts Confusion

Tenant complained of rent overcharge. The DRA ruled for tenant and ordered landlord to refund $1,590, including interest. The DRA found that the apartment had been lawfully deregulated in 1997 due to high-rent vacancy. But landlord started receiving J-51 tax benefits in 2003, which made the apartment subject to rent stabilization again. The DRA found that the tenant was regulated when she moved in on June 1, 2011, the four-year base rent date for the complaint was Dec. 27, 2012, the base rent was $3,775 per month, and there was no fraud involved.

Tenant appealed and lost. Tenant claimed that landlord engaged in a fraudulent scheme to deregulate the apartment. But the DHCR found that the apartment was lawfully deregulated before the J-51 benefits applied. The fact that landlord continued to treat the unit as deregulated both prior to the Roberts decision in 2010 and after the base rent date of this case didn't, alone, prove landlord fraud. Before the Court of Appeals decision in Roberts, it was DHCR position and policy to allow vacancy and luxury deregulation of apartments that were in buildings receiving J-51 benefits. And the DHCR didn't promulgate post-Roberts policies prohibiting such deregulation and instructing landlords on how to register apartments until years after the Roberts decision and years after the base rent date in this case. So landlord's treatment of the apartment as deregulated up until and after the base date wasn't proof of fraud.

Also, under the 2020 Court of Appeals decision in Regina Metro Co. v. DHCR, the base date rent in cases like this one, absent fraud, is the rent charged and paid on the base date. The DRA therefore correctly set the base date rent in this case. Landlord's failure to register the apartment as rent stabilized for several years, until 2017, reflected landlord's belief that the apartment wasn't regulated and didn't prove fraud. There was understandable confusion regarding the correct application of the Rent Stabilization Law among landlords and tenants concerning the right or non-right of landlords to deregulate apartments in J-51 buildings both before and after issuance of the Roberts decision.

Burstein: DHCR Adm. Rev. Docket No. IS410079RK (6/7/21)[6-pg. document]