No Rent Fraud Found Where Landlord Believed Apartment Had Been Deregulated

Tenant complained to the DHCR of improper deregulation of his apartment and rent overcharge. The DRA ruled for tenant and directed landlord to refund $258. Tenant appealed and lost.

Tenant then filed an Article 78 court appeal, claiming that the DHCR's decision was arbitrary and unreasonable. The court sent the case back to the DHCR for further consideration. The DRA then ruled that: (1) the apartment was vacant on the four-year base date in 2009; (2) the next rent of $1,225 was the legal regulated rent; (3) this rent wasn't subject to challenge; (4) there was no proof of a fraudulent scheme to deregulate the apartment; (5) landlord permanently waived subsequent MCI rent increases; and (6) the total rent overcharge was $685. 

Tenant filed another PAR against the DRA's new order, again claiming that there was rent fraud. The DHCR again ruled against tenant, finding no fraud. The DRA had looked at pre-base date rent records back to 2004. Landlord, who bought the building in 2006, could've had a reasonable belief that a prior tenant's rent was $909 because the prior owner collected this amount after that tenant failed to recertify her income in the HUD-regulated building. Landlord also submitted some proof of individual apartment improvements (IAIs) performed in 2006. Landlord had some reasonable belief that this led to the resulting rent increase and apartment deregulation. The IAI documentation was nearly 18 years old and need not meet the same standard of proof as documents that were generated within the statutory four-year review period. Landlord also reasonably believed that the apartment was vacancy deregulated in 2006 before landlord obtained J-51 tax benefits in light of the DHCR's policy at that time. 

Kovacs: DHCR Adm. Rev. Docket No. LS610011RT (4/12/24)[7-pg. document]